Welcome back to the 147th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Jeff Dobyns. Jeff is the founder of Southwestern Investment Group, a hybrid advisory firm based in the Nashville area that oversees nearly $3.5 billion of assets under management.
What’s unique about Jeff, though, is the way he’s been able to develop next-generation talent in his firm, with a deliberate focus on not hiring experienced career changers or advisors with an existing book of business, but instead bringing in new advisors in their 20s and giving them the opportunity to learn alongside experienced advisors from day one in a 2-year mentoring program.
In this episode, we talk in depth about the two-year mentoring program that Jeff’s firm has built. Why Jeff views it as so critical for new advisors to spend the bulk of their time sitting alongside a senior advisor in every client meeting. How they compensate their new advisors while they’re effectively being paid to learn, how they split the cost of talent between the firm itself and the senior advisor who’s being supported, and the tasks that they ultimately hand off to the new advisor to create value for the firm while the learning process is still ongoing.
We also talk about the marketing approach that Southwestern Investment Group has used to grow to nearly $3.5 billion of assets under management over the past 17 years. The way the firm got so deeply involved in Dave Ramsey’s Endorsed Local Provider, ELP program, the effective return on investment that Jeff’s firm has gotten by proactively spending money to get leads, and how Jeff handles the concern that Dave Ramsey is viewed as somewhat controversial by some within the advisor community itself.
And be certain to listen to the end, where Jeff talks about the way he structured leadership within the firm to handle the load of managing more than 100 employees, the way he involves senior advisors of the firm in leadership decisions by creating a Leadership Board, and why he continues to be so focused on attracting and retaining even more next-generation talent into the firm.
What You’ll Learn In This Podcast Episode
- The Roots and Evolution Of Jeff’s Mentorship Model [04:48]
- How Does Jeff’s Firm Manages The “Turnover” Problem [19:41]
- How Jeff’s Firm Transitions Clients [28:19]
- Where He Finds Good Candidates For His Training Program [38:20]
- What Jeff’s Firm Looks Like Today And How He Leveraged Dave Ramsey’s Referral Program For Early Growth [50:43]
- Jeff’s Firm Under Raymond James And Its Equity Structure [1:06:20]
- What Surprised Jeff Most About Building His Business [1:25:29]
- What Success Means To Jeff [1:35:27]
Resources Featured In This Episode:
Southwestern Investment Group
Edward Jones GoodKnight Program
Dave Ramsey SmartVestor
2nd Generation Capital
Half Time: From Success to Significance by Bob Buford
Michael: Welcome, Jeff Dobyns, to the “Financial Advisor Success” podcast.
Jeff: Hey, Michael. Thanks for having me.
Michael: Glad to have you on the podcast today. I’m excited about this discussion around the dynamics of building advisory firms and bringing in young people. I know you spend a lot of time at your firm with mentorship programs and kind of building teams and figuring out like, what is this process about how you try to support advisors that are either coming into the business or just starting to grow through that middle stage of the business? And so I’m just really excited today to talk about what that looks like or what you guys have found that works for bringing advisors in and trying to develop them.
Jeff: Oh, it’s great. That wasn’t necessarily always our mission, but I think as we kind of get started and the business evolved, that’s become an area that we’ve really been focused on. And I think it’s been a lot of fun and created a lot of cool opportunity for a lot of young guys. And I think they’re serving the clients well. So we’re excited.
Michael: It’s such a shift, to me, in the industry overall that, for folks that have been in for, I don’t know, 15, 20-odd years, we still kind of remember the “old” days where there were lots of big training programs. Most people got hired by major firms: wirehouses and large broker-dealers and large insurance companies, and they all had training programs. Maybe a little bit more sales-centric, a little bit less advice-centric, some more than others, but they trained you and got you up to speed about how to do this client thing and get some clients and keep some clients.
And so many of those programs have been wound down over the years I think in part because of the growth of the independent movement. They figured out after a while that they were mostly just training people who would leave them and go independent, so they didn’t want to put as much resources into training anymore. And I feel like it’s left this void that we’re now all sorting out one firm at a time of, how are you supposed to train and develop advisors as they come into business and grow their careers over that first 3, 5, 7, 10 years before you really get like a full client base and traction and you’re on your way on your own?
The Roots and Evolution Of Jeff’s Mentorship Model [04:48]
Jeff: Yeah, it’s interesting. When I think back on a couple stories or ideas that have helped me is, I fortunately, I guess, in hindsight, it was pretty frustrating at the time, but when I came out of school, I was going to work at Merrill or Edward Jones, but I had a family friend, this was in the kind of late ’90s, that was an accountant, had a great tax practice, was really well respected, and he was trying to get into the investment business. So a lot of CPAs at that time were trying to start an investment practice. And so I interviewed and was going to work in one of these big firms, but somehow or another, he convinced me that, “Jeff, this is an opportunity that really could take off.”
And I think the thing that I learned there that was really helpful, it was the power of kind of this mentorship and being trained one-on-one. Obviously, with small tax practice, there wasn’t a huge training program. But what it did allow is I was just really able to be in the hip pocket of my mentor. So I spent a year in the…every meeting, every follow-up, every discussion after the client interaction with this guy who had a PhD in tax and was an MBA and was just a really, really sound practitioner. And I learned, I think, significant amount in that first year that I could have learned in 5 or 10 years of being in the business and spending a lot of time cold calling.
And so I think that lesson has really stuck with me. And it’s been something that I’ve really tried to focus on, how do you shorten the runway for somebody getting in the business? And I think the key to that is allowing them to be in the hip pocket of somebody who’s really actually talking with clients and doing planning. And the more time they can do that, the better.
Michael: So I know that the challenge for so many firms, and I’m kind of curious even to know how this evolved for the firm that you went in with, particularly for where the business was 20 odd years ago, I think the challenge for most firms is, hey, I’m going to bring in this person, I’m trying to figure out like, how do I get ROI on this as an advisor, as a business owner? And for a lot of firms I know, the first thing they do when they look at this and say, “How do I get ROI,” it’s like, “Well, I’m not sure, but I know the one thing that doesn’t get me ROI is having the person in a meeting I was already going to be in and do all that stuff anyways.” Right? So we tend to split new advisors, associate advisors, paraplanners out, like, “Okay, you do all this stuff in the shop, in the firm, in the office so I can go out and see more clients.” And that’s how I leverage myself up and grow the business.
And I think there’s some validity to that from the pure like, separate task or the business end, but then that person’s not in any meetings, they’re back in the office, while the lead advisor is out in meetings. So what was it about this firm or the opportunity that they even just took the path of putting you in meetings from, it sounds like more or less day one? Because that’s even a struggle now, that was really not common 20 years ago.
Jeff: Yeah, you’re right. And I think part of the reality there is, it was just almost out of necessity because I was 22 years old and knew nothing. So I think if he wanted me to learn from him and have the same principles and the same methodology and the same thought process and service the same way, then the only way I was really going to be able to see that is to spend quite a bit of time with them.
Michael: And I guess the irony is…was this basically a solo advisor, like a solo CPA?
Jeff: It wasn’t. It was a 20-person practice, but there was…he was obviously the lead practitioner, and there was four or five other CPAs, and then a significant amount of support staff.
Michael: And so from his end, like, “I don’t have time to train you, so just come along with me instead” was the solution? It’s an interesting point for, particularly a lot of solo advisors, of just saying like, “Hey, you can’t figure out how to find the time to train your person? Just literally bring them along with you to everything and train them as you go. And at some point, you can start letting go of some tasks to them because they’ll see you do it over and over and over again when they come with you to every client meeting.”
Jeff: That’s right. And I think the thing that’s been neat for me to watch, and maybe that was kind of the way that this all was supposed to work so I could really learn that, but I have two good friends that I think about a lot now, fast forward 20 years that I look back, and one worked for a big firm that you would know. And he was going to take over a significant part of the book of business from his senior advisor. And so he’s in that guy’s office for the first 9 or 10 months before he goes to his office, and I said, “Hey, have you seen a lot of his meetings? Because you’re sitting literally 5 feet away. You can knock on the wall and he would hear you. This guy’s been successful. Been dealing with these same clients, been doing it the way that your company wants them to do it for 40 years, you’re about ready to take over a significant part of his business, surely, you’re spending a lot of time just watching him in action.” I’m just a firm believer people pick up quite a bit more than what you tell them in observation.
And he said, “Gosh, I’ve never really sat in any of these meetings.” Which just blew my mind. It was just, I think a short-sighted vision of the firm of saying you need to be making phone calls or you need to be studying or whatever the philosophy was. And I just thought, “Man, what a wasted opportunity to have a guy who’s been doing this for 40 years, is wildly successful, and another young guy, he wants to break in this business and is really interested in doing it, and yet he’s not able, for whatever reason, to watch that in practice.” And it just made me frustrated that that was such a great opportunity. It would have been worthwhile for him to give up all his income, or whatever additional value the firm thought he was going to pick up by meeting with clients, and pay that to really invest in his long-term education.
