Welcome, everyone! Welcome to the 54th episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Greg Friedman. Greg is the co-founder of Private Ocean, an independent RIA in northern California that manages nearly $1.2B of assets under management for 450 households, with a combination of both investment management and financial planning services.
What’s unique about Greg, though, is that in addition to leading a billion-dollar advisory firm that he founded over 25 years ago, he also developed his own CRM system to better manage all the workflows for his financial planning clients… which he eventually made available to other advisory firms as well, in the form of the software we now know as Junxure CRM.
In this episode, Greg talks about how Private Ocean got its initial traction with a niche Center of Influence in the California Tire Dealers Association – just to emphasize that any niche can work when you build connections to the key Centers of Influence! – how the firm is structured today with lead and associate advisors, how compensation is set for the firm’s lead advisors to keep them from focusing too much on investments alone, and why Private Ocean has decided to charge only AUM fees despite having such a deep focus on its financial planning work with clients.
In addition, we talk in depth about the real-world challenges that cropped up when Greg decided to merge his successful advisory firm with a larger one 7 years ago, to become the successor CEO of the combined organization when the other firm’s founder retired, how Greg is able to manage his software company along with his advisory firm and how he handles his time, the guiding philosophy that he uses to stay focused across all of his businesses, and why Greg thinks it’s so crucial to have an Executive Coach.
And be certain to listen to the end, where we include a small additional “bonus” interview – because ironically, in the short time between when we originally recorded this podcast, and when it went live, Greg actually sold Junxure to AdvisorEngine. So we gather some of his thoughts about what makes you want to sell a company you built. Especially when you’re not ready to retire yet.
So whether you have been curious about how to build your business by leveraging a niche, the unique opportunities for advisory firms that develop and eventually sell their own software, or curious about the real world challenges that come with merging a successful advisory firm into a larger one, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- The reason Private Ocean charges only AUM fees. [4:54]
- How the company structures their compensation and incentives. [15:45]
- The technology Private Ocean uses to deliver their financial planning service work. [31:57]
- How Greg got into the advisor FinTech business. [54:00]
- Why Greg thinks it’s so crucial to have an executive coach. [59:01]
- Why you should ask any CRM provider how to track RMDs in their system. [1:10:45]
- What types of challenges inevitably come up during mergers. [1:17:36]
- The reason even Greg’s best clients stopped referring him after the merger. [1:21:13]
- What Greg would do differently if he knew referrals would slower after his merger. [1:22:06]
- Advice for new advisors to gain traction when they’re just starting out. [1:37:04]
- Tips for advisors who are interested in developing technology solutions. [1:45:40]
- What led to the sale of Junxure to AdvisorEngine. [1:49:57]
Resources Featured In This Episode:
- Greg Friedman – Private Ocean
- Sharon Hoover – Coaching Works
- Mary O’Connor – Company Retreats & Facilitation
- Advisory Leadership by Greg Friedman
- Master’s in Financial Planning from Golden Gate University
- NEV article on AdvisorEngine buying Junxure
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Full Transcript: Lessons Of An Advisory Firm Merger And Launching Your Own Advisor FinTech Company with Greg Friedmanian
Michael: Welcome, everyone. Welcome to the 54th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Greg Friedman. Greg is the co-founder of Private Ocean, an independent RIA in Northern California that manages nearly $1.2 billion of assets under management for 450 households with a combination of both investment management and financial planning services. What’s unique about Greg, though, is that in addition to leading a $1 billion advisory firm he founded over 25 years ago, he also developed his own CRM system to better manage all the workflows for his financial planning clients, which he eventually made available to other advisory firms as well in the form of the software that we now know as Junxure CRM.
In this episode, Greg talks about how Private Ocean got its initial traction with a niche center of influence with the California Tire Dealers Association. Just to emphasize that any niche can work when you build connections to the key centers of influence. How the firm is structured today with leading advisor associates, the way that compensation is set for the firm’s lead advisors, and why Private Ocean has decided to charge only AUM fees despite having such a deep focus on its financial planning work with clients.
In addition, we talk in depth about the real-world challenges that cropped up when Greg decided to merge his successful advisory firm with a larger one seven years ago, to become the successor CEO of the combined organization when the other firm’s founder retired. How Greg today is able to manage a software company along with his advisory firm and how he handles his time, the guiding philosophy that he uses to stay focused across all of his businesses, and why Greg thinks it’s so crucial to have an executive coach.
And be certain to listen to the end, where we include a small bonus interview because ironically, in the short time between when we originally recorded this podcast and went live, it was announced that Greg had actually sold Junxure to AdvisorEngine. So we gather some of his thoughts about what makes you want to sell a company you built, especially when you’re not actually ready to retire.
And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Greg Friedman.
Welcome, Greg Friedman, to the Financial Advisor Success podcast.
Greg: Thank you for having me, Michael. Glad to be here.
Michael: I’m really excited to have you on the podcast today because, you know, you are a part of what I call a special elite club of financial advisors. Those who have been an advisor and founded a tech company that serves advisors. Because you not only have a $1 billion advisory firm, which we’ll talk about during the podcast today, but you’re the founder of Junxure, one of the leading CRMs for financial advisors. And there aren’t very many advisors who’ve managed to, well, frankly even do one of those…or not to mention doing both and sustainably. I mean, I think one of the most fascinating things to me about what you built is you’re still involved in both companies 15, 20-plus years later. And…
Greg: Yes, yes.
Michael: …you know, that I know is a trial unto itself to figure out how to manage that balance. So I’m just…I’m really excited to have you on the podcast and talk about, you know, advisory firm growth to $1 billion, launching a tech company for advisors, actually figuring out how to do both at the same time. This should be an interesting discussion.
Greg: Well, yeah. And to be fair, just a great place to start is I did not set out to do this. So 25, 30 years ago, I didn’t say, “Boy, when I’m 56 years old, I’m going to be, you know, CEO and principal of these two, you know, growing, successful, very different firms.” So just to put it out there. And we’ll explore that a little bit.
Michael: You know, you don’t think of yourself as like you were just a hardwired entrepreneur. Just the only question was what business you were going to build, but you were setting out to build a business from day one. That’s not quite your style?
Greg: Well, no. Actually, I’m definitely hardwired to be an entrepreneur. And early in my, well actually mid-20s was when I really landed on and got excited about wealth management. It’s my passion. You know, financial planning. Doing what we do for clients is, you know, that’s still really a huge driver and motivator for me. And so that…you know, that’s where I dove in and that’s where I took off. I mean, if you want to talk about where software jumped in, I’m happy to go there.
Why Private Ocean Charges Only AUM Fees [4:54]
Michael: Yeah. Well, as a starting point, why don’t you just give us a little bit of context around the advisory firm? So you’re co-founder and CEO of Private Ocean, independent RIA in California. So can you talk to us a little bit about just what is Private Ocean? What do you do? Who do you do it for? What does that business look like?
Greg: Sure. So we are definitely a, you know, I like to say a high-end boutique wealth management firm. Private Ocean today is about $1.2 billion. We’ve got 27, I believe, full-time employees, 7 advisors in total. You know, we definitely are the comprehensive financial planning, comprehensive wealth management model. So again, you know, it’s not…we start with financial planning, you know, investments we get to, but it’s definitely the full-service model.
Michael: So what does this look like from the business model end? Like, are you a firm that ultimately charges for assets under management and includes the planning with what you do? Are you a retainer-style firm? Do you do a blend?
Greg: Yeah. You know, we’ve been through a lot of evolution. Well, I used to do upfront financial planning fees and then AUM for the ongoing. And then, you know, we have to sort of…we’re in San Francisco, we’re in the Bay Area, so competitively, you know, the market sort of has some impact on us. So where we are today is we’re 100% AUM-based fees. I say that with the full openness and acknowledgment that all of that is constantly under review of whether we might go to retainer, whether we…you know, that whole thing. But today as we sit, it’s AUM-based, and that’s where our revenue comes from.
Michael: That’s an interesting shift, though, and to talk about in the competitive context. So can you talk a little bit more about that? Like…
Michael: …what was the problem with doing upfront planning fees? It just came down to, you know, they talked to three good firms in the Bay Area and you guys had an upfront and everybody else didn’t, and that just felt awkward?
Greg: Well, none of our competitors do. And so if you’re talking to someone who, you know, is just a fantastic prospect from a planning and AUM and growth perspective and is a great fit, they’re suddenly looking at, you know, three very…almost similar-looking firms. We’ve got our differentiators that we think and, you know, they have theirs. And what ended up happening was it was consistently, even though it wasn’t very much, we would charge $5,000 and $10,000 for an upfront fee. It became this sort of delta that constantly my advisors or somebody was having to address. And then when we looked at it, we were like, “Well, we’re not doing huge volume. We’re not taking 100 clients in a year. That’s not our goal either.” So then it’s like, “Well, so for $50,000 a year,” let’s say.
Michael: Right. Like 10 new clients paying $5 grand each.
Greg: Yeah, or 20 new clients, $100 grand. “Do we really want to have this sort of a little bit of a barrier here?” Didn’t seem to make a lot of sense. If we were going to go to something different, we would need to go to something different, but the upfront fee like that was just sort of…you know, if everybody else was doing it, we would have been great. So I was just trying to remove the barrier because it wasn’t really contributing meaningfully to anything.
Michael: Well, and I think it’s an interesting dynamic. You know, there’s a lot of firms that talk about the importance of charging upfront for planning. And certainly, there’s some virtues to that. But you do get just this fundamental challenge that you’re introducing another barrier, another decision point for a client. And, you know, particularly if you’re working with reasonably affluent folks. You know, I mean, if your average client is going to have even hundreds of thousands of dollars, never mind $1 million or a few dollars with you, you just get to the point where it’s like, “Okay, a $1 million client with a 97% retention rate is going to cumulatively pay me $100,000 or $200,000 or $300,000 of advisory fees over the next 30 years, why do I have to get the other $5 grand up front?”
Greg: Yep. Yes, that’s exactly right. That was part of the analysis. And the other part of it was also I think goes to some of the issues in our industry that we’re always talking about. I’m a founder generation guy. I’m a guy who walked out, set up a shingle, got my education, started knocking on doors. You know, I remember prospecting. Literally going to business parks and things like that. And, you know, I had to learn pretty good that horrible word that we all run from, sales skills. I mean, I had to learn how to convince people to pay me and work for things, and all that. Well, okay, great.
So then I start building a firm and I start hiring people to support me. And they’re talented, and they’re smart, and they’re educated. And honestly, they’re not the best salespeople closing those kinds of things. And that’s not a judgment. Well, maybe it is. It’s not to be negative, it’s just a thing. So now you have this firm that you’re asking those people to generate business as they can, and it’s a different animal. So that was also a part of the calculus too because it was hard for people, you know, to adding another barrier, to getting new clients wasn’t helpful, so.
Michael: Well, I’ve felt like there’s this underappreciated challenge that’s out there right now that I see particularly in large advisory firms, large BD practices and large independent RIAs. Once you get north of like $1 billion under management, you know, the standard formula in the ’90s and 2000s, if you wanted to get to $1 billion firm was basically be great at business development, bring in clients, train advisors to serve the clients so that you can hand the clients off, so that you can free up your capacity to go get more new clients.
And if you were good at that or had a couple of co-founders and partners with you that were good at that, like, you could power your way over 20-plus years to a $1 billion firm just 1 client at a time, 1 after another that you brought in and handed off and brought in and handed off. And, you know, because you don’t want to bring them in and then have them leak out of the back end, you would hire, you know, just the best darn service-oriented advisors that you could find, right? The ones that would be great at follow-through and communicating with clients and doing all the technical stuff that demonstrates value. And it was a great model and built a lot of great firms, with a caveat that then you get like 15 or 20 years down the road and you look back and say, “We have a fantastic group of financial advisors and none of them can bring in new business.” Because the founders did it all for 20 years, which was great for the building process but then suddenly it creates challenges.
Greg: Yep, yeah. That’s exactly right.
Michael: So how do you deal with kind of the classic fear that if all you charge is an AUM fee, your clients are only going to value you for your investment management services? You know, you’ve said you’re a planning-centric, planning first firm that charges 100% on AUM.
