Welcome back to the 222nd episode of the Financial Advisor Success podcast!
My guest on today’s podcast is Jonathan Kuttin. Jon is the founder of Kuttin Wealth Management, a hybrid RIA headquartered on Long Island, NY that manages over $3 billion dollars for about 5,500 clients.
What’s unique about Jon, though, is that as his firm grew to the point where it became necessary to separate client service from leadership and operation of the business, Jon did not hire a COO to run the firm, and instead made a deliberate decision to move himself away from a client-facing role of working in the business so he could spend all of his time working on the business and developing its systems and culture instead.
In the episode, we talk in-depth about how Jon has carved out three distinct roles within his firm that allow employees to focus solely on what they’re good at (creating both superior results and clarity around responsibilities within the firm itself), why Jon has found that the business is growing better by getting his advisors completely out of the prospecting business and focused on delivering an amazing client experience, and how Jon has powered the growth of the firm by separately building a CPA referral program to bring in prospects that his advisors then close by leveraging the “borrowed trust” they receive from the CPA referrals.
We also talk about the way the “entrepreneurial itch” influenced Jon’s decision to leave his salaried management role at Ameriprise to start his own practice, how once Jon achieved financial security for himself and his family his focus and drive shifted towards helping people within his organization get what they want out of life, how Jon has carried lessons that he learned early on around fostering a strong culture and developing leaders throughout his career, and the “WDYWFY” question of “What Do You Want For Yourself” that Jon has found to be the most effective way to build both loyalty and a culture that really cares about and values the people within the organization.
And be certain to listen to the end, where Jon shares the challenges that still come along the way of scaling an advisory firm by nearly 100X from $30M to $3B over the past 20 years, why Jon felt it was necessary to transition the firm to a vision-based culture that didn’t require him to make every key decision, how Jon learned that having integrity still isn’t a substitute for also having key legal agreements in place after a key partner broke up with the firm and took away a significant segment of clients and revenue, and the 5 levels of leadership that Jon tries to cultivate in all the leaders of the firm – including himself – as he looks to continue growing in the decades to come.
So whether you’re interested in how Jonathan forged productive relationships with CPAs who actively refer clients to his firm, why he’s focused so intently on culture as a key part of his organization, and why getting his advisors out of the business of prospecting has allowed his firm to scale even faster, then we hope you enjoy this episode of the Financial Advisor Success podcast with Jonathan Kuttin.
What You’ll Learn In This Podcast Episode
- Jonathan’s Career Path [05:33]
- Why Jonathan Chose To Take The Entrepreneurial Path [19:00]
- How Jonathan Developed His Referral Alliances With CPA Firms [28:49]
- The Roles Of Finders, Minders, And Grinders At Kuttin Wealth Management [37:25]
- Why Jonathan Got His Advisors Out Of The Prospecting Business (But Still Focused On Generating Referrals) [46:54]
- Kuttin Wealth Management’s Leadership Program [52:06]
- What Kuttin Wealth Management Looks Like Today [56:39]
- What It Means For Jonathan To Be CEO Of His Firm And The WDYWFY Framework [1:04:58]
- How Career Tracks Are Organized At KWM [1:12:48]
- What’s Surprised Jonathan Most About Building And Scaling An Advisory Business And The Low Point Of The Journey [1:17:19]
- What’s Next For Jonathan And What Success Means To Him [1:25:02]
Resources Featured In This Episode:
- Jonathan Kuttin
- Kuttin Wealth Management
- Kuttin Consulting Group
- Jonathan Kuttin: Why I Stopped Working with Clients
- Quantum Growth For Financial Advisors Podcast
- HaydenRock Solutions
- Ken Cerini
- Dan Sullivan's Strategic Coach
- Who Not How by Dan Sullivan
Michael: Welcome, Jonathan Kuttin to the "Financial Advisor Success" podcast.
Jonathan: Thanks, Michael. I'm really excited to be here. And I've got to share, and not to start by brown-nosing. But I am a big fan and have been an admirer from afar for quite some time. So, when you had reached out and asked me to be a guest, I was really, really flattered and very excited to be on your show here today.
Michael: Oh, awesome. I really appreciate that. And I'm excited you were willing to join us as well and share some of your story and your journey. I had first learned about your background a little ways back in one of the trade publications talking about your decision, very early on, in your firm to move away from the clients and into the running, building, scaling, growing the business itself. And I feel like this is a conversation that is certainly coming up more in our advisor world, as advisory firms grow, I think particularly the AUM model, the recurring revenue model, you can get clients that pay ongoing revenue, higher service-minded advisors to support them. It really allows for the growing and compounding and scaling of a business. If you do that long enough, you get a lot of clients, a lot of revenue, a lot of team. It becomes a lot to manage.
And there are more and more advisory firms that are hiring professional management full-time people in management roles, COOs, and the like. But I find for a lot of advisory firms, often, founders keep going on the client and they hire the COO or even sometimes the CEO, to do the run the business part so that they can stay focused on the client end. And just, I was fascinating hearing your story that you chose the other path. We get to that fork in the road, and you chose the other side of the fork of the path.
And I'm really fascinated about that decision. And certainly, I know it has led to tremendous growth and many billions of dollars under management for the firm. And so, while I think there's a lot that any advisor can learn from any of these stories and journeys that we take, I think there's maybe a particular subset of advisors that are very entrepreneurially enterprise-minded. Like they want to build a big, a big firm, a big thing. And you have done that journey really uniquely, at least relative to how it's typically done in the industry. And so I'm excited to hear that journey when you make the decision at that fork in the road and you choose the path that you did and how that's grown and compounded in the years since.
Jonathan’s Career Path [05:33]
Jonathan: Yeah, no, completely, really well said, Michael. And I think it describes really where I am in my career. So I actually stopped working with clients about a decade ago. And when I think back to, I wish I could say it was purposely planned. So I started back in the business in '94. I'm 48 years old. So I started right out of college. And I wish I could say, hey, in 1994 I decided what I wanted to be when I grow up was a CEO and spend more time working on the business as opposed to necessarily working in the business. But it wasn't that clear to me, as you can imagine back then. So I think it might be helpful if it's okay with you, Mike, and maybe I'll just give you a little bit of my career path, which might help you understand and the listeners understand exactly how I got there.
Michael: Yeah, please. Let us know what the journey is. I know you've essentially been whole career within one large platform, one large firm, but a lot of different hats on that journey. So please, tell us about what this path has looked like.
Jonathan: So, I actually went to college at the State University of New York, at SUNY Albany, State University in New York at Albany, Upstate New York. I live in New York, here, not in Long Island, but we are on Long Island. And that's how we say it here as Long Islanders. And to make a very long story short, I came from a pretty middle-lower-class background. My dad since passed away, but he was a salesman. Sold electronics. My mom worked part-time as a travel agent.
And I thought I was pretty well-to-do growing up and realized in my sophomore year in college that my mom and dad actually claimed bankruptcy. So it made me really, as a 19-year-old, think about finances and money. And I was lucky enough to get an internship at what was then IDS Financial Services, which I think you probably remember the old IDS.
Michael: Yeah. Yeah. So before they even went to American Express Financial Advisors, which now most of us know as Ameriprise.
Jonathan: Yeah, you got it exactly. Right. So I think that happened in '95. And I started in 94. And I got an internship, Upstate New York in Albany. And to make a very long story short, the gentleman that I interned with was just a great guy. Here are the things that I could tell you that I remember about him. One was, he came into work at around 9:30 or 10 every morning. He had a gym bag over his shoulder. He drove a Porsche. And he actually had a very pretty wife and two really cute kids' picture on his desk. And not knowing what I really wanted to do I thought man, he would be a pretty good guy to be like. It seemed like a good life. And that's how I decided to get involved in financial planning. Had a really good experience.
Michael: So he painted a really compelling picture when you're doing a college internship. Like, okay, this looks like a pretty good life.
Jonathan: Yeah, this would be good. Little did I know how hard it was. But he certainly made it look pretty easy. But fast forward, by the time I graduated college, I was already fully licensed, started right out of college. As an interesting aside, I was actually not offered a job the first time around in the current area that I lived here in Suffolk County, on Long Island, and I was told I needed some sales experience. And I was told to actually get a job, The Gap, back in '94. Which I did. I got really good at folding shirts, which is still a skill of mine today, if you ever need a crisp fold, I'm your guy for the job. But I was pretty resourceful back then and decided to go apply with the same company, but in a different county called Nassau County. And there I met a gentleman who was ready to hire me. So truth be told, it all worked out and I wound up working at the location closer to my home, but I was first actually rejected from the job.
