Welcome back to the 126th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Martine Lellis. Martine is a principal and the chief operating officer at Sullivan, Bruyette, Speros & Blayney, an independent RIA with nearly $4 billion of assets under management serving 1,100 affluent clients in the Washington, D.C. area.
What’s unique about Martine, though, is the way that she climbed the ladder at SBSB, starting out as an associate advisor only to see the RIA sold to a bank shortly thereafter, and then later moving into mid-level management roles and climbing all the way up to become the firm’s COO, and then participating with four other principals who did a management buyout of the firm back from the bank and take the company private again.
In this episode, we talk in depth about Sullivan Bruyette’s model for serving affluent clients. Why the firm offers tax preparation services for its most complex clients on top of their financial planning and investment management, the way the business involves its dedicated investment team directly with clients to the point that it’s the investment team and not the advisors themselves who are primarily responsible for discussing investment results and the markets with clients, why Sullivan Bruyette hired a director of advisor services and development to become an internal practice management coach for their 10 advisor teams, and how the firm prices out its core financial planning and investment management services a separate fee for tax preparation and another separate fee for the especially big and complex financial planning projects their affluent clients sometimes need help with.
We also talk about Martine’s own career path through the firm. The way she invested heavily in herself throughout her 20s by going back to school for both an MBA and her CPA license while also working full-time and largely paying her own way for the sake of her own career advancement, how her role in her 30s shifted more to learning the skills of management and developing her teams of people, and how now in her 40s her career focus is shifting again into more bringing in and developing the next generation of the firm’s leadership and figuring out how best to motivate them while growing the firm. And what it took for Martine to get comfortable to take on a substantial amount of personal debt as a key employee to buy back the firm as part of the management team.
And be certain to listen to the end, where Martine shares the challenge that surprised her the most in building the business and her own career. Why the hardest time she worked were also some of the most exciting, and what the key breakthrough was in her own career that ultimately allowed her to grow to the next level.
So whether you’re interested in learning about how Martine actively pursued opportunities to advance her career, how Sullivan Bruyette integrates tax preparation with their financial planning and investment management services (and how the firm prices out those services), or about the factors that drove the decision for an internal group of principals to buy back the firm from the bank that purchased it years before, then we how you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- An Overview Of Martine’s Career [04:47]
- What Planning Looks Like For The Clients Of The Firm [14:04]
- What SBSB’s Tax Services Look Like [25:02]
- SBSB’s Investment Planning Process For New Clients [40:02]
- How SBSB’s Onboarding Process Works [59:01]
- SBSB’s Key Performance Indicators (KPIs) [1:09:41]
- How Martine’s Role Has Changed Over The Years With The Company [1:15:06]
- What It Was Like Selling And Then Buying Back A Firm [1:29:35]
- What Surprised Martine Most About Building A Business [1:42:18]
- How Martine Defines Success [1:48:10]
Resources Featured In This Episode:
- Martine Lellis
- Sullivan, Bruyette, Speros, & Blayney
- Pro Systems
- BNA Income Tax Planner
- eMoney Advisor
- Georgetown MBA Program
Michael: Welcome, Martine Lellis, to the “Financial Advisor Success” podcast.
Martine: Michael, it’s great to be here. Thanks for having me.
Michael: Absolutely. I’m looking forward to the discussion today. We’ve had this theme over the past couple of episodes of the podcast of talking about what it’s like to be in large firms where you have to make all these decisions like do you insource and build things? Do you outsource and work with external providers? And then all the, frankly increasingly common these days, changes of ownership that can happen in firms, where when you’re an employee, an advisor in a firm, like, when you’re the founder, there’s all this discussion of, “Hey, am I going to sell my firm and who am I going to sell it to?” When you’re an employee in the firm it’s like, “Well, guess our firm is having a change in ownership, hope the new owners are as nice as the old ones were.” And you’re kind of stuck sometimes along for the ride.
And I know you’ve actually been through a few of these transitions with the same firm, having joined a firm that got sold shortly after you joined and then bought themselves back over a decade later and have kind of grown throughout. And so I’m really just looking forward to talking to you about what it’s like in this path of building your career in an advisory firm that’s growing and gets quite large and has I guess sort of all these external, I was going to say shocks, maybe they’re not shocks, but at least changes that come along the way and you kind of have to navigate for your own career of figuring out, “Is this the place I want to be in? Is this how I want to be growing my career as the firm keeps changing around?”