Greg: Yes, it’s a great question. And I, to this day, I’m going to tell you what we do, but up to this day, it’s something we continue to stress about and try to continue to help people see us as more, right? So number one, it’s all in the communication to clients. So if what you’re communicating is, “Here’s our market analysis, here’s your performance analysis,” if every interaction is, “How do you feel about the markets and performance,” then, of course, you’re just validating what they already are predisposed to think of you. So we’re really intentional that probably 80% of our communication, and we’re very intentional. We literally have communication plans and we think about quarterly and monthly and all this kind of stuff. But something like 75% to 80% is intentionally not market, investment, performance-related.
So it might be financial planning topics, it might be health topics, it might be long-term care issues, elder care issues, liability, insurance, risk management, right? All these other things. Even about quality of life. I mean, we do quality…not quality. Well, they’re quality, but we do events that are specifically not investment-related. You know, so for example, in our neighborhood, in our area, there’s a thing called the Buck Institute, and the Buck Institute is this kind of secretive, really interesting place that does research on…essentially its whole purpose, it’s a 501(c)(3), but its whole purpose is it’s realized that as people’s life expectancy has increased, the amount of healthy years in relationship to the unhealthy years is not improving, and in fact getting way worse.
So let’s say your life expectancy was 70 10 years ago and now it’s 75. Well, and 10 years ago at 70, you had 60 healthy years and 10, on average, unhealthy years. Well, when you look at their graph that they’ll show you, the next decade now at 75, well, your healthy years go up, like, by 1 or 2 years and your unhealthy go up by 4 or 5. So in other words, life expectancy is definitely extending, but the quality is actually not improving. And they are dedicated and focused on moving that ratio, which is fantastic, right? It’s really interesting to think about.
Well, my point is we do client events because one of…the co-founder of Private Ocean is retired now, but he’s on their board. And so we do events around improving…you know, so we’ll bring in clients and let the CEO of Buck talk about improving health in your elder years. And we tee it up as, “Hey, we’re just sponsoring it, but Private Ocean improves your financial health in your elder years,” right? Nice, huh?
Michael: Yeah, nice.
Greg: Pretty good, Mike, huh?
How Private Ocean Structures Their Compensation And Incentives [15:45]
Michael: I like it. I like it. You know, there’s an interesting phenomenon to me that there’s all this discussion about whether charging AUM makes clients more investment-centric. And I have to admit, you know, I’ve always been in your camp as well. And in part, I’m biased because this is our model at Pinnacle as well. You know, we’ve focused on being a planning-centric firm, but we charge an AUM model. And it’s because we try to make sure we’re deliberately focusing our time on the planning-related stuff and not the investment-related stuff.
And to me, the challenge actually that comes up, like, the biggest difficulty I see for a lot of firms that try to be planning-centric but do an AUM model, from the business owner and business management perspective, it kind of messes with your head a little, is what I find. Because, you know, when you’re on an AUM model, like, I know how to grow my business. Go get more assets. So I can focus on assets, I can focus on asset retention, I can compensate people for doing more asset gathering and improving their client retention, and I can compensate an investment team for performance results. I can do all these things that, you know, now will start to really directly tie business incentives to the revenue of the firm, because the revenue of the firm is an AUM model, and you start losing focus on the planning side. And suddenly planning is, you know, because you don’t charge for it so it’s not literally directly a revenue driver, just I watch a lot of firms struggle with this.
You know, when the model is AUM and not planning, they start treating asset gathering like a revenue activity and financial planning like a cost. And not very surprised most of us try to manage cost as business owners, and they start choking out of the depth of the planning work they’re doing. They kind of do it to themselves by maybe losing focus of the planning-centric model because their business model was AUM-oriented, right? Like, it’s not a client issue, it’s a…I think it’s a business management issue about how you manage the planning cost and think about them if you accept you’re not going to drive any revenue from it.
Greg: So interesting. We are not experiencing that. Doesn’t mean it doesn’t exist at all. But I would share with you…if you’re interested, I can tell you how we structure our compensation and incentives and things like that. And I think it might address that. Because after many different trials and errors, we’ve landed on something that we’ve had in place now for probably…yeah, this is our fourth year without any changes and no complaints. Which is let’s just…
Michael: God bless. That’s a wonderful thing in a business.
Greg: Yeah. Well, right. And we worked with, you know, Kelli Cruz, who does consulting in our industry on compensation. You know, we worked with her to structure this. And it was based on literally looking at the firm and what we’re trying to do and all that. So if you like, I can just run through high-level what we do around that.
Michael: Yeah, what does it look like? So you said you have… Well, I guess maybe set a tiny bit more context for us. So you said $1.2 billion of AUM, 27 employees, 7 advisors. How many clients are we talking about?
Greg: We have about 450, you know, households, families, that we consider clients.
Michael: So, like, rough math, you know, your typical client is a 2 and a half to $3 million client household.
Greg: Yes. Yeah. Our minimum has gone to $2 million starting a few years ago. But, you know, if you look at that, we probably have a third of our clients are…maybe even 40% are under $2 million, and then the 60% that are over $2 million, they start going up quite a bit. And then average, which is always scary, right? My joke about average is you stand on one side of a river and the other…the bank is on the other side, and it averages two-feet deep. You’re still going to drown if when you go across it because…right?
Michael: Yep, yep. It gets a little deep in the middle.
Greg: Yeah. Anyways.
Michael: So you’ve got 40% that are under current $2 million minimum because your minimums were lower in the past and you’ve just…
Greg: Exactly right.
Michael: You’ve decided to hold onto those clients.
Greg: Yeah, because at my business, I’m almost 28 years into the business, and Richard, remember we’re…Private Ocean is the result of a merger with Salient Wealth Management, and my former partner, Richard, he…you know, he was in the business 40 years. So, I mean, you know, you start…you have a lot of legacy clients, and there are a lot of good ones. So we didn’t do anything with that. We just said, “Okay.” But, yeah.
Michael: Okay. So on average, you know, your average advisor has got 60-something clients that they’re serving…
Greg: Well, no. No, no, no.
Michael: …with a couple of million dollars each on average?
Greg: No, no, no. So let me do a little more clarity. So we have four lead advisors and then three associate advisors. So the lead advisors are the ones with direct…so actually, a typical advisor here has 80 to 110, but they are able to do that many as an RIA because every advisor has an associate advisor. We have a CSR team, client service team, so every client has a dedicated senior or lead advisor, associate advisor, and a dedicated CSR. So in other words, their support, so they’re able to handle more clients just simply because they’re not doing it on their own in a vacuum. Because we also have of course, like Pinnacle probably, we have investment operations, so they’re not doing any trading, they’re not doing any, you know, that kind of stuff. So anyway, so that’s sort of the metrics.
Michael: So what does the compensation structure then look like for these? With the lead advisors?
Greg: Well, it’s the lead advisors, right? So this is where…what we’ve landed on is it goes like this. It’s essentially there’s a low or relatively low base compensation. And we use that base compensation. That’s where we can sort of lower or higher reward, experience, tenure, maybe some additional responsibility. You know, we can use that for different things.
Then they get a percentage of the AUM revenue that they are…you know, it’s like their own little book of business, but they’re not silos, just to be clear. And I’ll explain how this all lands. But basically, so a typical advisor in our firm has $250 million to $300 million of AUM across all the clients they’re working with. And so the revenue attributable to that, they get a percentage of that. And then on top of that, they also get any new clients that they get, in addition to the ongoing revenue piece that they would get, there’s like 25% of revenue payouts that happen in first and second year. The idea being that there are kickers and incentives to develop new business.
But what we try to align is this. You want to retain clients. In the long run, that is your focus. You also have incentive to get new business, but not at the expense of losing a client. So going back to your comments earlier about planning and things like that, what we all know cements the client relationship is the planning activities, the ongoing actually talking to the client and helping them with other things so that when the markets go down, which they will, they don’t call you, blame you, fire you, right? So this I’m simplifying, but that’s basically how the structure works.
And then I think also the other thing that came to mind when you were describing, you know, some firms having that challenge, a lot of it is cultural too. I mean, if you hire somebody who really loves planning, they’re not going to avoid the planning work just to get the next dollar. They like planning. My point is, is that if anything, we’ve actually had challenges. And this is not unique. I travel like you do, and everybody I talk to, we all have organic growth challenges, right? How do you get clients, or how do you get advisors who are primarily service-oriented to develop new business? And so one of the things that we are doing this year and having some real success with it is, and I know that others have struggled with this one, but we actually have someone that we brought in strictly for business development. And while we’re just finishing…
Michael: Like, a dedicated business development person.
Greg: Yep. His job is prospect. His job is to create at-bats. He knows enough of the story and he’s educated. And he spent three months really indoctrinating into our story. So he can tell preliminarily the story, but the idea is if he creates a good opportunity, he brings in one of the lead advisors. And the two of them go in. And this guy’s job is to seal the deal, close the deal. And then we’ve structured comp. And we’re actually getting some good success with it. And the advisors who are typically service advisors are loving it because they get the opportunity to come in, you know, in the beginning, kind of let this guy, you know, do the selling as it were, but these guys can provide the technical and, you know…
Michael: But I was going to ask, like, how do you…when a dedicated business development person goes out to get the new clients, like, how do you bond the clients to the advisor and not have them bondage the business development person and then want to work with that person and they can’t because you have transitioned off. Because you do the sales…I guess the sales meetings are joint. The prospecting is standalone, but the sales meeting is joint.
Greg: Correct, yep. And we’re having some success with this. And we’re pretty excited. And we like…yeah, I mean, we like the person obviously, and, you know, he’s a good addition.
Michael: Where do you find someone like that?
Greg: Luck, serendipity. I mean, I spent years thinking about it, fantasizing about it, talking about it, “Boy, where would I find somebody like that?” Honestly, came through a connection. You know, a guy we knew really well said, “You know what? You should talk to this guy,” you know. And his situation was, you know, he was with one of the big wirehouses and doing some, you know, BD for the principal guys there. And, you know, he thinks fiduciary. He hated being there. He was like, “Uh, you know.”
Michael: So he was a cultural fit who wanted out.
Greg: He wanted out. But I think, you know, I would love to tell you you can run a Craigslist ad and you’re going to have 20 people that are great lined up. No, you’re going to have to put it out in the universe, you’re going to have to recruit, you’re going to have to attract, and you’re going to have to get lucky because the cultural fit aspect of it has to work too. But, you know, I’m in the camp of you pursue all options when you’re trying to solve a problem. And you don’t limit yourself to, “Well, this is the only solution,” because that’s limiting, right? I mean, you don’t know that that’s…
Michael: Yeah. So one follow-up question really fast around compensation for advisors, I’m just wondering if you can share even if it’s kind of an approximate range, like, what sorts of percentage of AUM revenue do you actually provide them as compensation? I realize, like, it’s on top of a base so it’s not their only comp source. But, like, I find just firms are all over the place about how they do this.
Greg: Yeah, I want to say three to five. And I’m speaking a little out of school because I don’t have the schedule in front of me. But it’s not…you know, it’s not 25% of revenue. I mean, there’s a huge overhead factor. But the point is that’s where we use base comp, plus this percentage, plus some other bonuses that are paid based on performance and goals and things like that to get to a package that’s a good compensation, right? But it’s got a bunch of incentives aligned in there to…
Michael: And I guess that’s part of how you avoid having the advisors treat this like their own silos because it’s just a few percentage points on revenue. It’s enough that they’ve got some upside for growth and retention. But, you know, they can’t just double their comp by sitting back on their AUM and letting the market carry their compensation massively higher up infinitely.
Greg: No. Correct. Correct.
Michael: And so what does the planning process look like for you guys? I mean, when…you know, you’ve said you’re a planning-focused firm, you’re also managing assets, like, I’m just wondering what that upfront process looks like. Like, do you make them do the planning first and then manage? You know, will you not take the assets if they haven’t done the planning work yet or you say, “No, no, no. Like, we want the assets because it’s revenue, but then we’ll service them with the planning.” What does that upfront process look like?