And fast forward, Michael, I came into a system and a structure. Back then, IDS and American Express had an amazing training program in how to actually become a financial adviser, learn how to do true comprehensive financial planning, and systems and processes. Back then it was mostly cold-calling on how to actually build a business.
So I was fairly successful in my first year in the business. And then I got that proverbial tap on the shoulder and got asked to lead others at the ripe old age of 22 and a half. And I became a training manager. And truly, Michael, I owe a lot of my career to mentors. So I was blessed to have amazing mentors, some of which are still mentors and good personal friends today that really helped me grow as a leader.
One of the little-known facts about the firm I grew up in is it really is very much a culture of leadership and developing leaders. So I spent about six or seven years in a leadership position, went through the ranks, ultimately ran an office. And then after some time, had the opportunity when the firm I worked for offered two options where you could either be an employee of the firm or an independent contractor or a franchise advisor. And I saw a lot of my buddies and guys and gals that I grew up with in the business that were friends or people I trained and coached, and it seemed like they were having more fun than I was. Their incomes were growing quicker. And I decided to go back full-time in private practice.
But I share the story up to that point because that six or seven-year period of really being exposed to amazing leaders and learning leadership skills and tactics is what I still attribute today to the growth that we've been able to have and the business that we've been able to grow is those leadership qualities.
Michael: I am curious, how exactly does it work to get the tap to become a training manager at 22 and a half years old?
Jonathan: Yeah, I'm pretty sure it was a pulse and warm breath. I think if you had a pulse and you had warm breath, I think you became the coveted training manager, which was a fancy way of saying back then you were able to help some other 21-year-olds right out of college go out and sit in some of their meetings and help them win some business.
I think it contributed a lot to my experience because what I got to do was, back then I would probably see 8 or 10 meetings a week for my own clients and prospects, that I'd get to go out and cover 8 or 10 meetings a week for other advisors, clients, and prospects. So I've always said that our business I'm sure you'd agree is an activity game. The more people you see, the more experience you have. And ultimately, the better you get at ultimately spotting opportunities, providing advice, seeing trends in certain types of clients. So I look back on those times really fondly.
Michael: It strikes me, for a lot of types of careers and professions, the proverbial, you need 10,000 hours of training in something to really practice and master it. And it's not just a rote 10,000 hours, it's 10,000 hours of deliberative focused practice where you're training and you're getting feedback, and you're trying to improve and get better. And we just think about that from a sheer time perspective, like 2,000 working hours in a year of usually can only do maybe half of that of actual focus work. So like, your 10,000 hours can take 10 years. And I think it is often true for a lot of advisors. It's a good 7 to 10 years before you're really like, I've hit my stride, I know this code, I can handle the planning issues, and the client issues, and the communication, and all the stuff that goes with it.
And one of the thing that strikes me about stories like yours, and what you just said, when you get put in these situations where my normal pace I might have been doing 8 to 10 client meetings a week, but then I ended up with another 8 to 10 client meetings a week because I was sitting in other advisors as well. And you doubled up your time, and you got through it in half the time. You took 10 years of learning and training and experience and essentially got to double it up and cram it into 5 years. And so it doesn't surprise me then that it was six or seven years out that you were suddenly finding yourself at this crossroads saying, Okay, got this part down ready for the next stage in my career. And started looking at, do I want to be an advisor and go out to that side. To me, it paints a powerful picture of particularly the opportunities for us in our 20's that just not that it's literally about paying your dues, because I think that has a pejorative label, a connotation around it. But just this is an experience business. And there's something really powerful about just grinding out the hours of experience. And the more hours you can cram in the faster you move up the experience curve.
Jonathan: I couldn't agree more. As I think back, that's where a lot of my growth came, and a lot of things became clear to me about the important parts of the business and how to be successful.
Michael: So you do this then for six or seven years. Help me understand, were you still building some client base of your own throughout, while also doing training manager stuff for other advisors, and then had to make a decision? Like, do I want to keep doing half of each or do I want to go all in one direction or the other? Or was there even an evolution as you were going down this training manager road that you got sucked further in the leadership end and had moved further away from direct client building at that point?
Jonathan: Yes. Great question. Yeah, I think it started with a day a week, and slowly turned into, because if you have some success with it, leadership generally wants to get some more of your time. So when I ultimately left my leadership career, I was running my business on about a day a week, and I was running a location, the other four, back then it was five days because we were working Saturdays as well. And, yeah, so it really became more of a full-time leadership role, and a very, very part-time financial advisor role.
And Michael, one of the things I wanted to point out because I think it's important to understand is I talked before about having some amazing leaders, I also had some leaders who weren't very good either, that I got to work under or learn from or, etc. And what I learned from that is when the culture was right, when you had the right person in charge of the particular branch, and people felt good about what they did, and they had the right vision, and there was some accountability, but a lot of fun. And everyone understood where we were headed. And we were all heading, what I like to call notheast together. Man, those environments seemed to really drive success.
And I can also think of examples of being in cultures under certain leaders where no one felt like they knew where they were headed. No one felt like they were part of a culture, that they had a choice and an opinion. And man, those businesses really didn't thrive. And I actually think that's one of the things that I was able to understand in my 20's was really, what culture is about, and how having the right culture breeds success, not only for yourself, but for those around you as well.
Michael: I like the way that you put that. Like, we were all heading northeast together. That growth chart, when it's going well is up into the right to the northeast directions. So just you build the right culture and get everyone reasonably aligned, and we're all headed northeast together.
Jonathan: Yeah, I think some people call it rowing in the same direction when the culture is right. And that's probably in my role today, that's what I see my number one priority, as is really ensuring that we have the fertile soil so that from our receptionist to our most senior advisor, or someone on our executive team, that they have the ecosystem, the tools, the support so that they can become their very best self.
Michael: Okay. So, I want to come back to that when we get all the way forward to today, but I want to follow the ongoing trail. So these first six or seven years ended up being deeply steeped in leadership, some learning about how to train people, how to develop people, what good leadership looks like, as you went through leadership and went through various branch offices and learning opportunities, started getting this appreciation for culture and the significance of culture and what it means. And then you said you had gotten to this crossroads where you had to make a decision of whether you wanted to go back out as an advisor, and if so, whether under the employee model or the franchise independent model, because, well, I know American Express now, Ameriprise has both of those options. So tell us about that transition. What led you to having that as the crossroads and what drove your decision about which path to choose?
Why Jonathan Chose To Take The Entrepreneurial Path [19:00]
Jonathan: Yeah, a great question. Yeah, I think it was really twofold. One is what I would just call the entrepreneurial itch. So, deep down, I'm an entrepreneur. And I think as I look back, I looked at my leadership career as a certainty. So probably goes back to if I lay down on a couch right now, and you did a little psychoanalysis, I think understanding some of the financial trouble that my mom and dad had, I always valued security from that point forward. So I liked the concept of being a leader, having a guaranteed income, and certain guarantees. And then on the side, I could work on growing my business and another variable, let's call it compensation.
Michael: So you built it this way because the leadership role gave you the stable salary. So yeah, I'm doing a little bit advisory clients stuff on the side, but I don't have as much at risk. I got the stable salary. If it doesn't work out, we're okay. And just there was some very direct personal financial security for you in building early that way, even though that meant you had fairly limited time on actually building the client base.
Jonathan: Exactly right. And what I realized was I was running a similar-sized business back then to what most advisors were doing on a full-time basis. And I was actually doing on one day a week. So while I might not be the sharpest tool in the shed, I started to look at that and said, “Man, what would happen if I actually did this five days a week? I could probably grow a pretty big business there.” And I think that that was really kind of an epiphany for me. And I built my confidence level. And as I said, always had been a bit of a dreamer. And I always have had a bit of a big vision.