An Overview Of Martine’s Career [04:47]
Martine: Yeah, it’s been kind of thrilling. You say external shocks, but it’s been nice to be sort of part of that ride. And I’ve been in different seats along the way, which has also just been part of the process for me. As you know, we both started our careers in this business in the same year. So 2002 was when I came into the business. And I was bright-eyed and young and joining a small firm, coming from a career in IT and sort of starting off in this new business that I really hadn’t had any experience in before, but I knew I had an interest in personal finance. And so I joined Sullivan, Bruyette, Speros, & Blayney, which is my firm, as a new, young associate financial planner, which I really at the time had no idea what that meant.
Less than a year later, the company did sell to Bank of Montreal, and the subsidiary, the U.S. subsidiary was Harris Bank at the time. And at that time, I was young. I had no idea what that meant so kind of went along for the ride, and then kind of grew up in the firm and moved into operations along the way. And we can talk more about that later and what that meant for me, but over the years moved into the chief operating officer role. And then three years ago, actually, April 1st, 2016, myself and three of the founders and one other of my partners, the five of us actually made a decision to purchase the company back. So being on that side of the transaction was another part of that thrill. And here I am sitting on a new side of that experience and actually in that actual seat.
And it is a roller coaster. And it was certainly at that point in that seat of being part of that process and taking the company back to being private again with three of the founders that had originally sold the business. And now we’re independent. We’ve been independent now for over three years and we’ve grown a lot since taking the business back to being private. And our goal is to continue to be employee-owned. And we’ve added nine more partners to our group here. And it’s been a heck of a ride and very thrilling and exciting for me and for I think everybody else here, and for our clients, and for our employees as well. So it’s been a lot of fun. And it’s just been a huge amount of growth for me in my career. And there’s always been ups and downs, but for the most part, it’s been up and a big thrill.
Michael: So maybe to give us a little bit more perspective of just where things stand today, can you paint us a little bit of picture of the size of Sullivan, Bruyette, Speros, & Blayney at this point as a firm? Like asset base or client size. However you like to measure sizing of the firm. Tell us a little bit about what it looks like.
Martine: Yeah, we’re close to $4 billion of assets under management. As you know, the market is our biggest client, so that number ticks close to $4 billion and then ticks a little bit down.
Michael: It’s a humbling thing when you just, you get large enough it’s like, “Oh, the market pulled back a percent today. That’s $40 million of AUM that we lost today, but it’s cool, it’ll bounce back tomorrow when the market opens.”
Martine: Yeah, that’s right. That’s right.
Michael: Forty million dollar swings on 1% market shifts.
Martine: That’s right. So on any given day, we could be $3.7 billion, $3.8 billion, $3.9 billion, $4 billion, who knows. But we’re somewhere in that range today. And we have about 1,100 clients that we serve, most of them in the Washington, D.C. area. Probably about 75% in the Washington, D.C. market, but the rest are around the country in different, mostly major metropolitan markets. And we have a little over 60 employees. And we’re going to be adding four to six more employees in the next six months. So we are growing at a pretty rapid clip here to continue to add to that AUM number and to our staff as well.
Michael: I’m just kind of doing the napkin math here, as it were. You had said close to $4 billion of AUM, about 1,100 clients, so your typical client then is something up in the $3.5 million to $4 million range per client? That’s a fairly affluent client base.
Martine: It is. And we tend to…our clients that we tend to best serve are going to be in that $3 million to $20 million range. That high-net-worth space is, the clients that have the complex needs are going to be the ones that we best serve.
Michael: So talk to us a little bit more then about that. What does the service offering look like for the firm? What are you doing for clients in this $3 million to $20 million range that you’re targeting with complex needs? Because I feel like up and down say like, “Well, we serve clients with $1 million because their needs are more complex than $100,000.” And you’re talking about serving 10 millionaires whose needs are more complex than $1 million client. So what does complexity look like for your clientele and what are you doing for clients?
Martine: Right. That’s fair. That’s a fair question. And we were founded, there were a few…a couple of accountants that were in our founders. And we started by offering tax services from day one. And we still do offer tax services. We have a full tax department. We have, I think, 11 CPAs on staff. And a lot of our Certified Financial Planners are also CPAs. So there’s a lot of tax knowledge within the firm. So we can handle complex tax issues, which I think are well served by us. And our clients do tend to have the need for us to be able to handle those issues. By the nature of where we’re located, we have attorneys and lobbyists and that type of client profile, also corporate executives that would be in this area, and then some inherited wealth and retiree wealth as well.