Greg: Well, I’m smiling. It’s a podcast and it’s not a videocast. And I’m smiling because there’s the desired and ideal, and then there’s what happens. So, the desired and ideal is what I will describe, and then I’m happy to share with what really happens. But ideally, it’s very organized. I could show you this fantastic flow chart that says, “This is exactly how we work. And for, you know, some percentage, half, I don’t know, this is how it works.” We do a nice introductory meeting, we then gather all the documents. We look like the CFP six-step program, right? I mean, gather all the documents, we analyze all the documents, we get into goals, values, family, life, health, you know, right? We dream big, we then come up with, “Here’s all the assessment of issues, here’s all the things that need to be fixed,” and then we start fixing. And those are areas that include investments and retirement plans and estate plan, right? The whole gambit.
Michael: So ideally at least it’s a plan first and then investments get implemented at the end. It’s just part of the implementation process.
Greg: Absolutely. Now, in practice, that happens quite a bit, but, you know, invariably, clients will come in… The way I describe it is this. You know, you go see a doctor. You’re not feeling well. Or maybe you are feeling well but you know something’s up, and you go see a doctor. Well, okay, so they come see us or we somehow get them to listen to us, but they’re pointing to their elbow and they’re saying, you know, their elbow is bleeding. And what they want is a bandage on their elbow. And we’re saying, “Well, that’s great, but we really want to do a holistic, full scope assessment because your elbow is bleeding because your diet is horrible and your…” You know, right? So we want to get into that.
Now, as you guys know, Michael, you’ve been around a long time, I mean, clients are…there’s a range of acceptance of how much they want to go into all that versus, “Just put the bandage on my elbow.” So the reality is, is that for the most, for the majority of clients, we definitely follow our process. We do planning first. Part of the plan is the investments and the implementation around that. And, you know, we definitely do it earlier in the process because, you know, that’s how it goes. But it’s not, you know, throw the portfolio and something and then, “Oh, we’ll get to your other stuff.” I mean, we really want to make sure we understand the client and what we’re trying to solve for. Yeah. So that’s usually how it goes.
The Technology Private Ocean Uses To Deliver Financial Planning Service Work [31:57]
Michael: And then what do you…what’s the technology back-end for doing all of this financial planning service work? I’m going to assume the firm uses Junxure for its CRM.
Greg: Yeah. Thank you. Yes, we do use Junxure. So we are multi-custodial so that always poses a challenge as you get bigger. But, you know, Schwab, Fidelity, TD Ameritrade, a little bit of Pershing. You know, not because we’re gladdens for punishment but because, you know, we’re doing an acquisition and they use Fidelity. You know, right? So you end up in these different constituencies. But that’s fine. Junxure, you know, plays well with all of them. So that works out okay. Well, right now, a lot of our technology infrastructure, I’m happy to share what we currently use, but I will tell you that it’s all in play, and we’re making decisions around…
Michael: Very cool.
Greg: …going in different directions.
Michael: Yeah. So what are you using and why might you not be using it in the future?
Greg: Well, I mean, so again, I’m a long, long…when you’re around forever, like older than dirt, you use some things that you continue to use because, you know, everybody knows how to use it, it’s super easy, and all that. So we use Moneytree and that package of products for financial planning.
Michael: So Silver and Golden Years and…
Greg: Yeah, that’s all under review, and I don’t know that that’s going to be there. And then we use some different…really some, you know, specialized charitable planning. And, you know, we use some almost calculator-like…I mean, they’re not hard to use but they’re more specialized things. You know, like a lot of us, we’re going platform, we’re going, you know, eMoney-type situation, portals. We’re looking at onboarding. I mean, there’s a whole bunch of stuff right now that’s in play, that I expect in 2018 we’ll be making some final decisions and executing on. We haven’t landed yet. So, you know, I’d love to share with you, but I’m not there yet. But we’re definitely looking.
Michael: But that’s kind of your leaning is, like, from a Moneytree to something within eMoney Advisor.
Greg: Yeah, I mean, we’re definitely looking at more of a platformy… I mean, you know the argument. The argument is this. You have this once, you know, this holistic, gigantic platform that none of the components are very good or you have these one-off really great applications that are super cool and in-depth that don’t talk.
Michael: And then they don’t talk to each other.
Greg: And they don’t talk to each other and don’t integrate. I would love to tell you that we’re super unique and we’re ahead of all that. The reality is the industry is where it is. I mean, they’re making headway on it but it’s not an exact…it’s not exactly there. So what we’re going to be doing is, you know, like a lot of bigger firms, I think kind of a hybrid approach. I think we’re going to, you know, platform some core components and applications for scalability, and then have some things around it that we still feel we want to have and need to have and will use, but haven’t fully landed there yet. But that’s kind of where we’re headed. And I look forward to that.
Michael: What about portfolio accounting and rebalancing tools?
Greg: Yeah. So currently we use Tamarac. They’re doing our accounting and we use their portal and their rebalancer. Yeah. And we’re using their…we are using their…what do they call it? Their service bureau or whatever. I mean, they’re doing the daily reconciliation and download. But don’t kid yourself, we still have to have someone pretty much all time checking their stuff all the time. And, you know, that whole argument you don’t have to have anybody? Wrong. Yeah, wrong.
Michael: That’s kind of a bummer.
Greg: I know. Well, you know what? I mean, they bring other things to the table, so I’m not throwing them under the bus, I’m just saying it’s not…
Michael: Not as streamlined as one might hope.
Greg: Well, remember, when we were smaller, the selling point was you don’t want to be held hostage by the one person in your firm that knows all this, right? And guess what, you get them and then they lose people that know your stuff, and then they get sick, whatever. And you actually realize, well, there’s only one person there that knows your stuff. So how’s that different? Anyways.
Michael: I am curious. So if you’re using Tamarac’s portal and then you’re thinking about something like eMoney Advisor which has its own portal, are you going to dual-portal? Are you going to pass from Tamarac to eMoney? Are you going to tell clients, worst, “We’re using eMoney now,” and pass through to Tamarac?
Greg: Haven’t gotten there yet. And that’s part of the final decision-making. Like, “Okay, which…you know, how is this going to work?” One of the things that I am determined is to have… So my vision of a portal doesn’t seem to match what a lot of portals out there… Like, Tamarac is a really good portal for investments. It’s a really good portal for investments. I would like to repeat that. It’s a really good portal for investment. My vision of a client portal for Private Ocean is one that says, “Hey, your Private Ocean.” Almost like a website, “Your Private Ocean. Here’s your plan. You know, how’d you like to communicate with your advisor? Here’s some cool planning news. Here’s your document vault. Here’s your this, here’s your that with us. Oh, and here’s your investments,” right?” So I will get us there. One way or another somebody’s going to get us there. But that needs to be the portal not, “You know, look, here’s, you know, mint.com with, you know, some stuff around it.” I get that that’s useful, but that’s…I want it to be more of an engagement site with us.
Michael: Well, and to me, frankly even at least the, you know, the mint.com for advisors and clients I would argue is more planning-centric than investment portals. You know, we have a similar challenge in our firm where MoneyGuidePro users and Orion users. And, you know, the Orion portal is fine for what it does, but it drives me nuts that clients log into an investment portal first. I want them to log into a comprehensive planning portal first, but MoneyGuidePro wasn’t built out full native portal capabilities the way that eMoney Advisor has. And now we’re trying to figure out, “Do we want to move from MoneyGuidePro to eMoney Advisor just so we can get a more unified planning-centric portal because that’s what I want clients to see first?”
You know, I feel like we’re…like, there’s this separation coming that planning-centric firms really actually want different technology than investment-centric firms. And in the past, we were all looped into one bucket because…particularly when we all charge AUM. And as some firms become more planning-centric while others just do their investment thing because that’s their thing, I feel like there’s a more of a noticeable gap about the technology demands between the two. And they’re different.
Greg: Yeah, yeah. That’s exactly right.
Michael: So talk to us a little bit about how you came to this in the first place. How did you get started in the industry founding Private Ocean? Or I guess it was a predecessor firm before that because I know you were…
Greg: Yeah, Friedman & Associates.
Michael: Friedman & Associates. So when did Friedman & Associates launch?
Greg: So in my 20s I did a lot of soul-searching and landed on this thing called financial planning, which was very early, but it seemed to combine the two things that I really wanted to do. I really wanted to help people and then I apparently have a decently analytical…you know, I’ve never met a spreadsheet I didn’t like, right?
Michael: Amen. Right there with you.
Greg: So what could combine those two things? And back then, self-assessment, you didn’t do computers, you took tests. And then they came back and said things like, “Be an accountant,” which didn’t sound great to me, or, “Be a banker,” which didn’t sound great to me. But there was this thing with financial planning. So I looked into that and, you know, it was this new emerging profession. And I got all excited about it. And so there were two masters programs at the time just starting up, San Diego State and Golden Gate University. So I chose…because I grew up in San Diego, I chose San Francisco, right? Just to go somewhere else. And came up here, got my master’s degree. And while I was getting my degree, you know, started making connections and all that. And as I was getting close to graduating, I realized that there was next to no fee-only…you know, I’d met a fee-only guy in San Diego, and that’s the model I had, but there was next to none of those in the country.
Michael: I’m just curious, how did you even come to that model?
Greg: My dad. Yeah, my dad. My dad taught law in San Diego and he had had a law student who had left the law and gone into fee-only. He was one of the first fee-only financial planning firms in the country, in San Diego. And so he, when I was trying to figure out what financial planners do, he was one of the people I did an informational interview with, and I just…I walked in the door and said, “This is it. I mean, this is my picture of what a professional…” You know, right? I mean, he was a lawyer who had just took out the law shingle and put up the wealth management shingle. And, you know, yeah, all the way down to the dark wood, the mahogany and that, it was professional, right? He had a vest, you know, a three-piece suit. I mean, it was just impressive, Michael. And I said, “That’s it. You know, that’s what we can be here.”
Anyway, so when I came to San Francisco, I found out that there weren’t any jobs to do that. You had to go into sales to do that, right?
Michael: “Yeah, you want to get paid for financial planning, go get some financial planning clients.”
Greg: “Go sell somebody something.” So I started out at Cigna Financial Services in San Francisco.
Michael: It was actually one of the early planning-centric insurance companies…
Greg: That’s exactly right.
Michael: …back in the ’70s and ’80s. Yeah.
Greg: I did my homework and found out that they had a three-year training program. And one of the strongest, they targeted $2 million in net worth. And this was 25 years ago, so this was not…you know, these were significant…
Michael: Yeah, that’s a big number then. Yeah.
Greg: These were significant clients. And they basically sold insurance by doing really advanced planning. And they liked guys like me with no sales experience but were technically smart, right? I came out with a bachelor’s in economics and a master’s in financial planning and they said, “Okay, come on in.” So what they taught me was the most painful thing I ever went through, was training around sales and consulting. And it actually was some of the most valuable learning I’ve ever done, really. I mean, I look back on that and I’m…to this day, I’m still grateful for what I learned about how to communicate and how to talk to people, and that kind of thing.
Michael: Yeah, I find it’s a particular problem in the fiduciary advisory space. And we find there’s this effect for so many firms, right? You know, they say, “We’re fiduciaries. We don’t sell products. We don’t sell…” They proudly wear the badge of not being salespeople. And the problem is if you want to get paid even just for your fee-only advice, like, you still have to sell someone on why they should pay you.
Greg: Yes, yes. Yep.
Michael: You’ve still got to learn to sell.
Greg: That’s exactly my argument. Yeah. Well, so I went to Cigna for a couple years with no intention of being a lifelong insurance guy. I just wanted to get enough under my belt, some experience and training to set up my own shop. And I did. So then I stayed there two years and then I left and I created Friedman & Associates. And I called it associates because Friedman didn’t sound big enough because it was just me. And I had just had twins at the time. So my associates…
Michael: They were the associates.
Greg: Yeah, my associates were my kids. And yeah, no, I mean, I don’t recommend starting a business right after you have kids and you’ve just bought your first house. In retrospect, I was a little stressed out. But, yeah, no, so that was the beginning, and…
Michael: And how did it go? Like, how did you get traction in that first year or two? That’s pretty hard for anyone.