So one of the things my wife teases me about this sometimes, Michael, and I go down a little bit of a rabbit hole here, I hope that's okay. But you read sometimes about successful people. And they generally have very clear visions of where they want to go, right. So as I think back, I used to have, and for some of you who might be in your late 40s, like I am, you might remember, back in the day, when we all had posters hanging on our walls. And I had a poster hanging on my wall as a teenager. And it was a great big house with a beautiful courtyard if you can think about it, with exotic sports cars on the driveway area, and it had a fountain there, and the house as well. And interestingly enough, if you came to my house today, it's not quite as elaborate, by the way, as the poster. And those exotic sports cards don't exist, as they did in that poster. But believe it or not, I've got that same courtyard, and there's a fountain there. And it's very eerily similar to what that actually looked like back then.
So I started to have this vision as I saw in these leadership cultures that I grew up in some of these really, really great leaders that had followers that just had a ton of confidence in where that leader was taking them. And I thought as I, at the time, looked at how the employee world was changing some, and just the financial services industry was starting to take shape, some of those benefits of those cultures were starting to change. Where it wasn't quite like the old days where leaders could build their own branch or district, do things their way, it started to become a little bit different than that. And I think I had this vision of building a culture that I would be really proud of and that advisors would want to join and be part of the team. And that I together with them can help them build something better than we both good on our own.
Michael: So, I'm struck by that and how you are how you're describing it. I feel like when I know when a lot of people talk about visions of businesses or visions of enterprises, it's a certain thing they want to do in the marketplace or like a certain product that they want to bring to the market or it's a certain group of people that they're aiming to serve or it's a certain size of business or reach of enterprise that they want to create. And I'm fascinated that your description of the vision is basically about creating a business with a certain type of culture. And the culture was the vision point for you.
Jonathan: I agree. I think that was, as I said, having amazing mentors that made a big difference in my life in that short six or seven-year period of time, made me want to affect other people. And in complete transparency, Michael, I think there was a phase, and I think if we're all honest with ourselves, we think about how we've been able to, all in our industry, I think we're really blessed, financial advisors in general. What an amazing career we're in, and the incomes we get to make, and the equity in many cases that we get to build is actually absolutely amazing.
But I went through a phase there, Michael, where I needed to, I'll say it as, get what I needed so that I can check off the boxes so that I could build a business that actually helped me to meet my lifestyle needs. So the industry calls it a lifestyle practice these days. I needed to get to a certain point where I said, Okay, great, I've got a certain amount of cash flow, I've got a certain quality of life, I've got a certain amount that I save each year for my future. And then really, what drives me every day, and I'm really clear on this, clearer than I've ever been of late, is really helping other people get what they want for themselves.
And what I could share with you is 10, or 15 years ago, where I got my satisfaction from is a lot different than it was 5 years ago. So I think it changes throughout your life. But really, I personally, today, get a lot more satisfaction out of helping one of my advisors or one of my staff or business development people grow personally and professionally, attain their goals than I do out of helping Mr. And Mrs. Smith, one of our clients retire successfully. Not that helping Mr. or Mrs. Smith isn't super important. And that's the work that we do as a firm and that's our calling as a firm. But from my perspective, I could affect a lot more people and have a much bigger impact if I help develop more leaders within the organization and help more people that I get to see every single day get more of what they want for themselves.
Michael: Very cool. Very cool. So, you're six or seven years in, you build what it sounds like is a very healthy side practice, like your side practices as big as some people's main practices, even though you're doing it as a side practice. And you're getting to this crossroads, like okay, I think I want to go back fully into the advisor role. If this is what I can do one day a week, what the heck can I do when I do it five days a week? So, what was the size of the practice at that point? And what did you choose? What came next as you took the plunge?
Jonathan: Sure. So when I went independent, it was late 2000. And in late 2000...
Michael: Meaning, not the 2000s decade. The year 2000 year?
Jonathan: Yes. Exactly. The latter part of the year 2000. And it was me, and back then, a junior sales assistant. And we'd left that cushy management salary. And we went and we worked in, Michael, what I call the mezzanine level of my house. You might call it my basement. So I finished my basement. I dug up some earth. We put an outside entry in my basement. So my junior guy whose name is Evan, who's still with me today and one of our partners actually, and I literally walked out the front door with my briefcase. I walked through the gate in my backyard. I went to the outside entry. I walked down the steps. Every single day I did this and I opened up into my lower mezzanine level, we called it because it sounded fancier for clients. And we had about $35 million of assets under management at that point. And it was just Evan and I. And he was just getting licensed. He was probably in his very early 20's back then.
And quite frankly, Michael, not to get too far ahead of the story, but that's when we started to develop relationships with accounting firms, which is something that I saw some of the advisors that I coached were having some success with. And that's when we built our first CPA relationship. Actually early-2001, by the time we built it.
Michael: Okay. So had $35 million and an assistant. Out of curiosity, how many clients was that? Because I'm assuming at the time, this was still a fairly high volume of massive fluid clients, particularly because that's where Ameriprise has long been focused. So I'm assuming this was a fairly sizable number of clients.
Jonathan: Yeah, back then that was probably about 200, 250 clients going back then when $150,000 rollover was dinner-worthy conversation we discussed.
Michael: Yeah, that's why I was wondering. I started my career at the same time in early-2000. And $100,000 client was a good opportunity.
Jonathan: Oh, yeah. That was a good month. At least a wonderful couple of weeks, for sure.
Michael: Okay. So you take the leap, you're now going out on your own, it's you and Evan working out of the mezzanine. You're trying to figure out how you're going to grow and referrals from CPAs seems like a thing. So you decide to start going down that road. So what comes next? Does that work for you? Do you keep going down that path? Or did you end out on a different road of how to grow and bring in clients?
How Jonathan Developed His Referral Alliances With CPA Firms [28:49]
Jonathan: Yeah. So we got really, I'm going to say either lucky or we were good or we just work really hard, I'm not sure. But we kissed a bunch of frogs if you will. And then I stumbled on a guy by the name of Ken Cerini, who is a dear friend today and still our partner, who happened to be a CPA that had his CFP, which was very rare back then. And think about the timing. This is, again, early 2001. And Ken and I began to have a relationship together. He was planning to go at it and start his own financial planning division in the house. In fact, he was doing some of that. And as you recall, soon to come in 2001, was September 11, 2001.
So as Ken and I were in what I would call the courting phase, and I was working on building that relationship and trying to convince Ken why he shouldn't do it on his own and he should outsource it, 9/11 occurred, markets reacted and Ken quickly decided that while his clients needed financial planning advice, he was not the right guy to give it. And it started a beautiful relationship together with Ken. And that really helped us to spearhead a process that I knew nothing about what the process should look like back then, of course, but Ken and I, through trial and error figured out what worked and what didn't work in helping to build awareness within his CPA firm clientele on how to introduce wealth management and financial planning to his clientele.
Michael: Okay. So it sounds like this is going deeper than just I built a relationship with the CPA so that we can cross-refer some clients back and forth. Ken was an accountant with an accounting practice who wanted to do more financial planning services and stuff for clients, 9/11 happened, and realized maybe he didn't want to literally do it hands-on within the firm. So a relationship starts forming between the two of you. I'm just wondering, what does this look like? Are we still ultimately talking about some kind of cross-refer or relationship? Or is this a deeper thing of like he's operating as a solicitor and you've got an ongoing business relationship or something else where advisory is embedded within the accounting firm? What formulated out of this?
Jonathan: Yeah, no, great question. And Ken was a bit of a pioneer. So he had a vision back then, like I did, that when a financial advisor and a CPA work together for the betterment of the client, that ultimately, the client gets a more holistic and better overall advice package. So Ken was willing to get licensed. So believe it or not, I sponsored Ken. He got a Series 7, back then, his Series 63. Back then. I think it's the 66 these days. And his life, accident, and health.
And at the time, my broker-dealer didn't have a professional alliance program like we do today. And that guy helped build that program and consulted them on how to build it. But they did allow a CPA to get fully licensed and share in compensation. Yeah. So that first relationship, Ken and I built a partnership and decided that we were going to build awareness within his client base. And like I said, he was a bit of a pioneer. In our first year together, we acquired over 50 new clients. And really interesting statistic, we met 52 prospective clients. And I think it was 49 or 50 of them actually became clients. So two or three people said “no” to us. And that was when I realized, Michael, that this relationship that clients have with their CPA firms is something kind of special. And that I should spend a little more time on that.
Michael: Yeah, yeah, there's nothing like doing a little experiment and getting like a 98% close rate and being like, maybe we should do more here.
Jonathan: Yeah, we figured we were on to something pretty good.