But the complex needs are going to be of the nature of estate planning and charitable planning and the more complex family wealth issues. We are looking at building out some more family office-like services. Not the concierge services like I’ll take your dry cleaning out for you and pay all your bills, but things that are more high-level that are going to serve in that ultra-high-net-worth space. So we’re exploring that because we have the knowledge and the skill set to do that. With a staff that has over 25 CFPs on staff, we’re equipped and we have that foundational structure to deliver those types of services. So we can do the comprehensive planning analysis. We have all those tools. And we have all the technology and the software in place. We have the training programs in place to do that. We have the tax knowledge. And whatever knowledge we don’t have in-house, we certainly have the networks around us to be able to bring the professionals to the table that are needed to advise our clients. So that’s really our strength in serving that market.
We have a lot of legacy clients that are below that space, and we’re still going to be helping them out. And we’re also going to be helping the children of our clients as well. So we’ve structured a team of experts there that can help people with simpler needs as well in a more efficient manner. But that core client in that $3 million to $20 million is really, I think, where we’re best suited.
Michael: Interesting. And so that’s, to me, sort of classically a very business owner-oriented client or at least executives that are attached to equity and sort of wealth creation, that engine. It’s pretty hard to…well, you can get $3 million perhaps if you’re “just” a high-income saver who lives frugally and generates a lot of income, but you really can’t get to the $10 million to $20 million range unless at some point you’re attached to wealth creation that’s part of a business. You can just only diligently save and invest so far.
Martine: Some sort of event. There’s going to be some sort of event that’s going to create that. And we’re good at planning for those types of events. So putting the right advisors around or the right tax advice that’s needed when that type of event happens, we can be there to help see people through that.
What Planning Looks Like For The Clients Of The Firm [14:04]
Michael: Interesting. And so, what does a planning process look like for the firm itself? Are you mostly waiting until these kinds of liquidity events happen and then you’re deep into planning at that moment or are you still a firm of like, “We do a comprehensive financial plan upfront and then we update it every one or two years” as that part of the process as well?” What does planning look like for clients?
Martine: It depends on the client. It’s going to be customized to the client’s needs. We’re going to have clients that need that comprehensive plan upfront because they’ve never done it and they don’t know what that process entails, and they don’t know what the gaps are and what they’re missing. So we need to unravel it and make sure that they have all their gaps filled. Maybe they don’t even have estate planning documents, for example. You’ve probably seen that multiple times. And so we have to go through that process with them to make sure they feel comfortable with their retirement needs, with their gifting needs, with their estate needs, and go through that process.
Then obviously, investment management is the bread and butter of our business, and that’s where the fees come from, for the most part. And we’re going to be looking at that in a full robust investment plan. We have an investment team. We have a team of experts here that portfolio management is their area of expertise. And that’s what they’re looking at as well. So we’re going to be bringing them in to be rounding that out. And then obviously the tax side as well, it’s going to be brought in if there’s a need. If there’s not a need or they have a tax advisor they’re already working with, we’re happy to work with that, too. I’d say it’s probably about 40% of our clients that use our in-house tax services.
Michael: And does that mean you also charge for it separately? Like, is there an investment fee for investments, a planning fee for planning, a tax fee for tax services or do you bundle all of these together?
Martine: So tax is always going to be separate. We definitely view tax as a separate charge. Planning is, in general, going to be upfront. If we’re doing an upfront full planning process, generally, that’s going to be separate. But it can depend on the size of the client and the complexity as well. If it’s something simple it might be included in the portfolio management fee. But we’re taking a look right now at our pricing. Definitely, something that we’re looking at where the tier structures and how we charge for our pricing. We want to be looking at that as well in the competitive market and making sure that we’re pricing fairly for our value. And we look at our studies. We participate in a lot of the industry studies. And we’re at market or below market at a lot of our AUM fees. So there’s not a huge concern there.