I had another good friend of mine that was going to…worked for another firm here in Nashville. This guy had all the pedigree. His family sold a business for a bunch of money. He was really smart, worked for a company for 10 years or so. And so he was going into the business. And I called him one night, six or nine months into the deal and asked him how he’s doing. He said, “Gosh, I’m been studying all day on 529 plans. I’ve got a…finally have a prospect tomorrow that’s willing to meet with me. Owns a business, has children, and so I need to learn about 529 plans.” I said, “Gosh, is there not anybody there that you could have asked in 5 or 10 minutes, kind of got a debrief of, ‘Hey, here’s…there’s 100 different 529s, here’s the one that the company recommends and here’s why, and here’s how you explain it,’ and let him move on down the road.” And he said, “No, nobody here would help me with that.”
And six or seven months later, he was out of the business and moved out of the city to go to law school. And it was just like, that firm invested a lot of money in him, and he had put his whole life into this business for that year and failed because nobody was willing to kind of do that one-on-one. And I just think that’s…I’ve seen it not work well.
Michael: So for you, when you went down this road, what were you doing in that first year aside from show up in a meeting while PhD, CPA guy nerds out and does what he does? What did you do?
Jeff: Yeah, probably not much of value. But I do remember going back and working on the follow-up and working on the projections and working on… And as a old professor, I would bring it to him and he would say, “Jeff, don’t let this hurt your feelings, but I’m going to pull out my red pen.” And so he would just tear up the whole document I had written and make notes all over it and kind of like he was flunking me in and hand it back. And so I’d go back to my office and rework it and study what he had written to the clients in the past and really learn, okay, what’s he looking for? What’s the voice that his clients know from him? And how can I emulate that? And so I’d bring it back and get a little better.
And so over the course of those three or six or nine months of really keen observation, you just start to…you could finish the sentence for him. And so I just focused on that first year or so of just gleaning every bit of intel I could get on. This guy has been successful for 40 years, what is it that he says and does that the clients respond to? And how can I try to emulate that?
Michael: And so is that still largely the approach that you take today? As advisors come in, you try to pair them up with an experienced advisor and just put them in as many meetings as you can?
Jeff: That’s exactly it. I think we, probably 8 or 10 years ago, formalized and made it a much more thought-out process of what this training looks like. But we now have it as a two-year kind of commitment from the advisory and the young mentee. And so really the course of that first two years, the majority of the time, primarily that first year, is really observation and sit in as many meetings as possible. And when there’s downtime, working on follow-up, and then coming back to the lead advisor to kind of share what he’s done and see what recommendations and advice should have to happen.
And then we found after that first year, when you’re really just pouring into them and spending a lot of time teaching, second year, they’re actually able to add some value. And they can do kind of paraplanning work and do some client service work, and then even do some prospecting and client meeting. And so really at the end of that second year then I feel like that advisor has had more time in the saddle, had more interaction with clients, real-life planning experience than they may have had in 10 or 15 years of kind of the traditional wirehouse firm, where it’s a ton of prospecting and very little client interaction.
Michael: So from the firm end, I guess I’ve got a few questions. One is just, how do you think about the investment of time, the implicit investment of dollars? Like just, wearing your business owner hat, like…well, so I guess even clarifying like, do these folks get paid a salary? Is there a base income when they come in and do this or you’re kind of literally like, “I’m paying you a salary to show up and listen and not necessarily even be doing a lot of the work yet?”
Jeff: Yeah. And I think that what we’ve found is, after a few months, maybe three, four, five, six months, they’re actually able to do some work that is adding value. But you’re still spending a significant amount of time with them. But that first three or four months, yeah, I think we’re doing nothing but observation really exclusively, and maybe some studying. But the next phase of it is really trying to evolve them to be able to do all of the support work that they will need to oversee once they’re successful. So the nice thing is all of the advisors in our practice, they know what everything from A to Z looks like. Because during that first two years, they’re doing that, from opening client accounts to all the nonsense that you need to do in the back office. But they’re also seeing a ton of meetings, and they’re seeing the thought process after the meeting about, what’s the advisor thinking? And how does he interact with the paraplanner? And what are the thoughts that need to go into that follow-up?
And so, yeah, that first year, there’s really an investment primarily into the mentee. And so we’ve got a salary that over the years has increased. I think it’s somewhere in the $35,000 or $40,000 a year that first year. So that young guy knows he’s not going to get rich, but he does know he’s going to get trained really well. And then the second year, I think there’s a slight increase. And the company pays, if I remember right, about two-thirds of that salary the first year, and then maybe it’s 50/50 or so the second year, and the advisor shares with it. And, yeah, in the early days, so we’ve been doing this nearly 20 years, in the early days, I was the one doing that every time. So we’d have a new person come in, and then after he was finally up and running, we’d do it again. And eventually, I kind of realized I couldn’t do that anymore.
Michael: Because it’s just tiring doing all the training or just the, like, effectively the turnover, because you’re always turning your own team over?
Jeff: You are. And you’re just starting with the young guy and teach them how to turn the computer on and how to log in. And eventually, that just became exhausting and counterproductive. And so the beauty, though, is we continue to turn out young advisors that were able to be really successful, and then they were able to bring in new people, and this kind of process has been repeating. And so we actually just have kind of a new person in my direct team that’s been here three or four months that I’m really excited about. But I haven’t done that in the last seven, eight, nine years. So the rest of the advisors have been able to bring on the new people. And that’s kind of shared the workload. And those younger advisors are a little bit more…have a little bit more energy, so they’re able to bring in somebody and train them. So it’s worked well.
Michael: And I guess, and it’s worth noting, you guys are based in essentially, Nashville area, Nashville suburbs. So I know, at least for some parts of the country, $35,000 to $40,000 base salary would be a tough number for them. But I would imagine for Nashville, you’re not living like a king, but if you’re early 20s…
Jeff: You can get by.
Michael: …our expectation is really usually a little more modest. So like, I’m getting paid, I can pay rent, and I’m learning. Cool. Cool.
Jeff: Yeah. And I think we’ve had some guys that have said, “Gosh, I would pay to go to MBA school to learn this.” I’ve jokingly told some of my colleagues at Raymond James, I’d give up my income for a year to come watch them for a year to see what they’re doing. Because they’re really, really good at it. And I’d love to just see how they do it and how they operate. I just think that’s how people improve radically, is to watch other folks that are doing really well at it. So yeah, I think we’ve…there’s a select group of people that are willing to invest in themselves, and the advisors are willing to invest in the younger person. And I think that’s what you need, at least in my opinion. Otherwise, you just have a practice that has a couple of older folks in it, and it’s just really hard to get young people to become successful.
How Does Jeff’s Firm Manages The “Turnover” Problem [19:41]
Michael: So the classic challenge around this is essentially the hire, train and leave kind of phenomenon. It’s why I think a lot of the large firms have cut back on their training programs over the years. So does this happen for your firm? You put them through their two years and they’re like, “Yep, thanks, going somewhere else now. You can train the next new guy or gal coming in?” Do they tend to stay? Do you worry about this phenomenon of, you put all this effort into them and time where you at least not necessarily getting a huge ROI for the business just to have them leave?
Jeff: Yeah. What’s interesting is I think that we have a high, extremely high probability of success. If a person comes here, they’re obviously not quitting in that first two years because they are learning a ton.
Michael: Yeah, you’re getting a salary to learn. Because as long as you don’t overspend your lifestyle and can live on this salary, that’s pretty good deal for most people in the first year or two.
Jeff: That’s right. So we have a 90% or 95% success rate. I guess if you were to compare that to the wirehouses that are 15% or 20%, I think it’s money well spent for the company. But the other thing it really does is it radically helps, and we can talk about this too, but it helps the senior advisors. That’s where, not early on, but the long-term vision is that the senior advisors are able to really grow because they have somebody that they’ve handpicked and hand-trained to be a perfect complement to them to help with their practice. And so that’s the leverage of the young person. So after the two years, which we’ve had a really high success rate of getting people up and trained and ready to go to the kind of next phase, then we…that training period used to be a little shorter, and we felt like two years has become kind of a good formal training period.
And then I think we’ve had kind of this option to say, “Okay, listen, after this, we’ve got a couple of choices.” One is that advisor could go on his own and the older advisor would segment book of business to him. Which obviously makes a lot of sense because that advisor has been working on the team. He knows a lot of those clients. So he’s able to start with a book of business already. So probably not unlike the Goodknight program at Jones or other firms where the senior advisor is able to segment and feed that new person who’s gone on their own. So we’ve had a lot of folks do that. Or we say, “Hey, listen, it’s working really, really well. We’ve been casually dating for the last two years, so maybe we’ll date for another three to five years.” And so, we have a lot of folks doing that, where they kind of partner up for another three to five years. And we’ve seen some huge success out of that, of advisors really growing well. And then at some point down the road, the advisors say, “Okay, let’s either kind of get married up and be partners for the long term,” or there’s always an opportunity to kind of go on their own and segment a book of business to the mentee.
Michael: So from the advisor’s end, what’s the appeal to carve off like a segment of their clients to the junior advisor? Do they treat this as like a partial sale of their client base? Do you do some revenue-sharing split? “Hey, you’ll make a little less because the other guy is going to split part of the revenue, but you don’t have to see the clients anymore. So this will be good for you in the long run?”
Michael: How do you get people on board with doing that? Because I know for a lot of firms, they kinda like to hold our clients close and not hand them off to someone.
Jeff: Well, I get it. In fact, I went through CEG probably 2011. And the very first weekend, all they talked about was the importance of segmentation and having a client base that you could service. And I think at the time I had 700 or 800, 900 clients.