Michael: So again, I just want to make sure I understand the context. So Ken has got like an existing accounting firm, existing client base. He's been doing this for a while, says, “I want to do more of this financial planning stuff, but I don't think I want to do all of it in the house, because I just watched 9/11 and that looks stressful.” So, from Ken's end, I'm going to partner with Jonathan Kuttin, ‘I'm going to get licensed under his broker-dealer under American Express Financial Advisors.” That lets you I guess, functionally like to do split cases for the business that Ken is bringing in, that you're working with him on. And then you end up building, essentially, a split book of clients or a book of split clients of joint Jonathan and Ken, the CPA clients.
Jonathan: Exactly right. And our roles were defined, I was the financial advisor. Ken was the CPA. He would make the introductions. We'd ensure that my advice integrated tax planning, and once a year, or once the client signed on to have us as their advisor. Ken would join us every year, and at least one meeting to ensure that the tax planning and the investment side of the planning were integrated together.
Michael: Okay. And out of curiosity. What's the case split on that? How do you split to that?
Jonathan: Yeah, back then with Ken, I was just so darn happy, Michael, that he said, Yes. We just said, “Hey, let's make this a 50/50 partnership together.” And we split all the revenue 50/50. And we split all of the expenses 50/50 to run the business. And over time, just to fast-forward a little bit, we generally build our relationships today in more of a solicitor's arrangement than a fully licensed arrangement with CPAs. And the splits look a lot different today.
Michael: Okay. Okay. So I know we're going to talk about this more later. But what do you think of as appropriate splits today when you think about these CPAs that were for relationships in and then your advisory firm that works with them on the advice end itself?
Jonathan: Yeah. Generally, a standard way of doing business on a solicitor's arrangement on the fee-based ADV type business. And it's generally 20% as a payout rate for the business, the CPA firm, and we partner on together.
Michael: Okay. Okay. Very interesting. So you start down this road, you get the first deal with Ken. It goes really well. So, what happens next? I'm imagining this like, “Oh my gosh, this is awesome. Let's go find 1 more, 2 more, 3 more 5 more, 10 more CPAs and just keep replicating this.”
Jonathan: You got it. And we cold-called our way. Talked to every one of our client's CPAs. And probably for a solid three years, I drove around Long Island sitting in very nondescript, very messy CPA offices having a lot of doors slammed on me. And I realized quickly that not everyone was quite the pioneer that Ken was. But with that being said, with some consistent and persistent pursuit, fast forward to today, we work with about 75 CPA firms, as a firm, that are actively engaged in some level of true what I would call partnership or alliance together with our firm.
And to put it in perspective, Michael, in the past 12 months, as a firm, we've brought in somewhere in the neighborhood of 350 new clients from our CPA partners, that for us are in segment. Which is really somewhere between say, a quarter of a million and $5 million of investable assets. Most of our clients are in what I would call the 5 to 5 space, $500,000 to $5 million of investable assets. And today and we can talk through this if you'd like, we've got a business development team that runs those relationships. I'm happy to share I'm not driving around sitting in CPAs' office anymore every day. I've got a team that is really, really good at that and does that for the firm.
Michael: I'm processing that because 75 CPA firms is a lot of firms and a lot of relationships. So you just end up with this huge network of CPA firms who are all and in some kind of partnership solicitor arrangement who are referring the business, get a small slice of the fees for having brought the relationship
And then you end out with the team that takes the clients, works with the client, services, the clients. And that's the growth formula.
The Roles Of Finders, Minders, And Grinders At Kuttin Wealth Management [37:25]
Jonathan: Yeah, a big part of it. Absolutely. To even add a little color to that, one of the things that we really started to do, probably over 10 years ago, is specialize.
And generally, the context that I use is finders are the folks who prospect and find the business. So in our world, that's our business development people. And our business development people find the CPA firms. And we'll talk about this later as well or find, potentially, succession planning targets. But they find the CPA firms and help create lead flow for prospects who are the right candidates to actually meet with us.
And then our minders come in who are generally our advisors. We don't call them minders, of course, but their job is to drive the client experience. Their job is to ensure that the clients have an amazing experience with our firm embedded through financial planning advice, embedded through generally fee-based asset management and a very descript, well thought out, detailed client service system and plan, which is made to "delight" the client and win all the wallet share and create a referral client experience. So they'd like to introduce us to friends and family.
And then our grinders are really our administrative sport and paraplanners. The folks who are out there that are doing all the hard work of scheduling meetings and prepping meetings and putting together financial plans and proposals and making trades, so on, etc., sending summary letters.
And what I found is, I'm a big Dan Sullivan strategic coach, and I like John Maxwell, and I'm a big podcaster, including your podcast, as I mentioned. But yeah, we want to put people in the right seat on the bus, and what's their highest best use. And what we found is if folks can focus on being unbelievably good at being either a finder, a minder, or a grinder in our system, we get far superior results, and it's way clear so that they can do their job extremely well.
Michael: So, kind of two follow-up questions for this. One, just understanding the process. I'm thinking particularly in terms of the CPAs. I understand the CPAs essentially source the business. They provide an introduction of a client that may mutually benefit by our joint services because they're an accounting client, they could use financial planning and wealth management services. Just I think of it. The sale, the close, like the actual, here is what our advisory firm provides, would you like to sign up and become a client and sign on the dotted line to engage us? Who does the actual sale? Is that still part of the finder? Or is that part of the minder? Like, “Dear advisor, if you want to get to service this client, you do have to convince them to come on board. We're going to hand them to you, but you do have to convince them to come on board.” Where does the sale happen?
Jonathan: Great question. So it happens through the advisor or the minder. We've got, I'll call it tiers of advisors. So to really get into the detail and get under the hood or "how the sausage is made" as they like to say. So what we've done in our organization over the last couple of years (a few years, actually over three years now) is we've actually divided client service and client onboarding. So believe it or not, Michael, we had the best problem in the world, we were growing too quickly because we got really good at developing business through CPAs. And we were inorganically growing the business through acquisitions and tuck-ins, etc.
So about three years ago, really what we did internally, in the business, is we separated. And we went out and actually hired from the outside, and in some cases, repositioned people on the inside, and said to our existing advisors, who were already minding a mature book of business. At one point, they were also bringing in new clients from our CPA partnerships, on top of running their existing book of business. And it got to a point where it was really hard to give the quality we wanted to our existing clients and onboard so many new clients. So we separated. And we basically said to our existing advisors, the client base that you have today is yours to run, the firm is going to continue to support you, we're going to run a particular client service model. And we've developed that together as a team that we believe will create an unbelievable experience to the client. But no more new clients will be coming in from our business development team, because we want to make sure that we are organically growing that into the business, the existing clientele.
What we then did is every new client that came into the firm came through a different team of advisors. And we've got what I will call a more senior advisor who is quite good at winning new business. And then we've got a servicing advisor who's quite good at building relationships and servicing business. So every time a new prospective client comes in, we meet that prospective client as a team.
So if you can picture it, Michael, you've got two advisors sitting across... Today, this is obviously done on video. But for a fact, sitting across from a client and his or her spouse in the conference room. And the key part here is we've got the CPA sitting at the head of the table. And one of my advisors has been extraordinarily good in that room at telling our story and winning new business. And the servicing advisor is there to be the relationship manager going forward. And this is explained to the client, how we work, it's a team approach, and the pros of that, etc. And if you can imagine the CPA, his or her job is super important. Because really what the CPA's job is to transfer their goodwill, or what I call the borrowed trust that they have with their client to my advisors and to our practice.
So as that meeting goes on, we present who we are, our value proposition, how we work, what the service model looks like, what the cost of doing business is. Generally, at the end of that meeting, the prospective clients, Mr. or Mrs. Smith, look over at their CPA. Their CPA generally nods their head and says, “Yes, I trust them. They're my advisor. They work with many of my clients.” The client says yes. And we go through the process.
Michael: So it strikes me then. And as you were talking about specialization and separation of roles. So, so many firms, I think the traditional mode is, “You prospect for the clients, you close the clients, you service the clients. And if you want to make more money by having more clients to service, I suggest you go find more and close them.” And, essentially, we all build our own books of business.