But we also want to be making sure that we’re pricing for the value that people are receiving, especially if there’s a big project. So if there’s a huge estate planning project, someone passes away or there’s another planning issue that we’re trying to tackle, that’s definitely something that we’re going to have to look at, receiving fair compensation for our time, because there’s a deep level of expertise that our teams have and our planners have. And you wouldn’t just walk into an attorney’s office or another service person’s office and get the access to the highest level of people there working for you and not get fairly compensated for it. So we try to price some items like that on a project basis. And that does tend to go over well with our clients, especially existing clients who understand the level of service that we provide. When they have a complex need like that, it’s going to be understood that there’s probably going to be a separate fee.
Michael: Interesting. So it’s not even just clients upfront you’re trying to make this decision of, “Do we just charge them an AUM fee or are we going to charge them separately for financial planning?” You may even have ongoing clients where you’ve got an ongoing AUM fee and you’ve been working with them for a long time and they say, “Hey, we’re getting ready for the liquidity event. We’re going to need a whole bunch of tax and business planning this year.” And you may still come back to them say, “Okay, well, we’re happy and excited to work with you on that, but there is going to be a separate fee for the amount of additional tax and advisory work we’re going to do around this business sale above and beyond what you pay for your ongoing AUM fee.”
Martine: That’s correct. It depends on the client. And I think as business owners, I think we have to look at it from the business side. Always we’ve got to take the client’s best interest in mind from a fiduciary perspective, obviously, but there’s also the fee-for-service in what we’re charging for. So if it’s a huge planning engagement and we know there’s going to be a lot of planning work, we’re going to probably write up a separate engagement and look at it from an engagement perspective and say, “Okay, there’s a lot of extra work going in here. It’s not portfolio management work, separate planning work that we’re going to be doing, so what’s the fair fee for the value that the client is going to be receiving?” The clients have worked with us for a long time, they tend to understand that. They’re asking for things that are above and beyond. Just an annual update or a conversation about gifting strategies or a conversation about education planning, things like that. If it’s a major event then there’s going to be more time needed. And they’re okay with that.
Michael: So can you give us a little bit of a sense or understanding of what typical fees or fee schedule looks like for you guys? How does the AUM schedule start and tier? And then I realize there’ll be at least some variability from client to client, but what kind of pricing do people end out paying if they’re engaging you for tax services if they’ve got one of these financial planning projects?
Martine: Yeah. Our fees start at 1% on the first $1 million and they tier down from there. And our tax services are billed hourly. So that’s going to be based on the hourly rates depending on what level person inside our firm is working on the actual tax return. So we actually keep track of time for our tax services. And they get a bill based on the actual kind of time and materials spent on the tax returns. So those are pretty clear.
With the planning, again, it’s more estimated based on the scope of the project. So it could, depending on how big the project is, the relationship manager who’s in charge of the client is going to have to think through what resources are needed. And those can vary. You have a huge estate planning project, or again, if someone passes away and you’ve got complex estate planning needs and you’re going to be doing a lot of coordination with an estate planning attorney, something like that, those fees could be significant, tens of thousands of dollars, for example. Or you’ve got a smaller project, it could be a few thousand dollars. It just depends. So those can widely vary. And we give our relationship managers some discretion on that because they’re the ones who ultimately are going to be held accountable to the time that they’re taking from their team. So that’s what we want to be looking for.
Michael: When you’re a client that are already averaging upwards of $3 million and go up from there with fees that are at least starting at 1% and then tiering down from there, so I’m going to presume you’re still at $20,000, $30,000-plus of advisory fees by the time you’re getting up to these multimillion-dollar clients. Do you get pushback from them at that point like, “Hey, I’m already paying you $30,000 in this other fee, why do you have to charge me more planning fees as well” or is it just like, they’re affluent enough that they’re just used to the fact that these are the kinds of fees they pay for their level of wealth complexity and it’s not an issue for them?
Martine: Well, certainly on the tax preparation side, it’s a non-issue. We present the tax compliance side as a completely separate engagement with a fee for that separate engagement. And that’s a non-issue for all of our clients.
Michael: And from a practical perspective, for so many other firms that don’t do the tax work internally anyways, like, you’re going to have to pay a couple of hours or more of work time no matter what so just group it on it.
Martine: Yeah. And we tend to be pretty efficient when it comes to preparing taxes because we have all your materials and we have all your financial information. We’re often lower-priced than what you would have to pay somebody else because we have access to all your information and all your information is sort of in-house. We can get your 1099s pretty easily. We don’t have to charge a huge amount to prepare your taxes. It’s pretty competitive. Even though we’re billing hourly rates that are sufficient for our level of expertise, we can be efficient.