Michael: Oh, holy cow, that’s a really big number.
Jeff: Yeah, it was huge. And so I spent the whole year, unfortunately, I kind of feel like I didn’t learn a lot of what I could have at CEG because I basically got stuck in Chapter 1, verse 1, which was the segmentation. And to your point, it took me a whole year to really get the courage to segment. Even though I understood why and I was trained from CEG about the value of it, it was just scary. To your point, it’s not common to want to do that. But thankfully, I was able to do that and was able to seed those clients to three young advisors who were just getting started, kind of going on their own. And they have flourished. And you’ve seen all the studies from…there’s a great Harvard Business study, it’s an old one from I think the ’80s, but about the Goodknight program at Jones and how Mr. Goodknight never wanted to, or, and accustomed Jones to this segment, but he segmented to three different advisors, and all three of those advisors became wildly successful, and Mr. Goodknight became even more successful than he had ever been. And so it works.
So we do have a fee-sharing arrangement. And I think it varies a little bit on the size of the account and whether it’s fee-based and commission and all that. But for all intents and purposes, you are just kind of segmenting and splitting some revenue for three to five years on these clients that you’re seeding to the younger advisor.
Michael: Okay. So how did you get through that process again? Because I’m struck by, built up to 700-odd clients, that’s A, just a really big number, but B, I know if you built that far, you’ve kind of got a good mentality of just getting clients and achieving and building and growing. And so when your mindset has grown that business and client base, it’s really hard to let go of them because it kind of feels like you’re going backward on what you built. So how did you get through that?
Jeff: Well, unfortunately, it took a whole year of I think the coaches at CEG kind of saying, “Jeff, you’re failing the rest of this course because you haven’t passed the first section of the first class,” which is the kind of segmentation. So it was not an easy task. The fear creeps in and the greed and the…and nobody else can do it better than me and all those common characteristics I think we all suffer from. But the math is pretty evident when you really analyze it, that we’re all limited with time. And if 80% of your revenue is coming from 20% of your clients, it kind of makes sense to say, “What am I doing with servicing all these people?” And the fact of the matter is a younger advisor who has more capacity can serve those people better. And so it’s interesting when you look back, I think in 2012 is when I segmented 80%-plus of my clients, but my production has gone up 4 times from 2012 to 2019.
And one of the things that gave me confidence is I said, “Well, CEG is not in the business of getting advisors to fail.” I remember having that conversation with myself a few times. Like, “They’re telling me to do this. I don’t think it’s in their business model for my production to drop precipitously forever if I do it.” So I think going through that program really did help. And that next year was flat because I think I spent too much time on the segmentation and kind of getting my head wrapped around that, but kind of rightsizing the client base. And this allowed me to grow. So it’s been worth it.
Michael: So what did you come down to? Was it a literally like 80/20 kind of formula? “So I’m just going to come down to 20% of my clients. I’m going to go from 700-plus down to 150-ish or less?”
Jeff: That’s right. And then you still have the 20, 30, 40, 50 of those folks that are smaller family or friends that you just couldn’t…from a math didn’t makes sense, but you just couldn’t quite budge. So I’d still deal with…as much as I can preach the value of this, and our team, fortunately, has been able to see it work with me, so we have a lot of the advisors doing the same thing over and over again, it’s still a hard thing to do. And every time you look at those numbers, it’s the same 80/20 rule applies. So it’s something we should consistently be doing. But those same fears and greeds and worries creep in even now.
How Jeff’s Firm Transitions Clients [28:19]
Michael: And so, how did you actually do this kind of trade-off? Like just literally handing off 500-odd clients is kind of a thing unto itself. Was it just, “I’m going to go out to meetings with all these different clients?” Just say, “Hey, meet Johnny. Johnny is going to be working with you going forward. You won’t see me anymore, but trust me, Johnny’s going to take good care of you.” And that’s that? Because I know some firms, transitioning clients is a multi-meeting process over time of trying to get clients comfortable with the new advisor. But you can’t really do that when you’re handing off like 500 of them. It’s going to be like a five-year transition.
Jeff: That’s right. And I think I started…that was part of the reason why it took me long is I really wanted to go that route. I was…had grown this business from scratch. And so I really felt like I needed to serve these people. And I had a loyalty and obligation. But it was such a large number that everybody realized that wasn’t going to be practical. And so the benefit was, though, Michael, is I had all these guys that I was going to transition them to that had been working in my hip pocket, that knew exactly the way that I thought, that talked the way I talked, that were going to care for these people the way that I wanted them cared for, that were going to do the exact same planning and all the things that you would want, because we had been working together. Kind of going back to that original deal of, they were trained and groomed the same way I wanted things to go.
Michael: So what was like the training, timing, and process of this? Had you already been bringing in some younger advisors to grow anyways and then CEG basically convinced you like, “Jeff you’ve really got to hand off a whole bunch of your clients to these newer advisors in your office,” or did it come from the other end of, you’ve got your 700 clients but you’re drowning in them, CEG says you’ve got to segment and hand them off, and then you have to go out and find advisors, hire them, train them, put them through your 2-year process, and then finally you can start handing them off? What was the sequence of this? How you actually kind of made these transitions.
Jeff: Yeah. Fortunately, we had been hiring…ever since I started the firm, we’ve done this kind of hire, train and spawn off into their own practice and within the company. And so at that time, we probably had 20 advisors. And so, those advisors were then bringing in young mentees. And so we had a stable of four really good, sharp young guys that I was able to introduce to those clients and let them know that I was moving on and had responsibilities with the company and managing the firm and all that thing. But I had worked with them and had trust that they were going to serve them well. The irony is, I think if we were able to go back, one, none of the clients cared. I thought that they would just die without working with Jeff, and that they’re just…their world wouldn’t continue. My feelings were a little hurt after I kind of finally bought in and did it.
Michael: And the client was like, “Oh, okay.” You’re like, “I was kind of hoping you’d be a little more upset.”
Jeff: Yeah. “Didn’t I matter a little more than that?” But it’s kind of like, “Well, yeah, Jeff’s great, but we’re excited to work with the guys that he’s introduced us to.” Yeah. And then statistically, I think probably over 98% of those clients are still with the firm. Yeah, so these six, seven years later.
Michael: Well, and I’ve seen a version of this in our firm over the years as we went through some transitions with founding partners that handed off clients to next-generation advisors. That I think there’s this phenomenon that comes, particularly for the bottom half of your client base, where the truth at the end of the day is like, they’re probably not that profitable for the firm. Usually, they know they’re not necessarily that profitable for the firm. They have some sense that they’re probably below your average client. We sometimes I think even unwittingly subconsciously kind of reflect that and how anxious we are or are not to take the next meeting with them or do the next phone call with them. And we deflect them a little more because we know it’s probably not the best use of time to do a long meeting with them.
And I think there’s this effect that happens when you do the handoff. If you set the person up for success, right, like, “You’re going to love working with Jenny. She’s fantastic. She’s energetic and really sharp,” and, right, you put that successor advisor on a pedestal. But I think part of what comes from the client’s end is, “Oh, so I finally don’t have to work with Jeff, who probably wasn’t really going to care about me that much anyways. And I’ll work with Sally, who apparently I’m a really good client for Sally. And Sally is going to serve me enthusiastically. And Jeff, I always sort of felt guilty calling them and asking for a meeting because I know I’m a really small client for Jeff.”
I think there is an effect like that that plays out. I feel like sometimes we don’t always give clients enough credit for being smart human beings who’ve kind of figured out what the dynamic is, and that they might even just get better service when they get handed off to someone else who actually really wants to serve them enthusiastically. As I say a lot, your C client is always someone else’s A client pretty much up and down the spectrum. And so, let them be served by someone for whom they are an A client. And even the clients often figure that out pretty quickly and actually get quite comfortable with the shift.
Jeff: I think you’re exactly right. And I think we increase our own importance. And the fact of the matter is, the clients at the end of the day, just want to be sure that somebody is really concerned and interested in doing what’s right for them. And they figure if a younger person has more capacity, more energy and that works great, they’re happy to do it. If we trust them, that’s a great fit. And what’s really neat is to see some of these clients who are just thriving with these advisors that I never was able to really get that type of traction with. It truly is fascinating to see some folks that are now wonderful. Would be A clients for me, but they’re AA clients for some of these advisors that I transitioned to.
Michael: And they’re just…they’re deeper relationships. You wouldn’t have had the time or capacity to develop, but they did.
Jeff: Yep. For some reason or another, it’s just been a real win. And so at the end of the day, that’s all that you’re really looking for is my clients are able to be served well, we’re growing, and yeah, these other advisors are really successful, and their clients are happy. And I think if we could get every advisor in America who’s been doing this for a while to bring on a young person and train them for a while, mentor them and then segment, I think the advisors would grow their production rapidly, even advisors who’ve been doing it 20, 30, 40 years. And it just really spawns a cool opportunity for the young guy, too.
Michael: I would think especially for the advisors that have been doing it for 20, 30, 40 years to just…if you’re a survivor to survive that long in the first place, you almost inevitably end out with a pretty sizable book of clients, many of whom you probably realistically haven’t called on in quite a while and not terribly frequently, because there’s just only so much time. And we all naturally gravitate towards doing more meetings with our subset of top clients. And so the rest of that book often ends out being somewhat or very heavily underserved anyways. So it really, it does, I think, become at the least a drag on the advisor to still have to worry about those clients, even if they’re not doing a lot for them, and sometimes an outright missed opportunity that another advisor for whom they were a good client might have turned it into an even better client.