Your model looks very different in that you've got this, essentially, prospecting machine, all these relationships with CPAs who refer business as solicitors, and even a team that finds the CPAs as part of the business development role. By the time it even gets the advisors there, there really is no prospecting, there's just “here is a very, very warm lead from a trusted relationship who's going to literally be in the room with you and give you the nod. But you do have to explain what you do and close them to get on board.” And even there, when you get to that moment, there's really two advisors in the room. One who has more of a sales and closer skill set who can close the client and gets to stay in the role of doing that. And one who is more skilled at servicing and maybe doesn't have the business development skills, and doesn't need them and doesn't have to bring them because their job is just to be the other advisor in the room that will do the servicing work for that client going forward. And so the prospecting and the sales and the client service are really ending out as basically three different people in the servicing chain.
Jonathan: Michael, you explain that way better than I do. Yes, that's very clear. And yes, you're spot on. And that's exactly how it works. I like to say, what we really look to do as a firm, for our advisors, is to get them out of the business of prospecting. I want that advisor to focus his or her energy on delighting the client and giving an amazing client experience. And what we found is the better we do that, the better the business grows organically from winning 100% of wallet share from the client, as well as introductions to friends and family from a referral perspective.
And that quite frankly, as we separated a few years ago, I think the experience that we've delivered, while it was always very good, it got outstanding. And now what's starting to happen in the business is there's an explosion because we've got these new clients coming in. And because our advisors that are relationship managers are able to deliver so well, ultimately, we're getting lots and lots and lots of introductions to friends and family and the business is growing organically at a much faster rate than ever before.
Why Jonathan Got His Advisors Out Of The Prospecting Business (But Still Focused On Generating Referrals) [46:54]
Michael: Well, I'm so struck by what you just said. Like, “our effort is to get our advisors out of prospecting.” And that's so striking to me because I think the overwhelming majority of firms that I talk to these days, their biggest challenge is I'm trying to get my advisors to do more prospecting. And either like, I'm trying to do that and figure out how to do that. Or I'm trying to do that, but they're not good at prospecting and I can't get them to do more business development. I'm trying to figure out how to get them to do more business development. And like, what training are you doing? What systems you have?
And we did a recent office hours on our platform around advisor compensation. And literally, the majority of all questions were, essentially, how do you do bonuses for advisors to get them to do more business development? And I'm struck that your tack for growth is basically the 180-degree polar opposite direction, which is no, no, like good advisors, just be service-minded advisors. If you want to do more prospecting and business development go hire people that do business development and ideally get a system and strategy about how you do it for what yours is, we build the CPA relationships and solicitor arrangements.
Jonathan: Yeah, no, exactly right. And I wish I could say that was always the plan. There was a time I was relying and hoping that I can influence my advisors to prospect as well and do more business development. And what I found is it didn't work. And when you really think about it, and you look at the industry in general, the financial advisory industry in general, most advisors think of prospecting. And that's why most advisors have a hard time building a business beyond themselves. Once they get to a million or two in revenue, in essence, you can't do everything yourself. So you have to make a choice to either have someone else prospect or have someone else serve the clients, or continue to have a business that stays at about that level and can't necessarily always grow beyond that advisor.
So the interesting part is any statistic I've ever looked at, the number one way that financial advisors grow is through client referrals. I mean, if you really think about it, industry-wide, most advisors get a handful of new clients a year from introductions to friends and family.
So what we've done is we've said instead of having the advisor trying to go out and figure out how to build their own CPA relationships, or be in networking groups, or do dinner seminars like back in the day, or use social media, what we've done is said, Hey, why don't you just give an unbelievable experience to your clients to build deep meaningful relationships. And by the way, ask them in each and every meeting who they know that you can be a value to.
And as a firm, actually, like, I'm sure you know, Bill Cates is a pretty big referral coach in the industry. So we use Bill's program. He's coached our whole organization, believe it or not, as an organization. Every Saturday morning, you heard it, Saturday morning, and I'm there at 9 a.m. Eastern time. We do a referral roleplay session. Old school. We haven't done it forever. We started it about a year ago. And there's about 25 of us every Saturday morning on Zoom or video conference roleplaying. And amazingly, if you put an effort and energy into something, it seems to bear fruit. And we're getting really, really, really good at it. And it's driving an amazing amount of growth.
Michael: So for the advisors who are in lead-client advising positions, they've got to come every Saturday morning, literally every week, like standing appointment 9 a.m. on Saturday mornings?
Jonathan: No. Completely optional, and not mandatory at all, if you can make it you can make it. But I'll share with you there's about 25 faces every Saturday morning, and they're not there because they have to be there. They're truly there because they want to be. And it leads us to where you were before. Part of their measures and how they grow their compensation is by organically growing the business. So, net flows, new money in versus money out. Doesn't matter how they get it. If you're running a $100 million book, at the end of that year, the goal should be in a healthy business to me, net flows is like blood pressure and temperature. The health of a business is based on what's coming in versus what's going out. And the reality of it is we look at referrals from CPAs as inorganic growth because the advisor isn't generating that particular client. And we look at referrals from existing clients winning more outside money from existing clients, natural market, friends, and family things along those lines as organic growth. And if advisors can ring the bell on organic growth, it helps their compensation and their ability to move up through the career ladder at the firm.
Kuttin Wealth Management’s Leadership Program [52:06]
Jonathan: We also look to... I mean, internally, Michael, we have, I've talked about leadership before. So leadership is one of really, probably the number one, actually, leadership is one of our core values. And our actual firm's mission statement is that Kuttin Wealth Management is not only a Barron's Hall of Fame practice, but we're known industry-wide as a supercharged leadership development factory. We develop what we call level-five leaders, which is something that we talk about internally. So leadership, developing others, running something for the firm, an initiative, being able to influence others around a common goal. That and organic growth as an advisor at KWM, that's how you move up the ladder. That's how you ultimately get to share not just in a salary and bonus, but profits of the business that you run and ultimately leads to an equity opportunity within the firm.
Michael: So, just out of curiosity, you said you're trying to build level-five leaders. What is a level-five leader at KWM?
Jonathan: Yeah. So it's interesting. There's five levels of leadership's right that I'm aware of at least. One is John Maxwell's. And one is actually from Ray Kelly, who's our coach. So, real quick lessons on Ray's five levels of leadership, which is something that every single person in my organization can talk at, at length. And we talk a lot about it because when you have common tools within an organization, it gets really easy to give feedback and help people become more self-aware.
So, a level-one leader, Michael, quite frankly, if told to get a job done, they can get the job done. So they can complete a task. Really simple.
What a level-two leader can do is they can actually do exactly the same thing a level-one can do. They can get a task done if asked to and told what to do. But they can also identify a problem. They can see what is the actual problem and actually see that something isn't working well.
When you get to level three, and by the way for the audience, when you feel like people keep coming to you with their problems at work for you, it means they're probably a level-two leader. And we've got the saying internally, it's the leader, it's the leader, it's always the leader. So it's upon you as the advisor or the CEO or the main person in your practice to develop the leaders within your organization.
So what a level three can do is not only can they identify that problem, but they can actually solve it themselves. And man, we love level-three leaders. Level-three leaders don't ask, don't tell you what's wrong, they actually fix the problems within your business. And we've got a lot of level-three leaders in our organization, and we've worked really hard to get them there. Because it's really helpful when you don't have to be involved in each and every problem because there's lots of problems that we all encounter throughout the day.
What a level four leader can do is all the things that a one, two, and three can do. But they can actually also influence a group of people around a common goal, which i.e. basically means help others solve problems. So when you've got a level four, Michael, you're cooking with gas, you've got a leader on your team. And really what you want a level four to be able to do. Interestingly enough, it's fresh in my mind because I'm struggling with getting some people from level three to level four. Earlier this morning, I did my coaching session with Ray, who I mentioned before. The key to a level four is they should be able to influence that group without any help from you. So what that means is I could be in Peru for a year and my team should be able to actually help the others in the organization, my leaders should be able to help the others in the organization solve problems without my help, and get a whole group to work on that initiative.
And then what a level five does, which is what I try to spend all my time on, or as much of it as humanly possible, I wish I could spend more, is a level five actually develops more level-fours and fives, and they're able to tie everything back to the mission, the vision, and the values of the organization. So when everyone in the organization is tied back to that vision, mission, values, every time that you as a leader speak to your group, all of a sudden, everyone, like I said, before, we're all headed northeast, we all know what we're doing, we all know who comes first in the organization, and we get to solve a lot of problems along the way.