Greg: Well, I was very fortunate. So first of all, when you say, “Get traction,” Cigna, I got traction. So my very first client that…you know, I was literally cold calling and knocking on doors and whatever, and my very first client that let me in the door and hired me, I said to him, “I will do such a good job for you that, you know, I consider a form of my compensation. If you’re happy, you know, please refer me, you know, all this kind of stuff,” right? So I did such a good job for that guy and it turned out he was president of the California Tire Dealers Association. So when I was done doing my work, he pulled out the…essentially the dealer guide for every dealer in California and said, “Tell me who you want to meet.” And he did letters for me, and he was just fantastic.
Michael: You had a niche center of influence in tire dealers.
Greg: Yes. And at that time…well, let me say it differently. To this day, he’s not only still a client, you know, but of course, I love this man. I mean, I know his family well and all that, but, you know, he was just a great help. And that sort of launched me into a bunch of those guys and then they referred me to others. I mean, so it’s not like I know every tire dealer. The point is it really got me a good start in business owners and, you know, higher net worth people that let me get going. And I just was determined early on to do such a good job for people that they would want to refer me because I knew how painful it was to cold-call. You know, and now I’d experienced that fun and I’m like, “Okay, I’m going to love these people so much that they’re going to be like, “Yeah, we’ve got to send him around.”
Michael: So I’ve got to ask, though, you know, do you view the environment as different today, right? Because you’ve still got planners that are trying to give awesome service to your clients so that hopefully you would get referred, right? You know, the old, “I get paid two ways.” But organic growth is slowing for lots of firms, so, like, what changed?
Greg: It’s very different. So I had the benefit of, it was just wide open. I mean, 50% to 75%…no, that’s understating it. Ninety percent of the people I was calling on or getting referred to had never worked with an advisor, right, 25 years ago. Today, everybody works with an advisor or they’ve chosen not to. They know what one is or they think they know what one is, and every new client we’re getting we’re taking from somebody else. And they’re interviewing number one of three or two of three. So that’s very different. Listen, I don’t underestimate that at all. The entrepreneur in me completely recognizes that all that is is a sign of a maturing industry.
You know, one of the things I always talk about is my dad was a lawyer, a very long-time successful, taught law for 55 years. It really taught me a lot about life, and as our fathers do, but one of the things that, you know, isn’t lost in me at all about any of this is just because it’s a maturing industry and just because everybody you talk to isn’t, you know, Blue Ocean and has never talked to anybody and you can land them easy, doesn’t mean that you can’t compete and excel. It does mean it’s not as easy, and it does mean, you know, you can’t be fat, dumb, lazy, you know, right? You have to be good. And so okay, right? I mean, I think that that’s fair, and I think that our industry has done a nice job, but I think that’s okay for our industry to be better. So that’s good.
Michael: So what did the growth trajectory look like over those first couple of years? I don’t know if you remember but…
Greg: Well, I do. Yeah. No, it’s funny because I…
Michael: Because milestones tend to be pretty exciting when you hit them.
Greg: Well, it’s just really funny because I was actually looking at this the other day just for nostalgia purposes. You know, I actually had a spreadsheet that I would essentially every single year kind of write down, you know, some metrics. Like, “Here’s where I ended the year.” And I was looking at this the other day and it was a cracker because I kept adding metrics as the years went on. But those first years, you know, like first year I made something like, you know, $9,000 or something.
Greg: No, it was bad. I was financing things on credit card. And I mean, you know, I had to put money back in and all this kind of stuff. But, you know, year 2 was like $14,000 and then year 3 was $50,000. I mean, I remember how long it took me to finally get to $100,000 and feeling like, “Whoa, that’s just…” And that was actually I could take it like it wasn’t $100,000.
Michael: Yeah, dude, like, you’re making six figures.
Greg: I know, I know. And it took me a long time to get there. But as far…you know, I had really consistent…I mean, I was pretty much doubling in client size almost every year from the time I started until we got to about…I mean, when we got to probably $100 million in AUM, you know, that’s when you start growing more like 40% or, you know…
Michael: Yeah, the growth rate start coming down as the business gets bigger. I call it the tyranny of the denominator, right? A growth rate is a fraction. The bigger you make that firm, the harder it is to stay in that growth rate because you just need a zillion clients to sustain it when the asset base, when the denominator, the growth rate gets bigger.
Greg: Yeah, that’s exactly right. So yeah, I mean, but it wasn’t as hard. I mean, I don’t want to say it was easy because I don’t remember that. I remember, you know, really tough days and getting turned down a lot and that kind of thing. But clearly today, you know, just the amount of sheer competition, the amount of confusion in the marketplace, it’s definitely… You know, but I have to say, Michael, I am the kind of person that looks at that and says…I remember when the big wirehouses started really doing fantastic ads, really well-done ads about hopes and dreams. “We’re going to get into your values.” And, you know, most of us on this side of the fence know exactly what they’re going to do and fleece them with their loaded mutual funds.
Michael: Particularly back in the ’90s. Yeah.
Greg: Oh, yeah. And these were hopes and dreams. And I remember everybody on again, the RIA side of the fence was up in arms about, “What are we going to do? This is horrible.” And you know how I looked at it? I looked at it and I said, “Well, look, I think of this a little differently. They’re going to help educate and create the demand that we can fulfill.” Because if I hear that ad and then I go to a wirehouse and get the experience I know I’m going to get, I’m now left hungry and I’m now left going, “Well, who will do that?” And so I felt like, “Okay, they’re just going to do the advertising that I can’t afford to do.”
Michael: Yeah. Well, and it’s an interesting effect when you think about markets that way. You know, the…I still remember whatever, it was about three years ago, you know, we had the original robo-advisors, Betterment and Wealthfront, and then Schwab launched, and Schwab launched with their zero-fee Schwab Intelligent Portfolios and all the discussion at the time was, “You know, this is going to put the robo-advisors out of business because Schwab is charging zero.” And, you know, when we actually went back and looked at the numbers, because I’m a nerd and I like to track these things, the biggest growth month that both Betterment and Wealthfront had at any point in their first five years was the month that Schwab launched a competing service.
Because Schwab so blitzed the media with advertising and new stories and all the rest. And of course, any good reporter wants to not just, you know, promote the one company so you guys say, “Well, you know, Schwab is launching a robo-advisor parentheses like Betterment and Wealthfront.” And, you know, the launch of their competitor gave them their biggest growth months that they’d ever had to date. And I think it’s just…it’s an interesting framing that, you know, a lot of us tend to look at these sort of scarcity mentality, glass-half-empty, like, if my competitor is advertising, they’re going to take business away from me. And the reality is for most of us, our biggest challenge is just overcoming client inertia. So if their commercial is the thing that makes someone get off their backside and call an advisor, at least it’s a client in play now. That’s better than what you had before.
Greg: That’s exactly right. And we benefit from it. So that’s how I looked at it. And I still look at it that way because I know Schwab and some others are starting to do some nice advertising, but still a lot of times that just drives it to them. So I’m still in the camp of, “Let’s just make sure we deliver in spades what those people want and expect from these ads.”
Michael: And let market forces play out.
How Greg Got Into The Advisor FinTech Business [54:00]
Greg: Let market forces play out. Well, you asked something earlier, and I don’t know if want to go back to it or not, but we really haven’t gotten into, so how did I end up technology? Because I think that’s a…
Greg: I get asked that a lot.
Michael: So you launched Friedman & Associates in ’91, you said, so…
Greg: So off I go. And you asked about how am I growing? Well, I’m growing, and I get to about ’95 and I’ve hired 9 people.
Greg: 1995. Sorry, that’s how many years ago it was. 1995, and I’ve got, you know, 2 or 3 employees and we’re clipping along and we’re growing, and I’m maxed out. And I really want to help more people, and I don’t know how to do that without hiring a bunch of more people. This was ’95, ’96, was one of the very early first tech booms. So being in the Bay Area, Silicon Valley was exploding. And literally even a client service person could go take the pilgrimage down to the Peninsula and get paid in stock options and all kinds of stuff. So it was really hard to hire. So I thought to myself, “Well, I want to grow, I want to continue to serve people in a great way, and I can’t find bodies to help me do it, so I need to leverage…” And I’ve always been a student of technology. Like, I’ve always been a gadget guy, I’m always, you know, trying new things, whatever. So I always read, you know, PC Magazine and all those things, right? I used to read all that stuff.
Well, so I knew that there had to be something that…I had a vision and the vision of…I’ll describe it to you in a minute because now it sounds like, you know, so basic. But I had this idea that, “Look, why can’t I look at a list of any…get a list of anyone who owns XYZ investment, send them a copy of an article on that investment, schedule a follow-up call in five days for that list of people to say, “Hey, did you get it? How do you feel about it?” Whatever. And, oh, by the way, also have a compliance record of it, because remember, you have to have a list of anybody’s who’s done anything too, and a copy. So, Michael, that was the genesis. That was literally the precursor to what became Junxure. Because I went through…
Michael: You basically just wanted to make a workflow.
Greg: Well, I tried everything on the marketplace at that time. Every CRM.
Michael: That was Act!,
Greg: Act4Advisors, GoldMine, Bill Good Marketing, ProTracker didn’t do it. Love Warren but, you know, didn’t do it. All these other things. And all of them were like either way generic or the two industry-specific things at that time were really not at all…I mean, Bill Good Marketing was just all about drip marketing. I mean, it was just not a CRM.
Michael: Well, and Act! and GoldMine were basically just electronic Rolodexes at the time.
Greg: That’s right. That right. They didn’t have any…
Michael: I mean, I remember using them when I started. Like, they’re just giant list of contacts.
Greg: Yeah, the amount of extra work you had to put in to make it useful for a financial advisor was off the charts. And so I literally… It’s such a ridiculous story, I won’t even share it, but I essentially got referred to Ken Golding who became my partner. But, you know, Ken, and he and I just hit it off. I was describing what I was looking for, and he’s a developer and he said, “Let me take a crack at a prototype. You don’t even have to pay me. Just let me put something together and show you, and if you think we’re on the right track then you can pay me hourly and I’ll start building.”
And I literally had a list, like, again, to this day I’ve got a picture of it. I don’t think the original exists anymore, but I had a yellow pad and in my handwritten notes of about 14 items, which essentially are the basic specs of what became BAM, which became Junxure. But specs in terms of, “These are the things that it should do. I mean, I want it to do this, I want to do this, I want to track this, monitor this,” whatever. So he put together this prototype. And again, nothing about a software business. This is about, “He’s going to help me write something that I can use in my business.”
Michael: This was just like private software for yourself.
Greg: Yep. He’s going to build me something in Microsoft Access, right? And it connected to Word, Outlook, Excel. You know, it was this packaged, integrated, cool thing. And guess what? It came alive. In three months from meeting him, I was doing the things I’m describing to you. And I started showing that around. I was on the ICFP, right? The old Institute.
Michael: Yeah, predecessor to FPA.
Greg: Yep. And I was on various committees and helping to put together conferences and stuff, and people would ask me to talk about it and show it. And they’re like, “Well, where can I get it?” And I said, “Well, you can’t. I mean, it’s not…”
Why Greg Thinks It Is Crucial To Have An Executive Coach [59:01]
Michael: “It’s not and I made it for me.”
Greg: Well, it wasn’t public software. Anyway, so the next thing that happened was more and more people started asking me to buy it.
So my other, I think relevant part to this story, I’m a big proponent of executive coaches. So that’s another star asterisk…make sure you don’t edit this out from the podcast. I think that’s a really key learning. So around that time, I started to work with…it was suggested to me and I started working with an executive coach who I only…you know, I worked with that one for a year and then I worked with another one a year and then I’ve worked with the third one for like 15 years. So, you know, you don’t always stay with them, but the process is fantastic.
Anyway, so I was working with this coach and we would have these calls and talk about business and goals and whatever. Coach, right? And one day I was basically lamenting that all these people wanted to buy the software and it was kind of pain in the neck, and a great executive coach, the reason a good one…or let me say it differently. A great executive coach is successful in the questions that they ask you. It’s in the enlightenment that they create in you that causes change, right?