Michael: A couple of $100 an hour kind of stuff, but we can actually knock through your tax return really quickly.
Martine: Right, because we have such good access to information. As you know, a firm like ours is going to be comprehensive in the type of information that it gathers through the planning process and through the ongoing consulting process. For regular consulting, we’re not going to be charging extra. The regular sit-down meetings where we’re talking through regular planning issues, for the big clients, that’s not going to be an extra fee. That’s their annual meeting, or maybe we’re talking with them a couple times a year depending on what the client’s needs are. But what we’re really talking about are these one-off larger projects where it’s something extraordinary. Then I think the clients understand it. It’s not portfolio management, it’s not regular advice and consulting that they’re used to getting, it’s something that’s really extraordinary.
Michael: Death in the family with major estate administration, business liquidity events. Like, “Yeah, it’s a once-in-a-lifetime event for you, it’s kind of a little more work for us at this point. So we have a little bit of a separate planning fee.”
What SBSB’s Tax Services Look Like [25:02]
And so, I am curious about what tax services looks like in your advisory firm. I’ve talked to a lot of firms over the years that do tax work and some swear by it and say, “Clients just get really tightly bound to you by the time you’re doing their tax returns and they’re used to an ongoing basis.” And then other firms that say, “It just turns our business into this, like, seasonal roller coaster of being buried in tax season and you can’t get much other work done for clients, and then a whole bunch of free time for the rest of the year. And then if you’re not careful you end out overstaffed during tax season and no one wants to fire anyone for the rest of the year.” And just, they struggle to manage the seasonality of tax services.
So what’s the experience for the firm for you guys? Is this a profit driver? Is this just a good retention strategy? Is this a roller coaster but it’s just a necessary evil because you got founded by some accountants who built it in and now you’re stuck with it? How has it played out for you to be attached to this kind of tax work?
Martine: Honestly, it’s been a huge value-add for us. I always joke that it’s a lot harder to fire your accountant than it is your investment advisor, but it’s true. It makes the clients very sticky. We have a very high retention rate amongst our…well, we have a high retention rate amongst all our clients, but amongst our tax clients, it’s extremely high. They have a lot of faith and trust in us because we’re handling even one more aspect and one more very intimate aspect of their lives. It’s that dreaded thing they have to deal with that one time a year where they have to turn everything over and have it all processed to write large checks to the government.
But the nice thing that we’ve done is we’ve…I think we’ve made it both the value-add for the client but also a value-add for ourselves internally. And the way I think we’ve done that is by using it internally and then smoothing out the process over the years. So we don’t make it this April 15th, “Oh my gosh, this huge crunch.” There certainly is a crunch because there’s a certain amount of work we have to…everybody’s got to be on extension by April 15th. So there’s got to be some amount of work that’s done by April 15th. So there’s a process that has to get done.
But we try to kind of chunk it into approximately thirds. So it’s like a third gets done by April 15th, a third gets done in the summer, and then another third gets done by October 15th. And we rework our expectations externally with our clients that we educate them April 15th really isn’t the deadline, October 15th really is. And can we reorient and reeducate our clients to that understanding? And obviously, for the attorney set, that’s easy because a lot of them don’t even have their K-1s in time to even file. Right? So there’s a certain chunk of clients where they’re on extension anyways. And so that batch is easy. And then you’ve got the other ones that you can sort of reorient. You’ve got the trust returns that have to get done before then. But there’s a batching process that you can do if you choose to. And it’s just a reeducation process that you work with from your clientele.
And then internally, I think we’ve done a very good job of using it as a really good education forum for our associate planners. So we have our tax professionals and we have a couple people that are truly dedicated to the tax department, but then we use the tax preparation process as a training ground for our newly minted associate advisors. And these planners actually prep tax returns. And I did it myself. I spent 3 years, and still, we have that happening today, the first 3 years I was with the firm 17 years ago, I prepared tax returns. And it was a huge training ground for my growth and my career at that time, and it is still today for financial planners to understand how taxes work, learn a new system, learn a new process. And they all contribute to the tax department. And we find that it adds value to their education process and their training process. And it also helps us from having to deal with that sort of what you were describing, that seasonal labor issue that a firm could have to deal with.