Jeff: Absolutely. And I’ve seen it time and time again. And it really encourages you when you see it happen time and time again, because you always wonder, “Well, gosh, did I do the right thing? And is he going to be able to serve them really well? And should I have just kept them? And they weren’t that challenging and I could have handled the work.” And then you start to second-guess yourself a little bit. But I would, as you know, all the studies and all the consultants would say, “I can’t believe we’re still talking about this. Let’s move on. This was a no-brainer.” So it’s easier said than done. I totally get that.
Michael: And I do have to just ask again, do you get worried you’re going to segment clients and hand them off to another advisor and then a few years they leave and take the clients and you just made your business smaller? Do you just not worry about that? How do you handle that?
Jeff: Yeah, what’s interesting is we haven’t had that happen. We’ve got a lot of folks, I think we have 34, 35 advisors now, and we haven’t had one leave where we kind of groomed them this way. And so yeah, I’m sure it can happen, and it’s something…but I think people really understand that they were fortunate to hit a really home run to kind of be in that mentorship program and to really hit success quickly, more quickly than I guess they would otherwise. And so there seems to be a sense of gratitude about that.
Michael: I was going to say like, lo and behold, when you serve them really well and help them build their businesses, a bunch of them tend to just actually stay because it’s going well.
Jeff: That’s right.
Michael: And so, where do you find these new advisors that come in and will take their $35,000 to $40,000 “teach me, I just want to show up and learn” role? I get it, I’m sure there are a few students or new entrants to the profession who are listening to this and saying like, “My God, I really would work for free in a firm that would just let me do this. So if you’ll pay me to show up and just sit in all the client meetings, I’ll move to Nashville now.” So we’ll put your website in the show notes for anybody who wants to go find a job opportunity in Nashville. But a lot of firms I know still struggle to find good talent, good young talent. And right or wrong, I think there’s a mentality out there that millennials coming in today want a lot of stuff and want it fast and may not be patient to sit out a $35,000 to $40,000 salary for a year or two. So where are you finding people that will come in and take this role, and then, my goodness, actually turn into being good advisors and don’t come in and just flake out because it turns out they’re not a good fit?
Where He Finds Good Candidates For His Training Program [38:20]
Jeff: Yeah. Well, one interesting piece of my story is I had that great mentor I mentioned, but I really kind of got stuck in a situation where I thought the third year we had an agreement where we were going to split the profits of the investment business. So the tax business had been in business forever, but I had started the investment business.
And so that third year we were going to split the profits. And we did really well, all things considered as a 25-year-old and 3 years in the business. And at the end of the year, I kind of got a sense that we weren’t going to kind of stick to that agreement. In fact, I think there was a really nice sports car kind of bought. And I said, “Well, that’s just going to come out of your part, right?” Because I didn’t buy a sports car. And thought that would be too complex, I guess, to figure out. And I said, “Well, this isn’t accounting practice, I think we can do the math and figure it out.” So that didn’t work well, obviously. And that’s when I realized how hard it is for even really good people, that small business owners to kind of stick to the plan and to really segment and transition and delegate and all those important things that I think big companies are really good at scaling and doing.
So my background is I was the young guy where I felt like things weren’t…what was promised wasn’t really quite delivered. So I think I’ve been sensitive to what it’s like for these young folks to come in and say, “I want to be sure,” and I see this from time to time, where somebody has worked and kind of that carrot’s dangled, and after a while, that person loses faith and has to go on and do something else. So maybe I’m a little bit more urgent to be sure that that person is successful pretty quickly and really successful. And so that’s why we’re just constantly trying to figure out, how do we shorten that runway and get this person up to a good-level production? Because a blessing in this business is once you’re going, as you know, the business is, if you’re continuing to grow, self-sustaining, and it’s just scalable, and it’s beautiful. And so you’re just trying to figure out, how do you shorten that runway from it taking 10 or 15 years for somebody to do well to making it 3 or 4 or 5?
But to get back to your question of finding the folks, so we’re…you do have to find the right people. If a kid is getting out of school and has got an MBA and has a lot of his buddies are getting salaries at $100,000, $150,000 a year, that’s not going to be the kind of guy that we can partner with. But we do have a guy that went to Vandy Law School, is brilliant, hardworking, but he realized he didn’t want to be a corporate lawyer and wanted to be in investment planning business, and the opportunity to get paid, albeit not a lot, to really get trained well in this business was something that he was super excited about. And it’s worked great.
Michael: So he was willing to do the proverbial, take a big step back to take two big steps forward in the future?
Jeff: That’s right. Yeah. And so it does require…I think something we’ve learned over the years is it’s hard to make this work with the guy who’s 33, been in another industry, has 4 kids at private school, and has been making $200,000 or $300,000, $400,000 a year but wants to be in the business, that’s a real tough thing to make work.
Michael: Interesting. Because the math doesn’t…math just doesn’t work because their family overhead by that stage of life and career just ain’t going to work to take this entry-level role. So I guess you’re disproportionally hiring folks that are in their 20s, where hopefully lifestyle hasn’t crept too much higher yet from living cheap coming out of college. And so, it’s just more affordable for them to say like, “Hey, I’ll pay you to learn sounds great if you weren’t having an expensive lifestyle in the first place.” And you don’t have kids and mortgage and all those other obligations.
Jeff: That’s it. And so your point earlier about just, how does this work from business perspective, it does require that you are limited to finding…you can’t make this work if it’s two years of a training program with a 40-year-old or 50-year-old. So it does require that younger person who… So a lot of us in this business worked for Southwestern, which is an old book publishing company where kids sell books door-to-door 80 hours a week. So that’s a very hardcore, tough business too, but you grind it out and you learn a lot. And so we have probably half of the guys in our team or so worked at Southwestern selling books door-to-door back in the day. And so those guys are really good entrepreneurs and understand people and understand hardworking.
Michael: Oh, interesting.
Jeff: And then the other half were probably similar. They didn’t work for Southwestern, but they have kind of that similar mindset of, they’re willing to put in the work and the effort. And they really are investing kind of in the long-term. And now that we’ve been doing this nearly 20 years, we’re able to show a much more consistent kind of historical track record of how well it actually does work. And we had to start having an extremely high success rate. And senior advisors’ growth rate is much higher, I think, than the average in the industry because they’re having this partner there to able to really…two heads are better than one, and one plus one can be three if you’re all on the same page. And so yeah, it’s been…I think that part’s been a really fun thing for us to watch.
Michael: Well, and as you said, one of the big challenges that crops up for advisors who are looking at opportunities like this is figuring out that question, are they going to follow through on the promise when the time comes? If I do my few years and then I want to take over a segment of the clients, are they actually going to hand off the clients and do it? And having a 20-year track record of like, “Yep, we actually do it.” Like, “Here’s 3 or 5 or 10 other advisors who’ve done this exact path and it worked out” gives the next person coming in a whole lot more confidence of, “Why do I pick Jeff’s firm to work at, not someone else’s?” Like, “Because they’ve actually done this on a consistent reproducible basis.” And that becomes part of the hiring appeal.
Jeff: It does. And I think just that, while you’re hitting that, I think even my experience was good people, so this is a little bit of a public service announcement, is I think, left to our own devices, if we’re not careful, that’s a really hard thing to do sometimes, just to kind of follow through. And even if you have good intentions, it gets a little sticky, and it can be a little stressful, and emotions can run high when you’re talking about pay and ownership and segmentation.
Michael: Well, and I just find there’s this phenomenon like, I almost feel like it’s almost inevitably set up to be stressful when you get there for the senior advisor. Because I find in general, one of two things happens. It doesn’t go very well, in which case, you haven’t had much growth. And if you haven’t had much growth, now carving out a segment of your clients is…now as the senior advisor, it’s like, you’ve got to go one step backwards and hang off a bunch of your clients so that you can go two steps forward. But this doesn’t feel like a growth thing for you now, it literally feels like a, I’m going to lose something and hope I make it back. And I think the natural human instinct at that point is, or I cannot hand of a segment of my clients, and I don’t have to go backwards.
So if they’re not growing, it hurts because it feels like you’re losing something. And then if you are growing, like, well, crap, this is working and I’m making a lot more money. I kind of like to enjoy it now. Right? So as your CPA colleague did, like, yeah, I was going to do that partnership thing, but instead, I’m going to buy this car that I’ve really wanted to buy for a long time. Because it’s going so well and I’m making good money and I’ve put in all this work. And just not even have like an entitled attitude. But just, it’s very easy to feel like I’ve put in this work and it’s grown. I’m entitled to enjoy some of this money. I’m going to do something with it.
And so if it doesn’t go well, you feel like you’re losing something. And if it’s going really well, you feel like you’re still losing something compared to what you would have had. I feel like there’s almost this, you have to hit this Goldilocks point in the middle of like, it’s going well enough, you still want half the clients, but not too well that you just kind of want to keep the extra growth. And it usually doesn’t work out perfectly in the middle. So most advisors I think end out with that moment of truth, of sitting down to say like, “Okay, do I really actually want to follow through on this now that it’s time?” Even with the best of intentions, but to say, “Hey, I grew more or less than I expected, do I really still want to do this trade-off?”