So I’m complaining about stuff and she starts asking me some questions. And I’ll never forget it. She said to me, “Well, let me ask you…” And I’m complaining that these people want to buy it and I don’t want to sell it to them because I think it gives me a competitive advantage and I don’t want other advisors having it, and this is great, and blah, blah, blah. And said, she asked me these series of questions. She said, “Well, let me ask you something, why do your clients come to you?” And I said, “Oh, well.” So I went into my pitch. I’m like, “I’m a financial advisor, right?” And she said, “Is there anything else?” And she asked me, like, three different ways so that I completely blew out all my air on how great I was as an advisor. And then she said, “Well, I didn’t hear you say anything about your software.” Well, that was my first epiphany, right. Like, “Hmm.”
Then she went in for the kill and she said, “Well, let me ask you this. If your neighbor down the road, advisor, had the software, could you still compete?” I’m like, “Well, of course, I could, right? I mean, you know, bring it on, right? You’re doing this. I mean, clients don’t see this. You know, yes, I could compete.” And then she really, just to fully seal the deal, she said to me, “How might, you know, letting advisors buy this and creating economics and a community around…you know, like having this company that is a group of advisors that you…and that’s now going to give you feedback on what to do with the software and all that. How that might benefit.” Back then it was Friedman & Associates. I was, like, sold and sold. I mean, that was just…that was the closer. So the moral of that story is, executive coaching is profound. Good executive coaching can be awesome. And that led to, you know, what’s now Junxure. It wasn’t my vision, it was just more, that can be really great.
Michael: So I’ve got more questions about the Junxure launch but I’ve got to ask really fast, any executive coaches you actually want to recommend for our listeners to check out or just how do you find a good one?
Greg: Well, I mean, there’s two that…I mean, there’s my perennial favorite, which many of you have heard me talk about. Her name is Sharon Hoover. And I think her email is like email@example.com or something like that. Or you can email me and I’ll pass along. But, you know, she…I’ve worked with her personally for…she’s the one that’s, like, 15 years. And I used to think that, you know, that each one had sort of a bag of tricks and after about a year you kind of ran through the bag of tricks. And my joke with Sharon is I still haven’t exceeded her bag of tricks. I mean, I’m still learning stuff from her. When I run into certain situations I’ll start talking to her about it and she’ll teach me something. And I’ll be like, “You know what? Until I run out of her bag of tricks, I’m going to keep. She’s great.” And then…
Michael: I was going to say this is episode 54 of the podcast. So for people who are interested, we’ll put a link out to Sharon Hoover in the show notes as well. So if you go to kitces.com/54 for episode 54, we’ll make sure we have a link there if you’re interested in reaching out to her.
Greg: Great. And then another woman that we’ve actually done some coaching with, but also I highly recommend for company retreats and facilitation, and that’s another whole area we could spend time on, but a big user of that. We do company meetings, company retreats, owner retreats, whatever. But her name is Mary O’Connor. And she’s fantastic and just really good at whether it’s an owner meeting and you’re trying to work on some issues, whether it’s an all-hands employee-type retreat and you want to work on the business or something, she’s really good. And I think she does individual coaching also. But just really talented, people.
Michael: Excellent. We’ll include links to both in the show notes, kitces.com/54.
So you make this decision, “I’m going to launch a technology company,” having just come through 10 years of making no money for years when you were launching your first business.
Greg: Well, I was pretty…you know, I was doing okay in wealth management, right? I’d settled, I was…
Michael: Okay, at that point you were 10 years in.
Greg: I’m doing pretty well, but I’m really trying to invest and grow, and kind of stuck. Not stuck, but using technology that’s helping me… I mean, what I always said about Junxure early days was it allowed me to literally double the number of clients and the AUM and the whole bit. I mean, I went from, you know, $50million to $100 million or something like that, and I added 1 administrative person. I mean, it was phenomenal those early ROI on adopting something that could help. It was phenomenal, Michael. I was, you know, blown away. So I’ve seen the reality and the benefits of this technology ROI. But it’s funny. It’s kind of a corollary here, but you only get it if you invest in it and you actually commit to it. I think a lot of people buy technology and they don’t fully…you know, they just say, “Okay, I installed it, why am I not doubling and why am I not…”
Michael: Right, right.
Michael: Why is the good stuff not happening?
Greg: That’s another story. But anyway. So yeah. So I mean, now I’m doing the technology company but honestly, it wasn’t even like…you know, when you think about running a company you think about setting goals, growing, all that. No, no. Junxure, for the first seven years, was simply demand-driven. We did no marketing.
Michael: It’s like you made software for yourself, other advisors asked for it so you sold it to them. That was that.
Greg: Well, and so many more people wanted that I need another salesperson. So many more people want it, I need more support. So many more people…I mean, we literally did a couple of conferences a year, and that was our entire marketing. That was it. I didn’t have a marketing budget. And we went from, like…you know, we started out by having Ken in his house in Florida and one salesperson in Raleigh, North Carolina that we, you know, hired, who knew the product. And next thing you know, within 5 years-ish, 7 years-ish, we had 10 people, we’d outgrown 2 different spaces. I had to hire a senior level executive to come in and run Raleigh because I needed someone to actually, you know, “babysit.” And I don’t mean babies, I just mean, “Oh my gosh, no one’s there and there’s just a bunch of people and no leadership.”
Michael: So as you went down this route, like, you built the core piece for yourself and you started selling it to others, so did you go out and raise capital at some point to fund all of this or did you just literally cash-flow it off the RIA?
Greg: We 100% cash-flowed it off the RIA. I mean, this is early days. Now, I did a friends and family and did a bunch of stuff around that a few years ago to try to build Cloud. So desktop, right? Everything we’re talking about was Junxure desktop. Up until we started to build Junxure Cloud was when we went and did some friends and family, not outside, but friends and family.
Michael: Because at that point you basically had to rewrite the software from scratch in the cloud?
Greg: Oh yeah. Cloud is totally different technology, totally different everything, totally different animal.
Michael: And so these companies both continue. You run them both.
Greg: Well, so, yeah. Yeah, I just want to be really clear, especially about Junxure. So I run Private Ocean. I’m part of a group that runs Junxure. I have really great leadership and a group. So what that looks like on the Junxure side, because my office is in Private Ocean, and day-to-day.
Michael: Which is in the Bay Area?
Greg: It’s in the Bay Area, and it’s wealth management. But Junxure, I have a vice president, I have a CIO, you know, technical, on the technical side. So essentially, one person runs the entire technical side of the company, the other person runs everything else, and then those two, myself, and a fourth person are the leadership team.
Michael: I’m just curious, when did that come about? Like, how long were you trying to run it on your own before ultimately you found that you had to bring in other leadership for Junxure?
Greg: I probably at about 10 people, 7 years ago, I want to say, 8 years ago, brought in a senior guy. And that really…long before cloud, I mean, even before then I brought in a senior, senior guy from the Silicon Valley who had run companies and done all that. And his name is John Shangler, but he came in a long time ago. And he literally, you know, freed me up quite a bit.
Michael: Interesting. So it was a time-driven shift for you? I mean, I’m just imagining, you made this software, it’s your baby, it’s got to be hard to hand your baby off to someone else to run.
Greg: But it wasn’t really like that. It was more day-to-day operational. Strategic, product, all that, very much involved. You know, very much involved, roadmap. I mean the things that are important to me, right? Service, whatever our customer is feeling. You know, how can I help? Those things, I stayed involved in, very much so.
Michael: Well, and the good news as well is you’re still running an advisory firm too, so you have a very unique perspective of what it’s like to just actually be living in your own software.
Michael: Unlike a lot of software companies.
Greg: Absolutely. And I know when something doesn’t work. I’m using it. It’s not working.
Why You Should Ask CRM Providers How They Track RMDs In Their System [1:10:45]
Michael: So does that worry you when you look out there at the landscape and big players like Salesforce coming into our industry with Financial Services Cloud? You know, do you worry about the competitive environment going forward? I know you talked about the maturation of the advisory industry. Now we have a version of the maturation of the advisor software industry in the CRM space in particular.
Greg: Well, worry, I don’t know that I worry per se. I do have a perspective on it. My perspective on it is that I think there are…I don’t think there’s one player that solves everybody’s problems, right? So I think that there’s a market for Salesforce, I think there’s a market for us, I think there’s a market for others, some of the other players based on the direction they’ve taken their products and how they think about it. You know, that kind of thing. I would be naive and wrong to say that those players don’t have, as well Salesforce, in particular, doesn’t have impact all over the place, but these are very different animals. I mean, these are really different animals for the end-user, which is us, right? Advisor firms, very different proposals. Everything from the cost of doing business with them, the domain knowledge and expertise, who they’re really targeting, you know, that kind of thing. Who is their real sweet spot? How do you get help? When you get help do they actually understand what you’re asking? I mean, my favorite example is, you know, call most of the CRM providers. Call them up and say, “Tell me how I track RMDs in your CRM.”
Michael: Good, common advisor challenge. Yep.
Greg: Well, and then just sit back and listen. And that will tell you all you need to know about, you know, the differences, I guess. You know, like at Junxure, what we do is we actually have…when we hire support people we actually put them through, and we have ongoing training with our trainers. And our trainers are all people that have financial services experience. So even though they’re trainers and they love training, they’ve all got, you know, backgrounds in working in finance and financial planning and whatever because we want people in our company to know a customer and to know what the issues are, and to help them communicate and actually help them solve problems, right?
Michael: So you’ve got Junxure underway, you’ve got your growth cycle through 2008 then the transition to the to the cloud and raising some capital, and at some point along the way it was no longer Friedman & Associates on the advisor firm side.
Greg: Yeah, so Friedman & Associates, we get to about $250 million. Got some several advisors, some support people. I mean, we’re doing fine, we’re feeling good, and Richard Stone reaches out to me. He’s about two miles away from me. You know, we, of course, knew each other or seen each other around, we didn’t really know each other super well, and says, “Hey, we should get together for lunch.” So we get together. And at that point, I’m 49 and he is 64. So we sit down, he says to me, you know, it seems like we should talk. We have very similar businesses. We ended up having a nice lunch. But the very impetus, the kernel here was he’s 64, succession planning, doesn’t really have anybody on staff, doesn’t know how to take the company forward beyond him, how might that look, blah, blah, blah.
So that became the beginning of a yearlong discussion and exploration. And the resulting merger was all about just filling something bigger, better, better together, but also having the size and scale to allow his succession, and then ultimately mine later. You know, being bigger and things like that.
Michael: So you were $250 million at the time.
Greg: And they were like $500 million.
Greg: Yeah, they were like twice the size.
Michael: So what does that structure look like? This is after the financial crisis?
Greg: No, it was a beautiful thing. It was right before the financial crisis, and literally three months before we were supposed to close, right? So we’re in the stages of just final whatever. You know, the world sort of stops on its axis, and the very obvious question is, “Do we still go forward?” And to me, the obvious answer was, “Of course. I mean what does this change? You know, we’re still better together than not. And maybe it delays it because I was so busy talking to clients and, you know, right, doing what we have to do. But, yeah, absolutely. So the timing of it was inauspicious, right? I mean, our first year or two was definitely all hands on deck. Just take care of clients.
Michael: So how did that merger process go? Like, that’s a sizable firm. You know, I’m going to presume you were probably what? Eight to 10 staff, Richard might have been…would have been more than that.
Greg: So we were 7 and they were 14. We almost scaled identically. So $250 million and $500 million, 7 people and 14 people. It was pretty funny. But there were a lot of…you know, you line your fingers up and stick them together. There were a lot of things that really lent itself well. Like Friedman & Associates was at a place where to get to the next level, I needed three really key and expensive positions. I needed a COO-type person, I needed a chief compliance officer-type person, and I needed an investment…you know, CIO or a research or some high-level, because I was sharing my own…
Michael: Those are expensive positions.
Greg: None of these are cheap. And I was at that place where I’m wearing all these hats. I can’t keep doing it, blah, blah, blah. Well, they had all those, right? So when we merged, overnight I had my CCO, so I got to get rid of those duties, I had my…you know, they had an investment committee and they had a chief research guy. I’m like, “Great. Done. I’ll be part of the investment committee but he can do the work. Awesome.” And then our COO that they had, which was fantastic. So from that perspective, that was a really obvious, great, you know, like, “Okay, that’s…you know, I can go hire everybody and make no money for a few years or I grow into it or I can merge.”