What Kuttin Wealth Management Looks Like Today [56:39]
Michael: Interesting. So now help us understand. I love to just understand more of what the structure of the firm looks like today. Like, what's the asset base? How many clients? And what's the actual team structure? Like, how many people are there? And what's your org chart look like? And a cross-section like, they're these tiers of advisors that move up and you've got all these different leaders and leadership development programs. I'm just trying to visualize now, what does this look like today in terms of assets and clients and at team that are serving?
Jonathan: Sure, yeah. So I'll be directionally on this. Because I don't have a matrix in front of me.
Jonathan: But we are north of $3 billion of assets under management that we have custody of. We really don't do much in the way of institutional. So it's primarily retail. There are approximately 5,500 clients. So if you do that math, average client is right in the neighborhood of $600,000. Some have significantly more, some have significantly less. And what we've gone to, Michael is the business was built here in New York. That's where I founded it 26 years ago now. But we've started to build, we call them beachhead strategies. So I've got five leaders in the organization that are in charge of, in some cases, a couple. In some cases, I think our largest is eight advisors. So each of those five beachhead leaders run businesses for the organization.
So one was the gentleman I mentioned in his early 20's, that used to work in the mezzanine level with me. He runs our largest beachhead, which is around $850 million or so of assets, doing about $7 or $8 million in revenue. He's got seven advisors, not including himself on the team. And then I think our smallest beachhead right now is around $300 million or so of assets, doing around $3 million or so of business with 3 advisors, in total on the team. And then, obviously, there's three other beachheads.
So we've got a large location in Texas. We've got our headquarters here on Long Island. We've got upstate New York, I should say, presence and beachhead. We've got business in Florida, and in Pennsylvania. So we've started to grow from a geographic perspective a little bit. And then as a firm, there is in addition to the beachhead leaders who also generally have small client bases, the kind of our player-coaches, they might work with 50 to 75 families, but most of their time is leading their team and staff that works within their organization. So in addition to the 5 of them, there's approximately 20 other advisors in the organization as a whole that report into one of those beachheads. And then the balance of the team, there's seven folks on our business development team that run our CPA business, help us with talent acquisition, and help us with mergers and acquisitions, which has become a big part of our growth strategy as well. And then the balance of the firm are primarily licensed paraplanners. A small financial planning department, administrative support, and so on, etc.
And then lastly, one of the things Michael that we've done recently is built out an executive team. It's something I had thought about for a while. But actually, part of the impetus to actually begin to hire leaders that do nothing but lead, actually came from one of your podcasts.
Michael: Oh great. Cool.
Jonathan: Yeah, so thank you for that. And for all you do for our industry. But my title is CEO. I've got a gentleman by the name of Jake Dunlap who is my president and equity partner in the business. He bought into the business. Jake used to be a leader at the broker-dealer and ran a large percentage of our employee platform. Amazing leader, and one of the best decisions I've ever made in business because the value he's providing is amazing. I've got a director of business operations, and a COO, and someone that we're in the process of promoting to a title that we'll call a chief growth officer, who will continue to help us build out our CPA program, M&A business, social media, email marketing business that is budding, and we're getting ready to launch, etc.
So long answer.
And then part of the team, although they're not necessarily employees, are these roughly 75 CPA firms that are out there looking to create opportunities. So, they're almost like in basketball, that sixth man. They might not be on the floor all the time, but they're out there really helping us grow, and a big part of how we do what we do.
Michael: And just what's the total staff, team headcount if I just add this up across all the different parts of the organization?
Jonathan: Yeah, there's right around 70 of us in the organization today.
So I find it striking when I just think about that from a team structure and an allocation of resources perspective. You've got 70 people and 7 in business development. So, 10% of your team isn't a dedicated business development role, which I find striking, just in general. On the one hand, don't see very many firms at all that have 10% of their team in business development. Most firms, if you look at the industry benchmarking studies, spend something on the order of 1% or 2% of their revenue on marketing and business development. Now, the flip side is what I do see is most advisory firms try to encourage their advisors to spend 20% or 30% of their time on business development.
And if I add these up together, you've got 25 to 30 advisors and 7 business developers, which combined is 30-something people. And about a quarter of those are in business development roles. So, a construction, when when I think about it in the aggregate of your business development plus advisors team, you do actually have a similar allocation of time and resources put towards business development. The difference is, I feel like the average from your position would have 30 advisors, 30 of whom spend a quarter of their time on business development. And you've got 30 people, a quarter of them are business developers and the other three quarters are focused on advisory. It's an interesting and different way to carve it up than what most firms do in practice, but I think speaks very directly to the point you were making earlier. Like, your effort is to get your advisors out of prospecting, and focused on client service.
Jonathan: Yeah, I like the way you're thinking about that. I've never probably thought about it that way myself. The way you think about 30 advisors doing 75% of their time working with clients and 25% doing business development. I think it's worked really well for us because it's clear, and it makes the individual, whether it be the BD person or the advisor, it makes their initiatives and their vision and what they do every day much clear. So I think it's Dan Sullivan who talks about uniqueability. It's hard to be really good at so many things. And I've coached lots of advisors. I've got a small coaching business as well. I do a lot of Interesting things. And I think I find over and over and over again, advisors have the same gripe. It's I can't do everything myself. I'm trying to be the maitre d', and the chef, and the busboy, and it's too much to do.
And if you think about it, our industry-independent financial planning practices, in particular, we just haven't been around for that long. So, as you meet some of the larger businesses out there, they usually have a niche or a specialty in something. And if you compare that to a larger firm, in most firms, isn't there actually a division of a company that does sales and marketing and a division of the company that does service? So why not in a financial planning practice? Whether there's 3 people in it, or 30, or 300, why not divide and conquer a little bit? It just makes it clearer.
What It Means For Jonathan To Be CEO Of His Firm And The WDYWFY Framework [1:04:58]
Michael: So now, help me understand the way that works at the executive team level that you're talking about building out. So I understand chief growth officer, be focused on the marketing of the business front. I understand the COO. Just we've got this growing span of finance and operations and system stuff that's got to get done. The thing I feel like I probably see the least often, even in advisory firms that are growing is the separation of CEO and president as you'd articulated it.
And so I'm just wondering, what does it mean to be a CEO in your organization? And what does it mean to be a president in your organization? And what is the difference between the two?
Jonathan: Yeah, great question. And in full transparency, we're working through some of that right now. So it's not perfected. But here's what I could share with you. I have this friend, actually, I'll call it friend and business colleague that I've go in a business that I'm a shareholder in. The business supports CPA firms and actually helps them to use technology to provide business advisory services, which is neither here nor there. But my partner, his name is Paul Leatham. And Paul is brilliant. And he's an English guy. And he's got this phrase or this planning concept. He calls it the three ingredients of business success. And the three ingredients of business success, as Paul would say it, “vision, plan, and desire.” Those are his three words: “vision, plan, and desire.” And in reality, when he talks about vision, plan, and desire. He actually says, create a vision. Right plans is what he says. Right plans. Which means as you dig deeper, have five to seven leading indicators, key performance indicators that are written that will ultimately drive the results. And then desire is self-explanatory. It's about measurement and accountability. So on, and, etc.
So what Jake, who is our president, and I are figuring out is, I'm really good with vision. That's what I like to do. That's probably my highest and best use is figuring out where are we going to be in 5 or 10 years. It goes back to that poster I told you about hanging above my bed. So I've got a big vision. I'm sure we'll talk about that before we wrap. But we've just scratched the surface on where we'd like to go. And there's a lot to do in order to get there and lots of pieces to that vision. The plan part, I'm actually really good at figuring out what the leading indicators are. But really, the place where I see Jake really supporting it is twofold is ensuring that we are actually working that plan in a quality way and doing things the right way. Meaning executing fully, doing, I call it the full rep. Not cheating and just doing things right. That one more rep mentality.
And I think the other big piece that Jake is spending a lot of his time on is the culture. Is really making sure as we've gotten bigger, it was a lot easier when everyone was here in Long Island and I get to see everyone every day and occasional breakfast or lunch or chit-chat at the coffee station. So Jake is really making sure that we are there for all of our people. We're supporting what we call their WDYWFY. Which stands for What Do You Want For Yourself, which we could hit onto if you'd like. But really making sure that the culture of the firm is in alignment with what we really want to build and what's best for everybody in it.