Does it distract a little bit from planning and other objectives and does it put people in a little bit of a crunch? Yes, but I think there’s a huge value-add that they get by seeing that whole tax process, understanding how a 1040 works, gaining that in-depth knowledge. And it makes them ultimately better consultants. It made me a better consultant at the time and actually gave me the impetus to pursue my CPA, and gave me a higher level of interest in tax and accounting in general when I was learning back then. But we find that a lot of them gain more knowledge, more understanding of how to help advise clients by going through the process. And it helps the firm smooth things out.
Michael: Right. I was going to say, so now you also just literally, you can divide the labor over more people because you can employ your associates. You can either keep costs down or just manage the profitability of tax services a little better because you get, call it on a relative basis “cheap” labor. Like, at least the associate that’s doing it is not the same billable hour rate as the senior tax partner who has to sign off on it at the end. And I would presume that in sort of typical accounting firm fashion, you still have the environment of, someone does the initial preparation of the return and then a senior tax partner reviews and signs off on it. So you can do your quality control, make sure your associate doesn’t actually cause major tax errors?
Martine: We definitely have dedicated senior tax professionals whose only work is to do the review process. But then throughout the year, they’re the senior advisors on major tax issues. So they’re working…throughout the year, there’s a consulting element that they can bring to the relationships that we have for our clients. And there’s an education process that they can bring, too. So they’re working throughout the year on more complex tax issues, more complex projections, and then obviously consulting and educating our internal professionals as well.
Michael: So it’s basically part of the sort of economies of scale you get as you build this up. That even for the senior tax partners that are maybe more concentrated during tax season and a little bit more flexible with their time in the other eight months of the year, you say, “Well great, that’s when we do all these other complex financial planning scenarios that have liquidity events or complex estate administration. That’s how we keep them busy in the other eight months of the year when they’re not just buried in tax season for the first four.”
Martine: Right. And we’re making a transition this year as well. Our tax director, who’s one of our partners, is moving into the chief financial officer role. So these things just keep growing, and as people grow their careers, they add incremental value to the firm. So we had a senior manager in our tax department who’s now growing into the director of tax role, and our director of tax is now growing into our chief financial officer role. We’re making those transitions that ultimately just allow us to continue to grow the firm. So it just continues to evolve.
Michael: Interesting. Interesting. And again, to me the striking thing is this point you made as well that if you’re proactive about extensions or just proactive about setting client expectations about extensions in the first place, the tax work is really not quite as concentrated as people might imagine around, like the whole firm shuts down until everything gets done on April 15th and then it breathes again, because you are pushing roughly a third of your returns in the summer and then another third into the fall, and working around extension deadlines so that you can actually smooth out the workload, at least to some extent.
Is that ultimately just done like, advisor by advisor, client by client? I’m also just imagining from a practical perspective like, having these hundreds and hundreds of clients that you’re doing your tax returns for, how do you figure out who gets to be done by…who gets April 15th, who gets June 15 and who gets October 15th? Is that just an internal system where all the advisors get to say like, “This client we’ve got to do early, this one we can push later” or does that get driven by the tax side? How do you actually make those calls across so many clients?
Martine: Yeah. The nice thing is, is because so many clients have been clients of the firm for so long, they kind of get on a schedule. They sort of have their own schedule. So, client, Mr. Jones has kind of always had his return done around the June timeframe. So he’s comfortable having his return done around the June timeframe. So he sort of comes to expect that.
Michael: Okay. So if you can convince them once up front to take a later one then they usually just stick with it at that point.
Martine: They sort of stick with that slot. So it really starts to then become, when we get new clients coming in that are tax clients, it’s like then where do we start setting their expectations and slotting them? So once we sort of got this process into place, and this was a process that took years to sort of map out and configure over time, it was then, now it’s in a more sort of incremental process. It’s like, as we bring on new tax clients, where do they get slotted? How do you negotiate it amongst the relationship managers? And that’s the tax department works with the relationship managers to help control it. Obviously, we have technology that helps us look at the master list and who’s slotted for where.
And sometimes competing demands happen. Client A says, “I want my return filed by April 15th. I have to have it.” So we’ve got to go back to the list and say, “Okay, who might be more comfortable with an extension?” And there’s a negotiation that happens. It’s all about communication and workflow control. And fortunately, we have systems that help us do that. And we have good relationships amongst our team and our group here that allow us to have those conversations internally.