Jeff: Yep. You’re exactly right. And that’s real, and it happens every day. And I think one of my roles is to kind of create the infrastructure in which we can keep everybody moving down to the right path. And it never goes as quickly as the young person wants. But ultimately, you get to that point, and we can kind of keep everybody together, so we have a team that kind of help with these transitions, and say, “Okay, we’re going to kind of walk together with this.” So at the end of this period, everybody is happy and it’s worked really well. And there’s…it kind of keeps everybody moving on the same path. So that’s a very important part. We spend a lot of time and energy just putting things on the calendar if we’re going to get together and talk about this. And we’re going to do it again in a couple of weeks. And I just know most of us, particularly self-employed folks, it’s just easier not to have that conversation. And so, the young guy is sitting there a year or two or five down the road wondering what the world ever happened to the promise when they were hired.
Michael: Oh, interesting. So in essence, part of what you do as a broader firm with this is just basically forcing the conversation, like, “Hey, in case you forgot, your associate advisor is coming up on the two-year mark, so you’re supposed to have that conversation now. So we’re going to put a meeting on the calendar in three weeks, and then we’re going to start this conversation. So, no offense, but you can’t really dodge it because we’re just going to put it on your calendar.”
Jeff: Yeah. And even then, with the…we have some guys that are retiring, and they know that they’re going to transition to the younger person, but it’s kind of working out those details. And all of us are good at procrastination if it’s something that makes us a little uncomfortable. And so I think what’s been helpful is just having kind of the corporate family to kind of be there to say, “Hey, we want this to work well for everybody. This is something that each of the advisors agree is good, let’s just kind of figure out the details and kind of iron out any of the issues.” And it doesn’t have to rise to that level of emotion that I think a small practice… My dad was a small-town attorney, and so I saw that happen there. I’ve experienced it myself in a small CPA practice. I think it’s just normal for humans to get all antsy when they’re talking about selling their business or transition their business or…so I think we’re just trying to figure out a way to kind of take the emotion out of it a little bit.
What Jeff’s Firm Looks Like Today And How He Leveraged Dave Ramsey’s Referral Program For Early Growth [50:43]
Michael: So talk to us more about the firm overall. You’ve kind of mentioned just as we’ve gone like, doing this for almost 20 years, 35 advisors under the umbrella, which is a pretty big number. So can you just paint a picture for us overall of the firm and the metrics of the business?
Jeff: Yeah. So we started a one-man band in 2002. So that was, I guess we’re 17 and a half years in. And so we partnered with Raymond James really out of the gate. So I moved to Nashville after the tax experience didn’t work out as well. And so started from a flat rock and really with a vision that I would try to grow a practice but more aligned to recruiting advisors. That was kind of the objective I thought I would want to go down. And probably have those guys in more remote offices. But ended up partnering early on with Dave Ramsey for the referral…
Michael: Oh, the Endorsed Local Provider, ELP program? Although they don’t call it that anymore. It’s SmartVestor something.
Jeff: That’s right. But in the early days, it was the ELP program. And so that was something I hadn’t planned on, but it was really just a huge blessing for me because I had a lot of time and no clients. So when you’re starting a practice, that’s actually…getting a lot of volume is a great thing. And so, I was able to really serve those referrals really, really well, because I had plenty of time, and I had kind of that…so that was what was needed is that background I had from tax practice and kind of growing and starting a firm. I understood that. And kind of doing it in a way that was kind of a comprehensive planning focus, I think was something I learned in the tax practice. So that was my approach. And so that was maybe a little different than some of the competition.
And so really pretty quickly, we had a lot of traction with Dave’s group. And so they asked if we would take over another market, and then we asked if we could take over another market. And so over those first 5 or 6 or 7 years, I think we probably had, gosh, 8 or 10 or 15 markets that we were the ELP for. And so because of that, I really had to fine-tune this recruiting and training and mentoring process because the volume of clients was growing faster than I could do myself. And so looking back, that was really how all this kind of worked together is that I needed to have somebody that could help. And so I hired a person. He was able to get up and running relatively quickly. Then we were able to do that again and again. So nonetheless, we were able to multiply. And so fast forward now, I think we have nine offices. We have about 105 folks. I think we have $3.5 billion or so of AUM and somewhere around $30 million of revenue.
Michael: Fascinating. And so…I’ve got so many questions here. So let me step back for a moment to Dave Ramsey’s ELP program, which I think was Endorsed Local Professional, Endorsed Local Provider?
Jeff: Provider. Yeah.
Michael: So how did this program work exactly? What did you get? What did you do? What did you have to pay to be in it? Because I think a lot of people would like a, “Oh, hey, we just did this marketing program, now we have $3 billion.” Like, “Wait, how did that happen? Can you talk about that again?”
Jeff: Yeah. So I think there’s a couple key occurrences over this kind of timeline. And so the first one was really partner with Dave and just getting some volume I think was really key. So I first started out doing the ELP market in Franklin, which is a little suburb just south of Nashville. And that was, I can remember it like it was yesterday, it was $2,000 a month.
Michael: Okay. So you paid a flat fee, just $2,000 a month to be in the program regardless of whether you got 1 lead or 100. Obviously, if you didn’t get any, you were going to drop the program.
Jeff: Saying “just $2,000” though was…
Michael: Well, yeah, understood. Yes, when you’re getting going [crosstalk 00:55:05].
Jeff: I was 26 and I was getting started. I was like, “Golly, this is…can I scratch it together?” But fortunately, we were able to do that. Yeah. So I think probably on average, that was getting somewhere in the ballpark of 30 referrals or so a month of people that at least I get at least a warm body or a name and an email or phone number.
Michael: And did you have a sense how many of those would typically convert? Was that like 30 referrals but you were still only lucky to get 1, or 30 referrals and like, “Yeah, we’d really get 3, 5-plus clients a month?”
Jeff: Yeah, I think I was able to get a lot of…now, where I am today, they wouldn’t have been clients that I could take on now. So that’s kind of how this evolution I think of the segmentation really…it’d probably be akin to somebody that started at Jones knocking on doors.
Michael: Right. So you’re paying for the doors to knock you.
Jeff: That’s right. And eventually, then you have to figure out, “Okay, well, gosh, I’ve got a lot of clients here, and we have to learn how to segment.” But yeah, I would suspect it was probably 10 or 12 out of those 30 clients or 30 prospects would become clients. And majority of them are small but…
Michael: That’s a big number. But as you said, small meaning very small? Was this straight down to like…well, I’m thinking back then, like open my $2,000 annual IRA contribution? Those kinds of deals? We’re not necessarily talking about like an ongoing flow of six-figure investment accounts?
Jeff: No. But there would be quite a few that were nice clients. And when I look back over the course of…we’ve been doing that for nearly 17 years now. We have a lot of really, really significant clients that are huge fans of Dave’s and that trusted us because we partnered with Ramsey. And so that’s been a monumental part of our success. But I try to help friends of mine now that want to get in the program, you have to understand that you need…if you’re already in the business and successful, you’re obviously going to have to have a young partner that can help you manage the flow.
Michael: Because you’ve got to handle the lead flow. You’ve got to answer them and honor them. And can you even…can you have a minimum and be in the program? Do the Dave folks get upset if they hand you leads and then you turn them away because you had minimums that they don’t meet?
Jeff: Yeah. Really as long as I’ve done it, we’ve always had folks that have been able to service all of them from A to Z. And so I think that’s been…
Michael: Which again, is part of the segmentation. Like, you won’t get Jeff for…depending on what you are when you call, but you will get someone at the firm who is ready to take you on as a valued client.
Jeff: Yeah, that’s exactly it. And so that’s worked just really well. So we kind of got that process down, and then…
Michael: So leads would come by call? By email? I’m thinking back to 2002, like, “Do we get these by email?” They didn’t fax them to you, right?
Jeff: It’s funny because, just another thing about human nature is, out of all those leads where the people would get my info and I would get their info, I can’t think of probably one or two people that actually called me. So keep in mind, these were people that had gone on the site looking for help. And it just shows you how…
Michael: So they’ll expect you’re going to call them back.
Jeff: Yeah, call reluctancy is something real even for clients. But yeah, I was able to get their email and phone number and maybe what they were trying to accomplish, a little blurb about that. But then we were able to just, in all seriousness, really do a good job of servicing those people, because we didn’t have…that I wasn’t distracted with other clients. And so then Dave went on a big station in Dallas back, so this was probably in ’05 or ’06, and needed some good investment folks. And we had developed a great relationship. And so we opened an office in Dallas and moved several of our advisors here to there. And now that’s grown. And I think we have 12 or 13 advisors in North Dallas.
Michael: And so with Dave’s program, just like they carve up…it sounds like you’re saying they carve up markets? So like, for $2,000 a month, you get all the leads in this zip code or this group of zip codes, and that’s your territory. And if you want another territory, another group, a zip code, you pay another $2,000 a month for those. Was that the structure to it?
Jeff: Yeah, that’s exactly it.
Michael: And you get to be exclusive in those zones or is it still like, it’s always you and a couple of other advisors and you’ve got to call them back fast or someone else gets them first?