Michael: So, I am curious to go there for a moment. Your WDYWFY. What Do You Want For Yourself? You had talked about career tracks earlier as well. You're focused on developing leadership, you're focused on supporting organic growth, that seems like organic growth plus leadership equals promotions plus equity at KWM. So, can you talk to us a little bit more like, how does this work? How do you move up in the organization?
Jonathan: Yep. Yeah, great questions. I think you hit me with a couple on there. So WDYWFY, to give credit is from Doug Lennick, who I mentioned before, Thik2Perform. And it stands for What Do You Want For Yourself? So all 70 of our people go through an annual WDYWFY process. It's probably the greatest thing that I've ever done. And the funniest part about it, like most things, I did this in 1994. By the way, I went through my own WDYWFY and had a leader go through it for me. I then did it for others. And then it worked so well and it was so effective for about 12 years, we just stopped doing them. Like we all seem to do. But we got back into doing WDYWFYs probably four or five years ago.
And it's really a simple process to help the people in your folks get clear on their own core values. So, what are the five core values that are important to you, as a human being? And for a lot of people, they might be things like health, family, integrity, security, happiness. Things like that. So our firm has core values, their leadership, family, integrity, security, and happiness. And each and every employee in the firm could tell you that off the top of their head. But you go through core values in a WDYWFY, and then it's really an exercise to help the leader understand what's important to that employee, both from a personal growth perspective, a business perspective, what they'd like to accomplish in business, and also from a personal development perspective.
So, as an example, I could tell you, Michael, that my receptionist wants to make sure that she does yoga twice a week and starts to meditate. Now, you think about that. And if you're an advisor or a leader in the financial services organization, you ask yourself the question, do you actually know what the people that work for you actually have in their own personal lives? So I know one of my employees is really into coaching his son's Little League team. So if I happen to see him in the office past 5 on a Tuesday night, I know in the springtime, that's baseball time. And if he's got a late-night appointment, I'm going to make sure that he gets home so that he could go to his little boy’s little League game.
When you start to get connected that way, you'd be amazed when you listen and you ask the right questions, how much you'll learn about your people. And again, another stolen saying, if you haven't figured it out, I don't have a lot of original thoughts. I read them or listen to them in podcasts. But people, those who follow you don't really care what you know until they know that you care.
And when you start to install things like that in a systematic way and do them consistently in your business, you start to build relationships, you start to understand what makes people tick. And then if you can help them make progress on those things, ultimately, you build a very, very loyal group of followers. And you build a culture where people really care about the people within the organization.
So my proudest accomplishment, Michael, and we've been blessed team effort, by the way, to get lots of accolades and awards and all that in the industry. But this year, we actually got recognized by "Investment News," as one of I think there were 75 firms recognized nationally as one of the best places to work in the financial services industry. And that comes from employees going through a random survey and talking about what's great about working for the organization. So that's my proudest accomplishment. Giving people a culture and ecosystem where they're growing not just their income and becoming better financial advisors or business development or administrative paraplanners, etc., but they're actually becoming better human beings, because of the leadership that the firm is actually growing within the organization.
How Career Tracks Are Organized At KWM [1:12:48]
Jonathan: And the answer to the second part of your question from a career track perspective, our model is really simple for I would say, the professional positions within the firm to grow your role as a financial advisor, or as a business development person. And it starts from staff to licensed paraplanner, junior advisor, advisor, senior advisor, so on, etc.
But the reality of it is we are, in essence, looking for advisors to provide the client the experience that we as a firm have agreed would be the right experience to give the best value that we can from the client and give them that wow experience as they drive results. And the results are a combination of running what I call the play, meaning running our service model the right way so that client satisfaction is high. And then tangibly, looking at well, how has the business grown because you're running that service model, and because of the personality, and the relationship skills, and financial advisory skills that you bring to the table?
Ultimately, our comp is real simple. Most advisors are started in the $100K type base salary position. Some more, some less, as an average. And then 30% of their base compensation is available as a bonus to them each and every year. And that 30% is based on tangible criteria. Usually, 80% of it is tangible. Like net flows, like revenue growth, like client satisfaction. And then 20% of it is usually subjective. What does your beachhead leader and executive team think about your performance, your contributions, initiatives you've taken on leadership, etc? And then ultimately, once that bonus is earned, half of that bonus becomes a pay rise. So if you made 100K, you had a $30,000 bonus potential, you earn 20,000 of it, the next year, your salary would go to 110, your bonus potential would be 33,000, 30%, of 110. And so on, etc.
And once the advisors met some tangible growth initiatives through growing the asset base and the revenue base, we ultimately give them the ability to keep a piece of the profits of the business that they're running for the firm. And then after this some additional growth initiatives that are actually made, at that point they get the opportunity to purchase, at a discounted rate, a piece of the equity of the vertical of the business that they run for the firm, where the firm, if necessary, will provide financing for a loan and hold the note, so on, etc.
And from there, for really high performers, there's opportunities to build and grow their own beachheads on, etc.
Michael: Interesting So, comp is heavily salary-based. Moves up around bonuses, around the metrics, at least I'd kind of expect, net flows, retention rate, satisfaction rate. A part of your bonus becomes your base next year. So you can climb over time, and you'll climb faster if you're hitting your numbers faster. Equity is tied more directly to making growth appear "not just servicing your clients well and retaining them well," which gets you a good salary. But that's what gets you your salary. Equity is tied to growth.
Jonathan: Yep, I'd say growth developing others, or doing some other projects for the firm that could be valuable as well. So I think that makes a lot of sense. Most of our advisors, Michael, on average, are in a position that they're earning a really nice living. You can spreadsheet that out. And we've done that. Most of our advisors run about 100 to 130 million as a book of business, which in our practice is usually about 200 families or so, which we find is the right number of clients to run or service model. Ultimately, if you do a good job. A B or a B-plus, you get to a quarter of a million dollars of income pretty quickly. And if you can grow it quickly, one of the benefits are you can develop others, we will put junior advisors underneath you, put them in the ecosystem. We'll ask you to help support their growth and development. And it allows you to continue to almost, infinitely, scale a business if you've got that skill set to do it.
What’s Surprised Jonathan Most About Building And Scaling An Advisory Business And The Low Point Of The Journey [1:17:19]
Michael: So as you look back over this journey over the past 20-odd years of building of what basically is about 100X growth in 20 years, from a little over 30 million to a little over 3 billion, what surprised you the most about what it takes to build and scale an advisor enterprise?
Jonathan: That's a tough question. Lots of surprises along the way. I think some that that stick out to me is I think advisors might underestimate how hard you need to work. And it sounds great. I've got dozens of stories of things that didn't go well, So we had a lot of the things that did go well in my 26-year career. We've had trials and tribulations. We've got our issues with employees. We've made wrong hires. I've had advisors leave and take assets. I've had CPA relationships go bad. So we've all had trials and tribulations throughout the business. But from my perspective, I think the most surprising part for me is how quickly things compound. And I think advisors don't do the best job, myself included, of smelling the roses. Like when you just said, Michael, 100 times growth, over 26 years, I think is what you said. I don't think about it that way. I think, what am I going to get accomplished here in 2021, and 2022, and '23, etc?
So I think that's what would surprise is take a look back at where you were 10 years ago. What was your AUM there? What was your revenue there? How many folks worked in your organization?
And the other part that I would just share is how desperate I think the industry is for leadership. And I get asked at conferences and things sometimes, what's your secret ingredient? What's the secret sauce? And I answer it the same way. It's leaders developing leaders. You can only accomplish so much with your own skillset. And when you start to think about developing others, you can multiply your skillset. So that's how I look at it. I've got 70 people that the better I develop them, and the more resources, that fertile soil that I talked about, once you start to actually invest in people, and you are genuinely interested in them growing... And that's the big thing about leadership. When you're trying to build a business so you can make more profits for yourself or you could work less time, or simply be more efficient, the people in your organization feel that, and they don't necessarily have a career track.
And I can share that from experience because... I don't know if I articulated it really well earlier, but there was a time when this business was about me. And it was what one of my coaches had once said to me, he called it, it was a John says culture. And what that means in English is everyone looked for me to every decision. Right? And John might not want to do it that way. I don't want to talk to John about compensation, etc., etc.