What Types Of Challenges Inevitably Come Up During Mergers [1:17:36]
Michael: And so how did the actual merger process go when the time came? Because that’s a lot of people merged together.
Greg: Yeah. So mergers are really tough stuff. And under the best of circumstances, they’re tough. If the circumstances aren’t really awesome, it can be even tougher. So the way I think about it is this. First of all, I’ll just cut to the chase and summarize some really key learnings that I will recite till the end of my days about mergers that I think people should be aware of. First of all, you should basically take a year or two is better, and just know that you’ve got to work through a lot of stuff. Now, the faster you work through it, the better you are, but not everybody staff-wise survives mergers. There are cultural misfits that really don’t benefit, you know, and the quicker you address those, the better. So that’s in staff. I mean, that’s true. That happens. You know, some people are great with change and growth and some aren’t. And the ones that aren’t, you’ve got to figure that out and get them out of the way and move forward. And the faster you do that, the better.
Michael: Which is hard for most firms, right?
Greg: It’s really hard. Yeah.
Michael: You know, like, firing our staff. I find, particularly in this industry. Because, you know, we’re helper types, that’s why we become financial advisors. Like, we’re helper types, it sucks to fire anyone.
Greg: We’re nice people. We never want to do it. Well, I know.
And then the other thing is these are some things that I just didn’t see coming. So both businesses were growing nicely organically through referral. You know, Richard and I both are good at asking and getting whatever. What I didn’t realize, and the analogy I use is, picture a tree with a whole…like, a whole bunch of little green leaves. And when you’re just humming and all the leaves are really healthy, you know, you can shake the tree, whatever. It’s all good. What a merger does, and let’s say that leaves on the tree, each leaf represents a client relationship, and when everything is just great, that leaf is really healthy and it’s attached real tight to the tree and so, you know, shake here, shake here, but it’s all good.
Michael: And then a couple of apples, a couple of referrals fall out.
Greg: Well, not referrals, but when you merge, the way I liken it is you should be thinking that your tree now looks like it’s borderline winter. You should look at your tree and say, “A couple of things are different.” All those leaves are now not so healthy, maybe a little yellow. And they’re not all telling you. I mean, we did very proactive communication. We told them why this is so amazing for them. We told them why…the only changes they were going to see were just improvements. “Oh my gosh, this is the best thing ever, blah, blah, blah.” Well, what happens is I learned…it took me about a year to learn why and it took me about six months to see what was happening and a year to really understand why and get clients to tell me why. But all the referrals dried up immediately. So for a year or two, nobody is referring you business. Suddenly, you know, everybody has sort of taken a wait-and-see. Those that were borderline, that you may not have even known were borderline leave, right? So clients leave that you didn’t even think were at risk.
Why Some Of Greg’s Best Clients Stopped Referring Him After The Merger [1:21:13]
Michael: Right. You know, they were thinking about it even though you didn’t know and you gave them an excuse, so they left.
Greg: That’s right. That’s right. And then the real surprise was some of my very best longest time clients stopped referring or doing anything. And when I actually… You know, I have a good relationship with them, so when I actually said, “Hey, am I just sensing this or is this true? You’re not actually, you know, kind of…is there something wrong? Is everything okay?” It was, “Oh, no, no, no, no, we love you, it’s all great with you. We just want to wait and see. We don’t know what we’re referring into because we don’t know what it’s all going to become.”
Michael: Right. So you’ve introduced change and uncertainty into their referral equation, which is scary when you’re referring.
Greg: That’s exactly right. And so now I know. I get it. I understand. And you know what? I can’t argue with them. I was thinking about this. I mean, it makes sense, right?
What Greg Would Do Differently If He Could Do His Merger Over Again [1:22:06]
Michael: So is there anything you would have done differently knowing this or just…beyond just recognize, like, organic growth is going to slow down for 18 to 24 months?
Greg: That’s a great question because I was so incredibly research-oriented and thoughtful about communication in the process that I didn’t learn anything that I would change differently. I just now expect different, right? I mean, I don’t know that I could have communicated differently or more. Now, the only other thing I’ll do differently if, you know, or whatever is maybe I’ll address that more directly early with those clients and say, “Look, if I’m you, I’m thinking blah, blah, blah,” because now I know, but I just didn’t know. It didn’t occur to me like that. And I thought, “Well, okay.” I mean, we were very open. I mean, we had open houses, “You know, come meet everybody.” You know, we were very transparent. We just felt like if we communicated a lot, that that’s how you, you know, sort of work through this.
Michael: And so I know it’s not you because you’re you and Richard is Richard, but I’m curious if you have any perspective on, what was that like from Richard’s end as well? Particularly since, you know, he’s looking at coming into this because it’s also his retirement plan and exit. So he’s got…it seems like he’s got some additional baggage on this transition even above and beyond what you were going through.
Greg: Well, what’s interesting was the retention issue was definitely vastly bigger on his side of the equation, so we didn’t…you know, from my side, Friedman & Associates side of the ledger, if there is one, we didn’t have the same retention issue. I think we all had the same referral issue, but the retention issue was bigger on the Salient side. And I think you’re highlighting exactly right. I think people were uncertain, “Are you going to be here? Are you leaving? What does this mean?”
And again, you know, I think…I don’t know, I think the other thing that is true about mergers is that it’s really, really important. I just have a whole different perspective about due diligence. So let me give you an example, a really key point. We always surveyed our clients. And so now, like, we’re doing an acquisition right now, and we’ve required this firm to do a survey of their clients. And there’s things I wanted to understand, right? And I wanted to understand how they thought about certain things and all that kind of stuff.
Michael: Like what? Just give an example.
Greg: Yeah, one of my favorite examples is, “Why did they select you?” So let me tell you why that’s important. People chose Friedman & Associates, since I did predominantly the pitching and selling of that, because they wanted financial planning, they wanted, you know, someone who really dug in and got into all their laundry and really helped them personally and professionally and whatever, right? People chose Salient because of academic and incredible performance, beta, smart beta, before beta was even smart. You know, I could keep it on, right?
Michael: Because I know Richard was…has a long history of being active with IMCA and investment management.
Greg: Oh, yeah. Yep.
Michael: And, you know, that was his bread and butter.
Greg: Institutional money management for the, you know, for the high net worth.
Michael: Yeah, for the affluent individual.
Greg: Yes. Nothing wrong with that, right? There’s no judgment about that, but it’s very different. Well, so we put the combined firm together and we’re all excited, both of us, Richard and I, we’re all excited because now, imagine this, deep, deep, deep wealth planning, financial planning with heart, all these issues, and amazing investment management. Not that Greg’s investment management is bad, but this is a step up, right?
Michael: Right. Yeah. Like, we’re taking best of two worlds and marrying together. This should be good.
Greg: That’s right. That’s right. So if you think about it and take a step back, if you’re someone who chose a wealth management firm for the financial planning stuff, and then after the merger you’re still getting all that, but, oh, you also get what seems like a little bit of improved execution on investments, okay, good. Now you talk to the guy who chose the firm because of this incredible academic, superior, amazing, institutional investment. Planning was an afterthought if it was requested, whatever. We start introducing all this stuff to them. They’re like, “Yeah, we’re not really interested in that. We don’t really care about that. Are you charging us for that?” I mean, it was a different dynamic.
Michael: “And where’s Richard? And why isn’t he talking to me about my portfolio?”
Greg: Well, and Richard was around, but, you know, again it’s not…he was around for a while. So it wasn’t that, but it was also this whole, “You know, maybe you’re going to this other direction. And so I’m not sure.” Now, I mean, it wasn’t anything we didn’t overcome, but there was a couple of years there where it was like, “Okay, what’s happened here, right? I mean, what’s going on with some of these clients?” And people that chose you to beat markets ultimately will leave you. We know this, right?
Michael: Yeah. Because at some point you won’t win even if you’re really good because no one wins every time.
Greg: That’s right. Well, no one chose Friedman & Associates because of any illusion or anything they heard from me. That our investment prowess was second to none. What I would always do is what I think a lot of us do is say, “You know, we have a great approach. This is a sound, philosophical, academically sound way to invest, and we don’t control markets, and we don’t control these.” My joke is that we’re a turbine, and I will tell you exactly…I’d do bitcoin and then I’d get out, and, you know, short of that, “Here’s the best way we think you should invest.” And so it was a little bit different story. But the point is is that that caused some wrinkles for a few years. And so knowing that going in is important in a merger, right? Really knowing, “What was the story? What did you buy?” you know, and then how is that going to be feeling? Because ultimately, they always stick with that, even if it was 10 years ago they bought because of this. It’s why they bought.
Michael: It’s stuck in their head. It’s really hard to reprogram that. Right, that’s the old, like, you know…I mean, I know this for so many advisors in the insurance side of the business because that was where I started. And when I got underway everyone was shifting from insurance to doing broader financial planning in the insurance channel as well, and they were all struggling to get referrals from their clients for financial planning even though some of them were doing some pretty good financial planning work because the clients would say, “Well, you’re my insurance guy. That’s what I bought from you originally.” And you get stuck in that spot. You know, you do a portfolio thing or an investment thing and you’re the investment guy. You know, we get stuck in these little boxes. And I think it’s particularly challenging when we’re trying to do comprehensive planning because the whole point is, no, no, no, we crossed lots of boxes but clients tend to put us in one and keep us there.
Greg: Yep, that’s exactly right.
Michael: So where did Private Ocean come from?
Greg: The name?
Michael: Yeah. You know, you didn’t keep Friedman & Associates or Salient.
Greg: Well, no, that didn’t make any sense. Because we were really trying to create something new and combined. So Private Ocean actually makes tons of sense. And it goes like this. When we got together, you know, you always hire the obligatory marketing people who go talk to, you know, clients, they talk to people that know you, they talk to you, and they talk to Richard and they talk…you know, right? And they kind of come up with, “Well, what we’re hearing is, is that here’s this firm, one firm, who’s incredibly personable and personal and very, you know, in-depth and very, you know…” And then we hear this power, “You guys have PhDs and master’s degrees and academic rigor and personal and powerful.”
So they came up with a bunch of names, but, you know, some of which were prefabricated, but the one that the owner group sat there and looked at, we all looked at each other when they gave us five different names, and one of them was Private Ocean. And their whole thinking was personal and powerful, right? So the private is the personal part and the ocean is the, you know, it’s the power, it’s the vast resources. So the idea of Private Ocean is we’re channeling these vast resources and bringing all this, harnessing all this power to your personal situation and to you personally, and adapting it that way.
So that literally is our story. I mean, that’s how we talk about it. And so by the way, it’s a great lead-in or when people say, “What do you do?” and everyone struggles with their elevator pitch, which we all do, I always just say, “I’m CEO of Private Ocean,” and I’ll usually follow up with something like, “And it’s not a spa,” and I’ll laugh, ha, ha, ha. And they’ll say, “Oh, what is it? Interesting name.” And that gives me the avenue to explain that story. “It’s just, you know, wealth management, personal, powerful, that whole thing.” But they’re listening. They’re like, “Well, that’s different.” We like it. You know, we, of course, have run with it.
Michael: Yeah. So if I were to drop in and look at your world today, you’re running the advisory firm Private Ocean with 27 employees, you’re part of the executive team for Junxure with a good leadership team to support you there, like, that’s a lot of stuff and two pretty sizable businesses. So what does your week look like? I mean, how do you time-manage this stuff?
Greg: That’s a great question. So I’m going to answer it this way. First of all, my week is very busy. There’s no question. I run around quite a bit, I’m booked up quite a bit, but I’m intentional with my time. I tend to pick and choose things that I think bring the most value to all of this.
Michael: So what does that mean? Like, what do you choose or not choose?
Greg: Well, I’ll constantly triage one thing over another. So, for example, you know, I’ll get an opportunity that comes my way to maybe talk with, you know, someone who’s starting up a new technology in our industry, who wants my opinion and got referred to me, and I may drop something else and go, “Yeah, I want to see that. I want to look at that.” Because, you know, as part of my role at both companies is to be making decisions and help guide direction. So being in the know is really helpful and useful. And so I’ll get those kind of opportunities.