Jeff: Yeah. So I think probably two or three years ago, the program went through some serious changes. And so now…back then, you were exclusive or at least based on a particular market, but now you are kind of advertising along with other folks. And so I think it varies depending on the city and the size. But you might be one of 5 or 6 or 7 or 8 or 10 people in that market that are in the program.
Michael: Okay. And did the pricing change as well? Is it less expensive for you now because you’re getting split amongst others or is it more expensive because there’s been a lot of inflation in the cost? How does it look today?
Jeff: I don’t know actually. I’ve kind of gotten out of the weeds on the details of it now, but I think that the…probably the price per lead is down but the volume is up significantly. But also, the fact that they’re having other folks call them has changed.
Michael: Oh, interesting. So volume’s still up because just Dave Ramsey’s platform continues to grow and have more reach.
Jeff: That’s right. Yeah.
Michael: Okay. It’s interesting. And I’m just curious for people I’m sure who are listening or wondering, just what does an average prospect look like when it comes through that program? I get it, you’re going to run the gamut, but are we doing a lot of $5,000 IRAs? Are we doing like a bunch of $50,000 accounts? Are we doing like hundreds of thousands of dollar accounts? Do you get a bunch that are just, “I need debt help and other things” and there’s no investment opportunities at all and you’re charging them for plans? What is the range or the typical opportunity look like for clients?
Jeff: Yeah, I think it’s probably all across the map, but you have, and I’m just broad-brushing here, so no statistical data to back this up, but you probably have half or so who really need to focus on debt, and they’re folks that are early into the program and paying off debt and building wealth. So we try to encourage them to stay on the program and to continue paying off debt. There’s probably another 20%, 30% of them that are ready to invest some amount. So yes, funding IRAs, potentially, or have a rollover of $20,000, $30,000, $50,000 from an old 401(k) plan. And then there’s maybe another 10% or 20% of people that have half a million, $1 million, $5 million, $10 million, $50 million to invest. And so it really is the whole gamut. But for us, it’s just been…it’s been an absolute blessing for us to have that flow, and it’s allowed us to scale
Michael: And it continues to just be like a flat fee structure for market. They don’t do revenue-sharing obligations the way that some platforms out there do?
Jeff: That’s correct. Yeah. I think it’s just a monthly fee still.
Michael: Interesting. And so I’ve got to ask, from broad consumer perspective, Dave Ramsey has a huge platform, a huge reach, right? That’s why they can have this program in lots of different markets and literally charge for lead flow and be able to sell those opportunities to multiple advisors at once. Within the industry, I know Dave has a, shall we say, somewhat controversial reputation within advisor world itself around recommendations he makes and the infamous growing stocks at 12% compounding discussions that crop up every few years. So how do you look and think about this wearing your advisor hat? Are our advisor industry criticisms of Dave Ramsey overblown? Does it just not bother you? Do you look at it a different way? How do you think about sort of Dave Ramsey versus advisor industry?
Jeff: Yeah. It’s funny, I was just flying back from vacation the other day, I was out of the country, and I was reading the news at 4 in the morning because I couldn’t sleep, and read this great article about this young couple that paid off $150,000. I think it was on Fox Business. I’m kind of reading how they do it. And they said that they just got on Dave Ramsey’s bandwagon and they’ve paid off all this money, and now they’re investing all this. And it was just a wonderful article about the impact that Dave’s principles have had. And it just motivated this couple to just change their whole lives.
And so I’ve seen that scenario play out literally thousands of times with people that I’ve worked with or know. So to be honest with you, I don’t get too into the details of the controversy about the rates of return or asset allocation. I think the majority, if not all of the folks that we work with, they love the idea of long-term investing, and borrowing a bunch of money and credit cards and whatnot is dumb. I actually just met with a person today that sold half of their business for $30 million, and they had a mortgage. So that’s not the end of the world. That would probably be contrary to what Dave would talk about. But you obviously have people that come from a wide range of backgrounds that have different philosophies.
But I would say that our general philosophy, and I think actually, this all comes back even to the principles I learned as a young guy with the CPA practice, is a lot of the principles Dave talks about are ones that I was…kind of grew up with and was trained with in the business. My accountant mentor would tell people that even though he understood, obviously, the tax reduction of mortgages and all that, he would have all these wildly successful people, encourage them to pay off their debt. And just felt like that that was something that was good for his clientele, when they could do that. And so I think I learned at an early age that some of those principles were very valuable and I could agree with. And so, yeah, I think it’s been a wonderful set of folks to work with because they are not looking to get rich quick. They understand that the market goes up and down, and they want to have somebody that can help shepherd them through this process.
Jeff’s Firm Under Raymond James And Its Equity Structure [1:06:20]
Michael: Very cool, very cool. So in terms of the firm overall, you mentioned kind of almost $3.5 billion of assets under management, 105 team members, 35 advisors, and the structure around it. So is this a…how does this structure under RJ itself? Are you technically a super OSJ over a whole bunch of branches? Are these all literally employee advisors of your firm and everything conduits through your firm? How does this actually work structurally?
Jeff: Yeah. So we are all employees underneath this company of Southwestern Investment. So we’ve been partnered with RJ, I said since the beginning. We started an RIA probably five years ago or so. We’ve had maybe one or two circumstances where we’ve made acquisitions in the older advisor. We’ve done kind of a 1099 relationship. So that’s something that we’ve done from time to time is we’re kind of acquiring a practice or two. But the majority of us are all W-2 employees of the firm.
Michael: And so equity is owned by you? Is multiple advisors? How does that work?
Jeff: Yeah, the majority of all of the advisors. So we have a equity plan based on production. And once an advisor hits a pretty minimal level of production, then they have the opportunity to kind of buy into the equity plan of the firm. And so yeah, we probably have, gosh, 30 or so of the advisors that are participating in the equity of the company.
Michael: Interesting. And how do you figure out how to value that? How do they afford it? Do they buy in? How does that structurally work?
Jeff: Yeah. So we do a valuation each year. And then we actually have a plan where they’re able to buy in over 10-year period evergreen half of the shares. And so they buy half of those shares over 10 years. And then when they retire, when we all retire, then we will purchase the other half through an evergreen purchase. And we’ll have paid off half of it. So it’s a program that we’ve kind of borrowed from other firms, and it’s been…it’s worked really, really well. So our goal is for as many of the advisors to be shareholders is, it just seems to be another part of that plan where it’s only employees that own the stock. And so when they retire, we’ll all buy it back. So, only people that are responsible for the growth of the company now will enjoy the appreciation of the stock.
Michael: So I just want to try and understand. So they buy half their shares upfront, which essentially means like, you own them, you’re going to pay them off over time, but like, you are now an owner, you have the equity stake, you participate in appreciation, you participate in profit distributions and such. So how does the other half work? Is this like a phantom thing, you’ll get the growth between now and then, but not the distributions along the way, so you’re incentivized to stick around?
Jeff: That’s it.
Michael: So it’s like a phantom equity thing?
Jeff: A phantom equity. Yeah. That really, they own the distributions, actually, and the appreciation, but they just don’t have to pay for that until retirement.
Michael: Oh. So it’s functionally like an option. So you don’t have to exercise it until you retire, at which point you basically buy your shares and sell them back and get your appreciation, except they do participate in the profit distributions along the way?
Jeff: That’s right. And so they really, it’s just a way to help with the cash flow of the purchase so that way they’re…the whole goal was we wanted everybody, even the younger advisors that were getting going, to be able to afford the equity.
Michael: Because now they’re essentially getting…they’re getting profit distributions on 100% of the shares, but they’re only paying for 50% of the shares upfront, and they’re financing those over 10 years. So the cash flow gets pretty manageable at this point.
Jeff: That’s it. Yeah.
Michael: Okay. Interesting structure. Out of curiosity, just what’s the entity structure for making that work? Is this like a really complex LLC operating agreement that carves these things up?
Jeff: It is fairly complex, but it’s…I think it’s working well, because really, it’s a way…I really just wanted everybody…from the beginning, this has been a philosophy of ours that everybody owns the business. And so I think it’s critical. You evaluate this over time and say, “Gosh, is that the right way to do it or should we have a select group of shareholders own it?” But I think part of our success, and I’ve seen some other firms here in town that have really scaled nicely and I wonder, “Well, gosh, what are they doing right?” And it’s funny that not all of them, but majority of them have similar equity ownership, where people even on the ground floor that are just getting started have the ability to participate if the company does well. And I think that’s been one of the keys to watching us grow over the last 17 years or so is that everybody can participate. And it also means that everybody is engaged and involved in the success of the company.
Michael: And I guess the caveat from your end is, and you always got to keep enough cash around to buy out shareholders if they leave or retire, with the caveat I’m assuming you get to finance it on the buyback as well so you don’t get liquidity squeezed? Or do you pay them off entirely when they sell back?
Jeff: No. And we have the option to obviously buy it back, but we are motivated to do that. But we can do that with cash reserves. Plus, you’re constantly having…as long as you’re growing, you’re consistently having new people that are buying in. And so it’s able to cashflow pretty well.
Michael: Oh. Because in practice, as long as you’re growing, even when someone exits, just like, “Well, I know where the shares are going to come from for the next person coming in, just going to rotate them down.”