And what I've worked really hard on because it's actually not my natural DNA, is to make the business really what we call a vision-based culture. Which is really about where are we going as a firm? How are we as a firm going to win? How are the people in the organization going to hit their own WDYWFYs and get what they want for themselves? And what I found is when you do that, people work a lot harder, when they actually feel like they're part of the decision-making. And not necessarily looking at it and saying, we don't necessarily want to be the best firm that does the most revenue and grows the quickest. We want to be the best for the people who work in the firm and the best for our clients.
Michael: So what was the low point for you on this journey?
Jonathan: Great question. I would say I had a really bad experience about five or six years ago. I won't use names, but I built a partnership with a very large accounting firm. And we had a lot of success together quickly. Grew 150 million-plus of assets over a couple of years. And they decided that they could do it on their own, and didn't necessarily think that we were the right partner. And the learning I have from that, Michael, is I didn't have the greatest agreement in place. And they vanished and took lots of clients and lots of assets. And I felt pretty foolish there. And quite frankly, let down my team because there were folks who were growing and their careers are going in a great direction, because of the relationship they brought in, and the clients that came in, and why we made good on all of it with our employees, and they're still here. That was one that really hurt, to be honest.
Michael: And what was the lesson in retrospect?
Jonathan: The lesson is probably, which goes against my DNA, I'm a very trusting guy. And as I said, before, one of my number one values is integrity. So my handshake is generally my bond. And, obviously, we have agreements and document things, etc. But unfortunately, it's to trust less in some scenarios and make sure that as you grow, you're doing it in the way that you've got the right protections in place and the old adage of measure twice, cut once, I think would be the right way to wrap that up.
Michael: So, as you look back at this. What do you know now about what it takes to build an enterprise that you wish you could go back and tell you from 20 years ago when you moved into the mezzanine level and started this journey?
Jonathan: I think it's probably cliche, but hire quickly, and lead people. I did a lot on my own back and worked my butt off, and lots of hours, and lots of blood, sweat, and tears to build the business. Not that I'd have it any other way. And one of my values is hard work. And I think hard work is, in today's society, sometimes a dirty word. I think it's okay to work really, really hard if you want something. I try to teach my kids that as well, and everyone who works in the organization. But yeah, I think if I had to do it all over again, I would have hired an executive team quicker, I would have invested in leadership quicker within the organization, and would have likely gone out and engaged with some coaches a little bit quicker than I did. I thought I had it all figured out myself. And in a lot of ways, I think I did have a good vision of where I was going. But I think it's good to ask for help. My second or third quote here of Dan Sullivan. He's got this great book, I recommend everyone to read it. It's called, "Who Not How." I don't know if you've read it yet, Michael?
Michael: Yes, I have. It's fantastic.
Jonathan: It's my life. It's all I do. It's all I think about. And "Who Not How" is just a fancy way to talk about delegation. It's just a different way to say it, but it's like you don't have to know how to do everything yourself. You just need people who are really good at it, that love it, and point them in the right direction and let them make what you can do even better. And that's what it's about building a true enterprise is not about you. It's actually about the people that you serve. Meaning your clients. And it's about the people that you serve. Meaning the people who are kind enough to show up every day to work and work really hard for the organization you're trying to build together.
What’s Next For Jonathan And What Success Means To Him [1:25:02]
Michael: So what comes next for you? What's next from here?
Jonathan: Yep, great question. I mean, here's our goals, Michael. And they say if you tell everybody, it's like this is a good way.
Michael: Yeah. It's nothing like declaring it on a podcast to be like, well, now I have to do it.
Jonathan: Yes, exactly. So where we're headed in eight years, there's a lot that I'll share. One is, we'd like to be a $12-billion business in 8 years. So basically, quadruple roughly the size of the business. And that probably means we're doing about 100 million a year in revenue based on our metrics today. In order to do that, we will likely have somewhere in the neighborhood of 250 folks in the organization.
And my real goal is I'd like to get to a point in the next 8 to 10 years where half of the folks who work within the organization actually own a small piece of the organization and have an equity piece. And that all of their hard work, all of their dedication, and grit, and perseverance, not only helps them earn an amazing income and have a great place to work and all the personal development, but also gets them to monetize the equity side of the business as well and truly get to a point where we're able to accomplish that.
Michael: And is that a substantively different formula or path? Or is that simply like we are on a good track we just got to keep the compounding and momentum going and just keep chugging forward in the same direction?
Jonathan: Yeah, I think that's our path. I said northeast a few times. That's northeast. That vision has been shared with the team. That's where we're looking to go. And I would just say to me, the biggest threat, and that's the thing I probably work hardest on as we grow is doing it with the right culture. I think we've heard the saying, culture eats strategy, right? Or is the saying, culture eats strategy, or beat strategy?
Michael: Yeah, culture eats strategy for breakfast.
Jonathan: For breakfast. Yeah. That was the end there. And I think it's making sure we hire good human beings, we treat them really well, we develop them really well. And we ensure that the culture stays on the same path it is where we've got lots of happy people that are making progress. It's one of my big learnings, Michael, is if you keep making little steps forward, as an individual, it's really easy to be happy. It's when you're standing still or going backwards and you're not striving to get better that you start to get really frustrated and get into a bad spot.
Michael: So, as we wrap up, this is a podcast about success, and one of the themes is always just that even the word success means different things to different people. And so you've had this incredible growth path with the success of the business itself. And talked a little bit about the business growth goals. But I am wondering now, as we finish. How do you define success for yourself at this point?
Jonathan: It's great a great question. It's really impacting others. So not to be corny, but I talked a little bit about my calling. I get my satisfaction two ways. My family. I've been happily married for 23 years. And my wife is the best lady I know. And I've got four sons. Two of them are actually planning to come into the business. And they're both in college now. And bright young men that are eager to get into the business as well. So, I think about that a lot, actually. And we talked before about five levels of leadership, John Maxwell's five-level of leadership, that fifth level, I think he calls pinnacle, which is, in essence, when you're just touching, lots and lots and lots of human beings, and helping them get better, and helping improve their lives. So from our clients to the folks that work in the organizations, I think we have a goal to touch millions and millions of lives in a positive way.
Michael: I love it. I love it.
Well, thank you so much, Jonathan, for joining us on the "Financial Advisor Success" podcast.
Jonathan: My pleasure, Michael. Thanks for having me. And like I had said to you earlier, I think you're out there touching a lot of lives yourself. So thank you for all the good work that you do for our industry.
Michael: Thank you. My pleasure.
I was excited when I saw the title of this podcast however it seems as if it was a little misleading. The guest talked much about leadership (this is mentioned close to 40 times during the interview) and making sure people are in the right roles (which I could agree with). Given the level of amazing growth this firm have there was a lack of specifics on the mechanics of how they grew. However, the guest/host didn’t get into the details of specifically the how the firm handled the growth and continue to grow (example change CRM systems/systems processes/etc.) At no point in the interview is it even discussed what this firm does for clients on a day to day basis (which would have been interesting to learn more about)/what specific strategies/planning opportunities/specific client stories there were. Overall, some good and interesting points made regarding leadership/running a firm but the guest lacked many specifics that reduce the follow up/action items/takeaways.
David Stebenne says
Generally agree, and I bet it has to do with his b/d. He doesn’t get to make decisions about his platform/systems/compliance, etc. because it’s run by AMP, and I’d guess they don’t want people talking about it publicly for legal/compliance reasons. Further, it’s mostly proprietary anyway. There’s a big trade-off (not inherently good or bad) vs. being a true independent hybrid RIA. It’s an essentially turnkey platform, so long as you’re willing to stay within their guardrails. But the focus of the conversation was what the title says – separating prospecting, leadership and advice delivery. That he’s able to develop his own franchise under the AMP platform and excel at this level is a testament to how correct he is to focus on other things, namely people. A better CRM system doesn’t make a more successful firm, nor does the toolbox we all use (some more than others) to conduct financial planning. I do think what would have added to the value of the discussion would be how his advisors create that ‘excellent client experience’ since he mentioned how much focus they have on that. What is it they do that’s so distinctive, and does it really lead to a greater number of client referrals vs other firms? That’s something others could learn from and implement. Maybe AMP compliance nixed that as well…
Title is misleading. Hybrid RIA doesn’t fit here… Ameriprise is a captive Broker Dealer.