But all that aside, I mean, the reality is, is that I am only able to do what I’m doing in any capacity and to whatever degree successful because of the people I have around me. The people at Junxure, the leadership team, they’re unbelievable. I mean, my vice president that runs everything but all the technology side, he’s fantastic, he’s amazing, right? And so he’s overseeing sales, marketing, finance, support. I mean, he’s got a ton of people reporting to him and he’s amazing. Same with my CIO handles developers, technology, infrastructure on Junxure, right?
Here at Private Ocean, I’ve got amazing COO who is fantastic and she…you know, I mean, she really, day-to-day operationally. I mean, wealth management firms don’t need a ton of day-to-day, “What are you doing? What are you doing?” We need to support the people doing what they’re doing. Now, Private Ocean has investment operations. Well, we have a director of investment ops and he’s incredible, and he does a great job. And if he needs something, he knows where to find me, right?
And then we have regular…we have what’s called an expanded leadership team. And the expanded leadership is myself, the COO, the director of investment ops, the director of client services, our director of IT, our director of marketing, right? So it’s essentially the lead of each area of the company. We get together, I don’t know, every other month, and we go through anything…that’s for non-urgent stuff. And it’s like, “How’s it going? What are we working on?” You know, all that kind of stuff. So it’s structure. Michael, to your point, it takes good people and it takes structure. Because if those people weren’t doing nice work and I didn’t trust them or have confidence in them, it wouldn’t work because I’d be strung out all over the place going, “You know, what?” I don’t have to micromanage, and I don’t feel like I do.
Michael: So are you still seeing clients as well? Do you still keep a subset of client relationships or are you solely in the management world now?
Greg: Well, I do not have a dedicated set of clients, however, thank goodness, I absolutely…I probably get in a couple client meetings a month, and it’s usually based on…there’s a couple of things that bring me to a client meeting. One is there are just certain clients that the advisor knows that I want to be in on or the client will request, “Hey, can Greg, you know, pop in?”
Michael: Right, people you’ve got history with because you’ve been doing this for 20-plus years.
Greg: Absolutely. Or sometimes they’ll have very specific questions that they want my input also, right, as well as the advisor. So those kind of things. Obviously, I get all the fun stuff, which is anytime there’s a problem.
Michael: Right, right, the hard stuff flows right up to you.
Greg: Yeah, I get all the hard stuff. But, you know, I just want to make the point that I’m really clear on why this business is so important to me. I’m really clear on my excitement about what we do for people. So I don’t ever want to be in a situation where I never meet with a client. I mean, every once in a while I even get…I get a chance because sometimes I get referrals directly to me, and I don’t just hand those off. I say, “I’ll go to the meeting with somebody I’m bringing and I want to be part of the pitch. I don’t want to be put out to pasture yet,” right? I mean. I think it’s important for me to continue to be involved like that. And plus I love it. It’s fun.
Advice For New Advisors Trying To Gain Traction Just Starting Out [1:37:04]
Michael: So, you know, looking back over the trajectory and changes of the business since you got started, you know, you talked about the nature of client referrals is different today, the competitive landscape is different today, so for advisors who are getting started or maybe in that first delicate, like, three to five-year period where you’re just trying to get traction and cash flow positive and pay your bills, is there any advice you would give to newer advisors today trying to find that traction the way that you did besides the Tire Dealers Association ?
Greg: Well, I think it’s…I mean, the question I always have is I really… First of all, the opportunity set, as well as the challenges, are totally different. Let’s start there, okay? So if I just take a step back, given what I know but now looking at today, but now I’m suddenly 25 years old and I want to get started, the first question, and I get a lot of people asking me this, so thank you for asking. Because I would throw it out this way. The first question I always ask people is, “Have you really thought about how entrepreneurial you are?” And the reason I ask that question is I like to really have some fun with people and talk about and get them to really try to understand the upside and the not so upside of your own deal, right? And just right there, like, before you even get into, “You know, I don’t like working for people,” or whatever, but just really drill down on that for a bit, because people need to be very clear about that. And the reason I say that is because that can help inform a really much different decision about what you might want to do right now.
So for example, what didn’t exist for me that does exist today is something that for example, Private Ocean does. So I know we’re not the only ones. So the idea is this, we now have 15 owners. You know, my advisors here have all, or mostly all, after some time is spent and after some criteria and some agreements have had the opportunity to buy in, and, you know, at very favorable pricing to become, you know, equity partners in a growing wealth management firm. Now, think about the risk profile of that. By the way, they got paid all along the way. They maybe worked 50 hours instead of 100.
Michael: One hundred. Yep.
Greg: Oh my God. I mean, basically, what sacrificed the most in all these years when I think about, like, I would literally work 8, 10, 12 hours. I was so unhealthy when I was 35 and 40, with the kids and that. Because what I decided was I would get up early, go to work, come home at 3:00 or 4:00, do some hours with the kids, and then go back to work basically. I mean, you know, I needed my next shift. And I didn’t sleep enough, and I didn’t…you know, all this other stuff. You know, you have bills to pay, you’ve got things to do. There’s not a lot of options, you know, right?
So I think what exists today is a different… I’m not saying that’s bad, I’m just saying if that’s what you want to do, go do it, you know, but be ready for that, right? Well, I was going to say my dad used to tell me, “Look, you can have anything you want if you’re willing to pay the price it takes to have it.” And I think that there’s a little bit of a misconception that somehow doing your own thing or starting your own business or being on your own is all freedom and awesome. And it is freedom. It’s freedom to not get paid. It’s freedom to not be able to afford to eat. It’s freedom to not be able to afford to live. Right? It’s free.
Michael: Well, and I mean, I feel like you just sort of…you quietly threw it in there. Like, you made $7 grand the first year and $14 grand the second year and you were working 80 to 100 hours a week. I mean, that’s an insane amount of work for horrible, horrible compensation. Obviously, this has worked out well in the long run, because building a business with compounding growth is an amazing thing, but, you know, I feel like sometimes they’re…you know, we don’t realize even for a lot of the large successful firms today that, like, it’s pretty ugly for virtually everyone in those first few years. Like, it’s really rough.
Greg: You know how Cigna described it, which I always appreciated later? I didn’t appreciate at the time. But I remember I had this, our regional vice president, Bill Burke, and he described it this way. I remember first day at boot camp. He gathered us all together and said, “Guys, here’s how this goes. You know, you’re going to hate us for the next few years. You’re going to hate all of it.” He said, “Think of it like an aircraft taking off.” He said, “This is your career. So you’re on the beginning of your runway. And basically, for the next three to five years, you’re going to be full thrust, right? So that’s that part of the flight. Then you’ll be able to level off and have a life or more of a life. But that first three to five years, it’s full thruster all the time and you’re going to hate us, and you’re going to hate…your wife’s going to hate you, and, you know, people are going to be upset at you and you’re going to be missing stuff and you’re going to…you know, have to make tough decisions.” But he said, “That’s what it takes to get these off the ground.”
Now, he said, “Not everybody does that, and not everybody is willing to do it. And a lot of people will fight and argue and say, “I’m not right,” and you’ll just have to judge for yourself.” Well, guess what? In my group, you know, I’ll never forget this. I mean, of the people, you know, I mean, we all scattered, and I’m pretty confident that I’m the one.
Michael: You’re the last man standing of that original class.
Greg: Well, no. Well, what I mean is, no, they’re all standing, but very different levels and very different situations. Let’s just put it that way. And not bad, not judgment, not whatever, just saying I think there’s a little bit of it. Because I’ve met some people that are like, “You know what? I’m going to do my own thing and I don’t want to talk to anybody.” That can work. I get it. Just be aware of, you know, what’s on the other side of that.
Yeah, I can’t honestly tell you that if I were to start a business today, to say it differently, if I were 25 today wanting to do financial planning, wealth management, I honestly believe that I probably would get a job in a great firm that I thought shared my vision, that I had an opportunity to earn or buy into. I would definitely want to be a player. I’d want to be part of it, and all that. But I probably would have done that. You know, I mean, I’m pretty entrepreneurial, I’ve got it, you know, but I think I would probably go that route. Just especially given the competition and stuff. I’d be like, “You know what? I’d rather have somebody behind me and let’s go, and how can I leverage it?” And, you know, I’d probably do that. But again, that’s not a judgment. I’m not saying everybody should do that. I’m just saying, you know, if you’re really going to do it on your own, awesome. I commend you. That’s great, you know. And heck, I’ll support it. I’ll help it. You know, “How can I help?”
Michael: Well, but, and even in that context, there’s…even if your ultimate goal is that you want to be on your own or you think you want to be on your own, who knows, a couple of years from now, there’s nothing wrong with getting a few years of experience and just getting your feet under you in the industry and finding out what you really actually like to do when the time comes. You know, the accounting world, like, people get their accounting degrees, they get their CPA license and they work in a big firm for three to five years. And that’s their, you know, full thrust situation. And then you decide do you want to climb the ladder at this big firm or do you want to go out as an independent or do you want to join a regional firm, right? And you’ve got a lot of choices once you’ve got a reasonable experience base. And those were just jobs that didn’t exist in the past, right? Like, you either sold stuff or you didn’t survive. So the fact there’s this new category now is fascinating to me.
Greg: Yeah. Yeah, that’s good. It’s good for people.
Tips For Advisors Who Are Interested In Developing Technology Solutions [1:45:40]
Michael: So from the technology end, as we come to the end here, I do have to ask, you know, so looking back in terms of the technology company and the decision to launch a tech firm as a side gig while you’re building an advisory firm, any words of wisdom and experience for other advisors that are maybe thinking about the same thing? They’re looking at this and saying, “I see a gap in the marketplace. There’s a technology solution that I want and I can’t find, and I think I can get someone to build it, and I’m pretty sure other advisors would buy it. And I think I can make a technology company out of this.” Like, any words of wisdom for someone going through that thought process?
Greg: So that’s a really…I get that question a lot too, and that’s a really funny question. To be 100% candid, which is really all I know how to be, I would… This is another one where if somebody specifically asked me that, I’d start asking them questions about where do their passions really lie. And what I mean by that is I don’t recommend to even complementary responsibilities like I found myself in for anybody, because it’s not…you know, it’s not very balanced in terms of other things outside. I mean, obviously, there’s tremendous benefits, tremendous…what’s the word? I mean, there’s a…well, there’s just a great, you know, chemistry between the two. But the reality is if I were…I’ve met many advisors who say, “You know, I’ve done this spreadsheet. I’ve done this analysis and I’ve done this thing and I think it could be a product,” and whatever. If I were to do things differently now, you know, I would say to somebody, find somebody to partner with that takes it like it’s their business. You know, license it, royalty it, sell it, do something.
But, I mean, I’m just saying to really get in the point where you’re this deep into two… I mean, Junxure was never supposed to be… You know, if you’d asked me year 3 when, you know, we had 50 advisors and Ken in Florida, whatever, and we were just trying to make them happy and learning some stuff and fixing something. You know, it wasn’t like we wanted Junxure to take over the world. But it was, “Wow, this is great. Look what we can do now that serves our business. Whoa, look, we can make this change, and look how we can use that in the business,” right? So, you know, it wasn’t supposed to be, “Okay, now it’s this real thing that, you know…I mean, it’s having success. It deserves success. It’s got a bunch of really talented, smart, committed people that want it to be even bigger and better. Okay, let’s go,” right? So then it became. “We’ve got to really mature this company.” And we did that 10 years ago.
Michael: But that’s the challenge, right? Like, if you end out wanting to take it seriously as a business, you’re eventually probably going to have to hire someone to run it, because you can’t do both forever, and you may have to go out and raise capital at some point because growth demands and competition are going to make it hard if you don’t. Unless I guess you’ve got a very profitable core advisory business to cash-flow it.
Greg: Well, no. I never used Private Ocean or former Friedman & Associates to cash-flow Junxure. Junxure has never…those two businesses economically… Listen, fiduciary, Michael. So literally Private Ocean and Friedman & Associates never even got a better deal. We get the best deal that anybody else gets, right? I mean, no, I don’t get surcharged, which is probably luxury. But no, I mean, if I bring in a trainer right now today from Junxure for a couple hours, I don’t get a complimentary just because I’m the boss and I can call somebody and go, “Hey, Julie, come help me.”