Michael: And then what’s the core tax system you actually use just to manage all this and do returns when you’ve got so many to manage?
Martine: Yeah, so we use ProSystem. What a lot of the big accounting firms use. And we use BNA for tax projections.
Michael: Okay. BNA is income tax planner software.
Michael: Okay. Interesting. And so from your end just, this is now an institutionalized thing. I’m curious though just, do you view it as a profit center for the firm? Is the goal that this is a profitable thing that you do or is the goal just, “Hey, we want to break even because it makes clients sticky and we win in the long run on retention?” Just I’ve heard firms view this very different ways about how they mentally cost-account for it internally.
Martine: Well, it should be. It should be profitable. It should be something that should be at least break even or profitable. I don’t think we envision something that we want to carve out and make it as lean and as profitable as possible. That’s not the ultimate goal because again, we have built it to attain multiple goals for, as I mentioned before, both the clients and both our internal learnings. So there are multiple facets of things we’re trying to accomplish with having this tax department. It’s not like we’re running an accounting department on its own and trying to measure it just with internal metrics that you would measure an accounting firm.
Yeah, do we want it to be profitable? Sure. As a business owner, you want to look at it and say, “This is making business sense.” But those intangibles are not as hard-coded as zeros and ones on the books. And we want to take those into account as well. And I do think the intangible value that it brings in all of those areas are good for us. And they have been historically, and I think they will continue to be. Especially as we continue to move the client base upmarket a little bit more, we have clients with more and more complex needs. And we’ve done a good job retaining talent within the tax group. And we have a high level of interest amongst our other advisors to have tax knowledge in general. So it’s something that’s at the core of our culture as well. So when you have it at the core of your culture, I think that it’s something that will continue to be a part of the firm.
Michael: And part of the reason I guess it’s at the core of the culture is again, that’s what happens when you get founded by some CPAs who come out of a large accounting firm environment. It was natural for them and part of their culture from the start, so the firm just got founded that way and it’s stuck?
Martine: Yeah, that’s part of it, but then the next generation that kind of came beneath them ran with it too. So the leaders within that group are not the founders anymore. The people leading that group now are the second generation, and it’s no longer being led by a founder. And so it’s stuck and it has new leadership that is taking it forward. And I think that means it’s going to continue to thrive.
SBSB’s Investment Planning Process For New Clients [40:02]
Michael: So help me understand a little bit more what the process is like for a new client that’s going through the rest of the investment planning process with the firm. I understand how the tax side works, but just I’m coming on. I’ve got, whatever, $5 million. Got referred to you. Love the firm. I’m ready to go. I sign the agreement, “Yes. I’m coming on board with SBSB.” What happens next?
Martine: Yeah. So we’ve got a core investment policy committee that makes our core investment decisions headed up by our chief investment officer. And they’re going to be introduced typically to one of the people that’s on our investment team. So we have a portfolio management group that is made up of investment professionals. And one of those investment professionals is probably going to be working with that client to introduce them to our investment philosophy, how we managed portfolios, how we look and think about the macroeconomic environment and how we would structure their portfolio. How we’d be working to reposition their investments and work through that process.
Michael: So in your firm, it’s not necessarily the advisor who carries all the burden of kind of helping with investment policy and explaining the firm’s investment views and economic outlook and such. That’s actually someone from the investment team that sits in on a client meeting who’s responsible for those talking points?
Martine: That’s right. And that’s relatively new within our business. We’ve worked hard to build out this new investment management group so that we have…similar to how we’ve had the tax group and the tax expertise, we can bring a tax person to the table when there are complex tax issues, we can bring now an investment advisor to the table that can really explain the investment philosophy and sit down with the client and walk them through it. So for a smaller client, it could be the relationship manager, but we’re really trying to work on the model so that it’s not with the primary financial planner. So that it is more with the investment professional.
Michael: So help us understand more just why that change came about. Because I feel like that’s not something that I hear from a lot of firms these days. Usually, if there’s someone from “the investment side” on the team, it tends to be more like, “This is the person who will help you do your trading and rebalancing, but I, as the lead advisor, I’m still going to be talking to you about your portfolio.” So you seem to be splitting that a little bit more and saying, “No, this isn’t solely someone from the investment team is going to implement your trades as a trader, this is the person who’s going to talk, call it the investment talk with you when you come in for meetings.” So what led to the change? Why the decision to make that shift?