Jeff: Yeah. And I think that just maintains kind of this passion for growth, right? It doesn’t work if we are just kind of maintaining. And it’s kind of an interesting thing because I see a lot of really successful advisors, but, and this is kind of the burden maybe that I’m always fighting myself is how do I just never allow us to just maintain? Because I think any other…people talk about if you’re not growing, you’re dying. And I think there’s a lot of truth to that. I just know that we have a methodology and a philosophy that we all want to grow. We’ve been fortunate to really have a good business. And so it’d be silly if next year or the year after or the year after we’re not building and scaling. And so I think that keeps the philosophy that all of us we’ve got to maintain.
So there’s hiccups with that. We’re dealing now with space issues. And those are hassles that you have if you’re growing. But we just are committed to growth. And so I think that that keeps us energized to try to say, “Okay, well, we’ve got to continue to have a successful recruiting program. We’ve got to have a successful training program. We have to have a successful mentorship program. We have to be sure that the senior advisors are thriving and doing well and want to stay and are happy.” But if you can do all that, then the cool thing is everybody wins and the business is scaling. And I’m hopeful where it’ll be in 5 or 10 years.
Michael: Yeah. And as advisors buy in, how do you determine how much they get to buy in? Because you’re at a size where you can move a lot of equity around or a relatively small percentage, and all the numbers are actually kind of big when you’re moving off of a base of $30 million of revenue. So how do you set or figure out how much advisors are allowed or get the opportunity to buy in in the first place?
Jeff: Yeah. So we just created a scale that had a X number shares at each profit level based on each dollar of production. And so once you’ve hit a level of production, there’s a grid that shows how many shares you’re able to acquire at that level of production. And then if you grow the next year, you can acquire the shares above that threshold.
Michael: Oh, okay. So if I stopped growing and I plateau, I don’t get to keep buying more shares. I got [inaudible 01:15:04], but I don’t get more access to the pie unless I literally make the pie bigger by outgrowing my old threshold.
Jeff: That’s right.
Michael: Interesting. Who sets this up? Was this a thing you guys just kind of figured out on your own? Is this a consulting firm that structure this? Is this like an internal thing that Raymond James does?
Jeff: No, there’s a…a consulting firm has helped kind of this family of companies for 25, 30, 40 years probably with this similar structure. So we’ve just emulated that.
Michael: Can I ask who they are? I think there’s probably other advisors that would like to give them a call.
Jeff: 2nd Generation Capital is the group that is kind of overseeing this for probably the last 25, 30 years. They’re a local Nashville group.
Michael: All right, very cool. So for folks that are listening, this is episode 147. So if you go to kitces.com/147, we’ll have some links out there to the consulting firm if you want to try creating a structure like this. It’s a very interesting structure. I can certainly see just the fundamental alignment that you get of, you want to be a partner, great, contribute to the growth. You want more shares of this great opportunity, grow more. If you’re making the pie bigger, you’ll get to have more of the pie. Then everybody’s kind of aligned towards growth. And at least if you don’t grow at that point, you made your own conscious decision to not continue forward and participate in more equity.
Jeff: That’s it. And I think the idea is, obviously, you’re not adding additional profit to the rest of the group is if you’ve hit a threshold and plateau, there’s nothing wrong with that. But the rest of the company is growing. You’re not participating in that necessarily, so you shouldn’t be rewarded for that. So yeah, I think it’s a…going back to kind of my background of what I experienced as a young guy in the business was, man, I kind of thought we had agreement. And I thought that if I did X, then I was going to get paid Y. And lo and behold, it didn’t quite work as well. So I think our whole philosophy has been, okay, let’s be sure that it’s very transparent. Everybody sees the numbers. They see the production. They see the stock plan. Even though we’ve got a pretty sizeable group now, it becomes very transparent on what’s happening. And everybody wins if we all grow, and if somebody grows more, then they should benefit more.
Michael: Right. So talk to me about kind of the organizational structure itself and the role that you play. Because you’ve talked a few times of your client base and what you do interacting with them. One hundred-plus employees is more than a full-time job unto itself to handle that many people. So how does this work from like a management and leadership structure for the firm?
Jeff: Yeah, great question. I think in the early days, we had no real management. I was pretty good at leadership, but I’d had pretty poor management skills and quite frankly, just wasn’t interested. So that really required…it was kind of like, “Hey, guys, here’s the direction we’re running, and why don’t you come on board.” And so we had a lot of hard-charging advisors that were growing and scaling and building. And quite literally, we had very, very little infrastructure. So I think that was actually a good thing in the day because we were spending all of our money and energy in building our revenue. But it was pretty exhausting from a personal perspective because I was doing all the branch management stuff.
So phase one of that I think was kind of…this whole concept of empowering the advisors to run their team was something that was really important as I look back. So in the early days, I was responsible for, and obviously, the team was helping, but we were hiring the admin and doing all that. And it was kind of done at the corporate level. And I think a good change for us was probably eight or nine years ago, where we really allowed those advisors to kind of own and manage that process of their team. And so we want to empower them to recruit and hire good support staff and pay them well and retain them and always be hiring ahead and investing in their teams. So that’s been a philosophy that we’ve had. But that’s…we’ve been able to kind of delegate or transition some of that responsibility to each of the individual teams. But from that, they get a lot of ownership and autonomy on what they want to do. So that has helped a lot.
But to answer your question specifically, now, we have hired a COO just in the last nine months or so. He’s dynamite, was a 25-year veteran from the industry in Chicago. So he’s moved down to kind of really help us with all the operational structure. We have had a full-time compliance officer for probably the last 12 or 14, 15, 16 years. She’s incredible. She has a team of two that help her with all the compliance. We have a really talented CFO that’s been with us from the beginning, part-time early on, and now full-time for the last 12 or so years, doing all the accounting function. And she has a team of a couple to help with that work. And so now as we’ve evolved, we have somebody that does kind of HR role. We have somebody that does marketing. We have kind of a facilities person.
So things have evolved over time. But early on and really until the last, I’d say four or five years, it was really, we had somebody to help me with compliance, we had somebody that helped with all the accounting, and the rest of it was the advisors and I were kind of running the charge. And so I’m thankful for where we stand, but I’m really excited about where we are now, because investing in kind of this infrastructure has really made a big difference.
And then we have about six of our advisors that are paid a leadership kind of stipend, but they make some revenue for kind of being a sales leader and working with a handful of advisors on a one-on-one basis.
Michael: So you’ve got advisors that take on some leadership opportunities and essentially get their regular advisor comp and a kicker for this extra leadership stuff. Then you’ve got some people that are in standalone dedicated leadership roles like your COO, who I’m presuming then is not client-facing at all, is solely focused on just all of these operational functions of how do we manage the firm?
Jeff: Yeah, that’s right. So I’m really excited about having that. I think that’s a hire that we probably should have done five, six years ago, but it’s going to be real good.
Michael: Was there a trigger or something? What got you to the point of doing it now?
Jeff: Well, I think we just realized that…what had happened is our CFO and our compliance officer and a couple of these other folks were really doing everything, and the advisors were out there running around talking with clients and trying to serve them well. And so I think I realized gosh, we’re going to…these ladies are working really, really hard. But it wasn’t fair that they had such responsibility. And so we needed to provide some support. And so that’s…we’ve really been fortunate that they were willing to take on so much. But I think we recognize that in order for them to continue to thrive, they needed to have somebody who could do…take some of the pressure off of their roles that they really weren’t enjoying doing as much.
Michael: And so how does the business get run now on an ongoing basis? Is this like a leadership team that meets on an ongoing basis of certain C-level folks that are involved? How do you run just so many people?
Jeff: Yeah. So we have, and it evolves over time, obviously, as things kind of change, but the system we’re in now, which I’m really excited about, is we’ve always had a Leadership Board, which is primarily…well, not primarily, only advisors and our CFO and our COO. So that’s been something we’ve had forever. So what that really does is kind of just has consistent buy-in and…
Michael: And all of your advisors? A representative group? It sounds like you have a lot of advisors. That would be a very crowded room.
Jeff: Yeah. In the early days, it was all of us because we were small. But now, yeah, I think the Leadership Board is about 10 of kind of the senior advisors that have volunteered to be part of this Leadership Board. And so we meet now once a month. And the goal is that we’re not taking a significant amount of time, and we’re not trying to get them involved with every decision. But I’m just pretty conscious about wanting to be sure that they are in the know of any major decisions and helping get feedback on things that we’re doing on a weekly basis that I want to be sure that they’re staying in the loop in. But all these are advisors that are out there working every day to serve their people.
So I spend probably 30%, 40% of my time on this kind of company leadership stuff. And so trying to set culture and ensure that we’re making the right decisions and doing those kind of things, and then the 70% or so, working on my individual client base. And so now we’re really having kind of this senior level of our COO and his team and our CFO and her team and our compliance officer and her team really working on the day-to-day of running the business. And us advisors get to kind of come in and chime in and make suggestions and recommendations, and then they’re tasked with carrying it out.
What Surprised Jeff Most About Building His Business [1:25:29]
Michael: So as you look back on the journey, what surprised you the most about path of building a large advisory business?
Jeff: Well, I think it’s been…the thing that probably has been the biggest surprise and challenge because it’s just constantly I’m passionate about it is ensuring that our advisors are thriving and happy and doing well. Because at the end of the day, if we can get more advisors up quicker, get them to be productive and serving clients and generating revenue, then the rest of the business is kind of taking care of itself. So that’s been probably, I guess, the biggest joy.