Greg: I’m like, “No, no, no, charge it off.” Yeah, absolutely. Well, it’s not fair, right? I mean, I’ve got different stakeholders and it’s not right.
What Led To The Sale Of Junxure To AdvisorEngine [1:49:57]
Michael: So one of the interesting things about podcasting is that we always record these a couple of weeks in advance. It’s just it gives us time to do the sound editing work and prepare the podcast up to cue out to iTunes and all various podcasting services. Except the funny thing that ended out happening with this podcast is that, in the relatively narrow time window of just a week or two between when we originally recorded and then when the podcast was scheduled to be released, it was announced that Junxure was being sold to AdvisorEngine. One of what I call the robo-advisor for advisors platforms. And so these next few minutes is actually being recorded with Greg after the original interview, specifically just to talk a little about the Junxure sale before we can return back into the originally recorded podcast.
So, Greg, we spent a bunch of the podcast kind of talking about why you decided to build Junxure and the opportunity to serve advisors, and now the news has broke that you’re selling the company. So can you share with us what leads to a decision to sell the business? And I guess particularly when you’re not, at least as far as I know, actually planning to retire yet. So this isn’t the, like, “Peace out, so long everybody. I’m done. Had a great run.” What leads to a sale transaction like this?
Greg: Well, it’s a great question, and I’m smiling because this is definitely not a, you know, drop the mic moment and walk away. So one of the things that is really exciting for me is that I have actually been looking on behalf of both the company, the employees, the shareholders, myself for a number of years about what’s Junxure’s next chapter? You know, where do we take it from here. Clearly, I personally cannot, you know, go too much further with it having another day job running Private Ocean.
Michael: That little advisory firm thing with dozens of employees
Greg: Yeah, exactly. So what makes this particularly exciting for me is that it took this long, literally three years-ish to find the right situation that I felt had to check some boxes. So number one, it had to take care of the customers, of which I am a customer. So what I meant by that is, you know, in looking at things like what’s the roadmap? What’s the vision, you know, by Rich Cancro and AdvisorEngine, and, you know, where are they wanting to go with it? Why do they want it? All those kinds of things. That box was checked in spades. And I’ll come back to that in just a second, expand on that.
The second box it had to check was it had to take care of the employees, which this has tied together because if the opportunity is something that we want to come acquire you because we want to grow you and we want to invest in you, then the employees are taken care of. So again, there’s a synergy there between taking care of the customers and taking care of the employees.
And then third, and really a distant third was the shareholders. I felt like if we found a situation that took care of the first two, well, it may not be the max dollar scenario that can happen in M&A, it’ll be enough. And the investors who are side by side with me, I’m the biggest investor but I had friends and family and my co-founder Ken and other people, what we cared about the most was that, you know, we were fairly compensated but that the future of the company, you know, had the best shot at really being successful and going forward. So all those boxes were checked in this scenario.
And, you know, you started your question with, “Well, you built this software company because you want to take care of advisors.” Well, the great thing is everything I was talking about a week ago in the podcast is 100% true. It’s 100%, you know, from my heart. And nothing that’s happened in the last week or two has gone against that. In fact, it’s actually gone for that. I’ll be candid, I’ve been frustrated, you know, like a lot of our customers with how fast we can develop, how fast…you know, the visions and the ideas, of course, are a lot bigger than the ability and the capital to develop it. So, you know, suddenly…
Michael: Yeah, it’s a real-world challenge of just, yeah, you can have all sorts of ideas and vision of what you want the software to do, but, you know, revenue is X, you’ve got these many developers you can afford to pay, they can only churn out code so fast. So, you know, your roadmap gets constrained to the capital, which is just sort of a reality for any software company. But, you know, it’s sort of the plusses and minuses. You never want to take outside capital or at least like a venture capital infusion with the additional money you get to build your vision but the strings that come attached with outside investors with venture capital kind of expectation. So, you know, I mean, I get it from that end. That, you know, you get…just because of the dollars that AdvisorEngine brings to the table, you know, you guys are going to get to do a lot of accelerated roadmap development on Junxure Cloud that you probably just couldn’t do in the past because of the amount of dollars available.
Greg: Exactly. But there’s more than just what AdvisorEngine brings in terms of capital. They have one of the best user experience, you know, of any application I’ve seen. They have a team of designers and technical people that it doesn’t take a lot to envision bringing some of that to Junxure Cloud, for example, as well as some of the functionality around client onboarding and some of the really…I mean, technical term, right? But really cool features that AdvisorEngine platform around client onboarding and things like that can do. And tying that into CRM tightly is really exciting. And that’s just the beginning from a vision standpoint of what, you know, what they’re anticipating, you know, delivering and working on.
So, I mean, I’m really excited. I’m excited as a customer, you know, of Junxure. Because, you know, Private Ocean’s been on desktop from day one, of course, but Junxure Cloud for over a year. And, you know, while we love it and we’re excited with what it does for us today, you know, I’m now really excited about the prospect of accelerating this roadmap.
As well as, you know, I just want to really say something else too. You know, while I love to think we have all the great ideas, I’ve been really impressed with essentially the talent and the thought process and some of the ideas that, you know, are certainly being brought to the table from the AdvisorEngine side that I didn’t see at all, you know. And I thought I knew my stuff, and I thought, “I live in an RIA firm,” and, right, we all think we know are pretty smart. You know, I mean, I’ve had people show me some things and think, “Hey, would it be useful if you could do and if you had this amount of information to run your firm,” and things like that and it wasn’t even on my radar, and I was like, “Yes, that would be awesome, you know.”
Michael: “Yes, let’s do that.”
Greg: So I’m pretty excited about that kind of stuff.
Michael: So what happens for you personally? You know, I know you had a co-founder and some other investors, and all this is in your pocket, but, you know, Junxure just got sold for 20-something million dollars, is sort of the rumor number. So that’s a big chunk of cash. Is that just now you’re comfortable and you can build and not worry about how things turns out because retirement is set? Is this going to sound like the next FinTech company that you’re going to go and make now that you’ve got rid of the last one? Like, what’s…
Greg: I’m still smiling.
Michael: …the next chapter for you?
Greg: Yeah, it’s too bad this isn’t video because you’d see me smiling and saying, “No and no.” I’m going to answer it this way really clearly. First of all, yeah, the numbers are not…you know, that’s…I’m years 56 years old, and no, I’m not retiring. I’m also not interested in starting another company or, you know, I’ve had two full-time-plus careers for 17 years. That’s how old Junxure is. And prior to that, it was just Friedman & Associates. So I’m super excited at working eight to nine hours a day and thinking that that’s a vacation. So I’ll start there.
Michael: Meaning just eight or nine hours a day, just to be clear.
Greg: Just eight or nine hours because that’s what it takes minimum to run a wealth management firm. But for me, that’ll be like a vacation because of what I’ve been experiencing. But, you know, all kidding aside, I mean, you know, I’m 56 years old, Private Ocean’s…I mean, my passion is what advisors and what we do for clients, that’s driven me since my early 20s. That’s what I’ve thought about, that’s what I take pleasure in. Junxure is exciting and awesome and amazing, but it was only in service of helping do a better job for clients and being able to serve more of them in the way that I felt, you know, everybody deserve. So I’m really excited about focusing on continuing to build Private Ocean to serve more people the way I think people should be served.
Technology, you know, I’m maintaining a really great role with AdvisorEngine in a consultant…you know, in what I think I do best, which is really my ideas, my passion, and knowledge around the wealth management industry. You know weighing in on the roadmap, the product, the strategy, which is really where I think is my best, you know, in terms of value. And yet that doesn’t take 40 hours a week, and it doesn’t take…you know, I mean, I will actually have the time and bandwidth to focus on Private Ocean, you know, more than I have been able to in the past. So I’m very excited about that. And, you know, bad news for those who wanted me out of the industry. Sorry.
Michael: Not done yet.
Greg: Not done yet. And, you know, definitely, I’m going to keep writing and I’m going to keep… You know, I love our industry and I love helping advisors. I love helping people not make the mistakes I’ve made. You know, I love things that are in service of providing great advice to our clients. And so I’m very inspired and excited about continuing to do that. And that’ll probably show up in a bunch of different ways.
Michael: Awesome. Well, thank you for taking the time to share some additional thoughts on this. Now we’ll circle back to the rest of the original podcast interview.
Greg: Sounds great. Thank you, Michael.
Michael: So as we come to the end, this is a show about success. And one of the themes that always comes up in the podcast is that success just means different things to different people, sometimes different things to us at different stages in our own lives. So as someone who’s, you know, built what most objectively would call a very successful business or two successful businesses, I’m curious just for yourself, how do you define success from here?
Greg: Well, like, in life or…
Michael: Yeah. I mean, where are you trying to take your time and focus going forward? What’s successful for you?
Greg: Well, I think I’ll answer it this way. I mean, a lot things come to mind. So I’m not trying to be cagey about. It’s just my brain is very active and I go, “Well, okay.”
Greg: I think a lot of things. Number one, I’m definitely…you know, almost New Year’s resolution-ish. I’m definitely committed to a little more balanced personal, you know, because I work extreme. And while I take care of myself and I have my interests, and, you know, I do tennis and, you know, I have my kids and I do things, I definitely plan on putting a little more personal back in the personal life because right now there’s a little of that.
What else? Success. I am really excited and energized about the direction of both companies. I think, you know, when I think of…well, I’ll start with Junxure and then I’ll come back to Private Ocean because, again, I live in Private Ocean. But, you know, at Junxure, I mean, our roadmap, our customer base, I’m very excited about, you know, some things that are coming up. And, you know, I think that…and people are all going to, you know, hear about all this and it’s public and stuff like that, but really, you know, I think that there’s a place for Junxure in our marketplace that’s really valuable and really a great place, you know, for a lot of advisors. And so I’m excited about that.
And then, you know, when I think of Private Ocean, you know, every time…and this is how I think about it, every time we take on a new client, I get very excited about the fact that, you know, we’re helping this family. I love the way we help people. I love the heart we put behind it, I love the science we put behind it, I love the passion that we put behind it. And so when I think of success, you know, if we’re constantly keeping our clients happy, keeping our employees happy, you know, being honest, you know, acting with integrity and getting it right, you know, trying to help people, it’s really exciting. That’s what moves me, that’s what gets me excited.
You know, it’s funny, Richard and I used to talk about this. When we first merged, Richard…we were $700 million or something like that and Richard’s was like, “You know, billion-dollar, billion-dollar, billion-dollar.” And I love Richard. He’s a really great guy and he’s very smart, and he’s great heart, great passion, but the way he was expressing it really rubbed me the wrong way. And I couldn’t articulate it, but it bothered me. He always focused on, “Billion-dollar, billion-dollar.” And one day I had this epiphany. Because I thought about it and I said, “You know, Richard, you and I are not at odds. It just occurred to me we just express it differently. I want to do the most amazing job for clients that we can possibly do. I want to feel great about it. I want to deliver it in a way that has great value. You know, of course, they’re going to pay us. That’s fine. And as a result of that, I want to hit $1 billion, and then I want to hit $2 billion, and I want to hit 5…”
I mean, I’m very growth-oriented and I’m all about goals and growth, but I express it differently. I express it as, “I want our outcome to be X because of focusing on doing amazing work, constantly pushing the envelope of what we can provide clients, you know, really creating great value.” So we weren’t really at odds, we were just expressing it differently. Though that’s kind of a long answer, but it tells you a lot about what drives me and how I think about things. It’s an outcome. Those are outcomes to doing the right thing. Those are outcomes to putting in the hard work. No shortcuts. You know, taking care of people. I’ve been rewarded very richly and very well for living right there. So whenever I’m faced with something I go, “Well, what’s the right thing to do? How can I take care of you?” I’ll let the rest work itself out.
Michael: You know, I like that philosophy that, you know, growth is not a goal, growth is an outcome for serving clients well and doing well.
Greg: Yeah, it feels right. It feels better to me. It’s more motivating to me. That’s how I think about it.
Michael: Very cool. Thank you for sharing this with us on the Financial Advisor Success podcast.
Greg: Well, thank you for having me. I really appreciate it.
Michael: Absolutely. My pleasure.