Michael: So what was the biggest surprise?
Jeff: The biggest surprise, let’s see. That’s a tough one.
Michael: What you thought it was going to be or how you thought it was going to build versus what happened when reality showed up.
Jeff: Yeah. I think, maybe not surprised but we’re changing is we really thought we were just going to go out and kind of buy and train advisors all across the country. So I’ve really used the Edward Jones model and said, “Gosh, we can do this, but we can work at doing it better with more focused on comprehensive planning and lead generation and all that kind of thing.” And I think that my vision of having offices all over really changed when I recognized kind of the value of this mentorship deal. So where I was thinking we might have a one or two-man band in a bunch of different cities, we’ve really thrived by having a bigger office presence in a few cities where we can kind of build off that…
Michael: Oh, interesting.
Jeff: …that successful advisor.
Michael: Right. So bigger offices, fewer cities just so you can get the density of multiple advisors with multiple senior leads in one place where you can bring young people through and develop them and have the mentor there, have the person there that they can go sit in their hip pocket for two years, and then have another one come through and do the same thing.
Jeff: Yep. And then that one that was in the hip pocket a couple years later can train another. And so yeah, I think if there’s been a big strategic shift from what I envisioned when we first started doing all this to where we are now is, and not to sound like a broken record, but the value and the multiplication factor of partnering and doing this mentorship has just been a game-changer. And it’s just something that as I look with all my friends and colleagues that are in the business, I just think that there’s a huge opportunity for people to implement that. And the cool thing is I think their life is better off. They’re able to grow and serve clients and excel and have more work-life balance. And I think they’ll be surprised these young folks will step up and really do a great job. And then I think at the end of the day, the clients get exceptional service because you have more people on the team that are able to help.
Michael: What was the low point for you?
Jeff: Yeah, I think the biggest challenge or low point emotional is when you do pour in, and you brought this up earlier, but we’ve had a few of those guys where we have poured in and have left, and have done in a way that you wish would have been different. And that’s probably one of the hardest things I’ve dealt with just personally in my life, but particularly in the business world is that that’s a hard pill to swallow. And you just try to rewind and figure out how you could have done it differently and how you got there, and you just try to learn, I guess, from that. And also recognize that if you’re in this business of dealing with people, there’s going to be circumstances like that where it doesn’t always work out, and you just wish that it could always…everybody that you start with would finish together. But that obviously is not always going to work.
Michael: Any particular takeaways from that of just the way you used to try to bring people on and develop them to get them to stay versus what you do now having had a few that left?
Jeff: No, I think that because my tendency is to want to focus on a few things, for variety of reasons, it just didn’t work out, when you consider the fact that we have 100 and some people that are committed and working really hard and doing a great job. And it’s kind of like the football coach that everybody wants to ask about the guy who’s a free agent not signing and missing camp. And he eventually says, “I just want to talk about the guys on the team.”
So I think that that’s something that…and that’s probably the biggest reason why most advisors don’t want to grow or hires. Because dealing with people is always an interesting endeavor and challenge. But I think going back to our original principle is that we want to not just rest on our success but grow. And that just means that you can’t grow without people. And so that’s just something that we just have to be okay with. And it still doesn’t mean that it’s not disappointing and frustrating when it doesn’t work, but you just do the best you can and ensure that the people that are on board, and that you do everything you can to help those people be successful.
The exciting thing is, is we have had almost zero failure of people because they weren’t successful. So really the struggles we’ve had, to your point earlier, were folks that became really successful and probably thought the grass was greener someplace else or the margins were better. And so it’s just trying to understand that you should not take that personally. You just understand that’s business and you keep moving ahead.
Michael: So what advice would you give to young advisors looking to get started in their careers today? What do you…because I’ve framed it this way, like, what do you know now that you wish you could go tell you from 20 years ago?
Jeff: I think, and you mentioned this, Michael, that was about kind of the millennials wanting to get rich quick and kind of shorten the runway or not being patient. And I think that there is a balance because you obviously don’t want to be in a kind of a relationship where it’s not progressing. So you have to be sensitive to that. I think that you…because I mentioned earlier, left to our own devices, it’s hard for people to come up with a succession plan and to follow through with it. And so yeah, I think, particularly if they were working for a small practice, that is something they have to be really careful about, that they just don’t get stuck in a rut.
Along those lines, the practice that I started with, after I left, there were five accountants that worked on the tax side that had 100 years of experience with that firm that left. So I think they saw a young guy come in that was kind of similar to their life experience, and they saw that I really I think had good intentions of wanting to be there long term. But after a relatively short period of time realized it wasn’t going to work. And so I had to make the tough decision to move on. And I think that they saw, gosh, maybe that event happened to them for those years. And so they all left. And so I’m just reiterating the point that as a leader, I need to be sure that we follow through with what we say and that we do the right thing and that we’re always generous and accountable and doing all those things. So I think that’s really important.
But I think that the advice I’d give to the young person is, within reason, to really bury their ego and just figure out a way that they can work really, really hard to make themselves really, really valuable and important to an advisor that they trust and that’s honest and that has a good practice and that they can add a lot of value to. And we’ve got guys doing that today that are right next door here in my office, that young person committed, working his tail off, got a great attitude. And that just encourages me to want to bless them even more and encourage his growth. So I think if I was talking to my son when he’s 10 years older in the business, I think you just want to encourage him to find somebody that they could really trust, and man, put their head down and go to work and just make themselves really, really valuable to that person. Make a difference, work hard.
Michael: I was going to say like, when you’re so early on, what do you do to make yourself valuable?
Jeff: Whatever you need, whenever they need. In our practice here, gosh, there’s all kinds of projects and all kinds of follow-up and all kinds of client work that could be done that would add value. And so if we have somebody here that’s willing to roll up their sleeves and not worry about what their bonus is going to be and what their trajectory is for the next five years, but they just come in and really make it happen, and whatever it is that a team needs, if you can get a lot done, nobody…it’s amazing how much you can get done if nobody cares who gets the credit. And I think that’s something that we believe in and really promote. And yeah, I think if I can encourage a young person to do that, there’s just no way they won’t win.
What Success Means To Jeff [1:35:27]
Michael: So as we wrap up, this is a podcast about success, and one of the themes that always comes up is just the word “success” means very different things to different people. And so, you’ve certainly built what I think anyone would objectively call very successful advisory business of dozens of advisors and many billions of dollars. But how do you define success for yourself now?
Jeff: I went through…are you familiar with “Halftime,” the Bob Buford book and then program that’s been around for 20 or 30 years? But Bob passed away last year. But that’s kind of a movement of, what are you going to do in your second half? Or “Move from Success to Significance” was their tagline of the book and kind of the program. So I think kind of like a lot of our clients, I’m younger than them, I’m 44, so still have a lot of time to work. And I’ve got four little kids. But I talk a lot about “Halftime” with a lot of our clients because they’ve been working hard and they’re in their 60s and they sold their business and trying to figure out what are they going to do for the next 20 years to make an impact? So I think I’ve kind of gone through that earlier than most, but it’s been something that’s kind of been in my heart for a long time.
And so I think, really, I get excited about helping clients accomplish their goals, which requires me to invest more in a team, because I think I can’t do that alone. So that’s been something that I think we just really…I’m so passionate about is serving them. But I recognize that means we’ve got to hire people, which means I have to be on my game with training and leading and building people. And watching these advisors be successful and grow and then help bring another guy along is something that really gets me excited.
And then as I said, I’ve got four kids. So I think over the last couple of years, I’ve transitioned to being maybe a workhorse in the practice, and willing to invest and delegate even more and more and more than I never would have done even two or three years ago so I can have a little bit more margin and capacity to be a little bit better dad and husband. So that’s what I’m working on.
Michael: Very cool. I love just that, as far as you’ve come, you still view it as like, “This is just what I’m working on now.” Like, “We’re not done, we’re not there, it’s just the part I’m working on now.” I love that mentality of just continuing growth or continuing evolution of what we do and where we focus our energy, which I guess is part of the Bob Buford theme of that transition from success to significance.
Jeff: That’s right. Yeah. And it goes quick, doesn’t it? I’m probably halfway through my career, and it’s easy to forget how scary and hard and scrappy you have to be to get started in this business. It is not easy. And yeah, I think it’s fascinating how quickly we kind of forget those hours and fears and all the work that went into yeah, just surviving. But then you wake up and you’re halfway through, and then I can see where 20 years later it’s going to be. And my team will be ready to put me to pasture. So I’m excited about the rest of our team being able to take that over. And so yeah, I’m a work in progress, that’s for sure.
Michael: Well, very cool. Well, I appreciate you, Jeff, for taking the time just to share the path, the journey and what you’ve been through and where it’s going from here.
Jeff: Well, I appreciate you. I think you’re making a huge difference and really digging into the details and getting under the hood and figuring out what’s really happening. And it’s easy to see all the success. But really for folks to realize that everybody’s going through similar challenges. And if we all are in this together, we’ll all do better. So I’m grateful for you.
Michael: Well, thank you. Thank you, Jeff. I appreciate it. And thank you for joining us on the “Financial Advisor Success” podcast.