Martine: Yeah, there’s a few things that are at play here. I think a lot of it is that our core relationship managers, in general, have more sort of core planning and tax expertise, that’s kind of how they’ve sort of grown up within the firm, and then we have these investment professionals that have sat on the periphery working in the investment policy group. And it was, the investment expertise was also held more with the founders of the firm, and they were the ones kind of having more of the investment conversations.
And so we’ve sort of now carved that out as a separate group that we’ve wanted to develop and taking some of the burden off of the financial planner. The main relationship manager having to have some of those more difficult conversations about the investments has given them…has freed them up a little bit more. And then putting that with the person who has more of the CFA background that really is studying the markets, is learning more about the macroeconomic environment and really wanting to be his…sitting in the IPC, our investment policy committee meetings, putting that conversation with them is adding more incremental value to the client relationship.
So the client is served by a team. And they can really feel, I think, the value-add there more so when they have that element at the table. So it enriches the conversation. And especially for the more complex client. So the complex client that has the deeper questions, they can get those questions answered at a deeper level and by someone who sort of has a higher level of enthusiasm for the markets and a higher level of enthusiasm for how we’re constructing portfolios than say you’re a financial planner who has higher-level planning process.
Michael: Because your planners are CPA, tax planning types who just really want to talk about planning and taxes and didn’t really want to talk about the investment stuff?
Martine: It’s so true, Michael. In my experience, and I’ve come to know this, I’ve done a lot of hiring, and I’m sure you’ve seen this a lot with what you’ve worked on, but in my experience in hiring people and in looking at people and growing them and mentoring them and looking at them within a company, you tend to kind of favor one area or the other. You’re either a real deep thinker on the sort of planning and maybe tax side or you’re just really obsessed with the markets and you’re waking up and you’re watching CNN every day and you know exactly where the market is today, or you’re really deep on the details of planning and tax issues. And it tends to, and this is just what I’ve seen in my career, it tends to fall in one of those two buckets.
So putting pressure on someone to be in both of those buckets and serve the client in all those areas is difficult. And so we find that if you bifurcate that, take the pressure off and put two people in front of the client, let one person come in, have that deep portfolio conversation then step out, let the other person continue the conversation on the planning and tax issues, the client is more satisfied because they’ve had a really robust conversation on their portfolio issues, and then they’ve had a really robust conversation on their planning and tax issues. And then also the employees are more satisfied because they’re working at their highest and best use in what they’re most interested in. So I think that’s kind of how we’ve gotten to where we are. And I think the bigger we get, I think the more developed expertise we need to have in those areas. So it’s kind of why we’re going in that direction.
Michael: I do love that framing that people just natural tendencies tend to be a little bit more investment-centric. As you say, they’re excited to wake up and read the latest stuff on CNBC or Bloomberg or whatever their information source of choice is. And then there are others that are more planning-centric and just that’s not what gets them excited. What gets them excited is the planning conversations or the tax conversations or retirement analysis or just something on the, call it the personal finance side and not the investment stuff. And that it’s really hard to find someone who actually excels in both. And just from a practical perspective, it’s really hard to excel at the investment stuff if you’re not constantly looking at the investment stuff because the investment news cycle is 24 hours. At least in the planning world, stuff only changes every few years when we change the tax law. But the investment stuff changes constantly. If it’s not someone who’s passionate to always read and keep up to date on that stuff then you tend to get rusty on it really quickly.
Martine: It’s a fair point. And that’s why I think our investment folks are, they’re reading and breathing it every single day, and they want to be doing that. And that’s who you want to be talking to your clients. Because they’re going to…that passion is going to come right through. They’re going to be like, “Oh yeah, I was reading this article and…” And if the client really wants to go there then you want to have the person who wants to go there with them in front of them. Otherwise, they’re not going to be connecting with the client in the way that the client needs to be connecting with them.
Michael: So then one follow-up I do have to ask on this, I know we’re now stereotyping a little of like investment-centric folks like doing on their investment time and planning-centric folks who want to spend all their time doing planning, but obviously, exceptions may apply. Don’t write us hate mail because you actually like doing both. But I think these are fair kind of generalizations for how people tend to split.
But then I do find in the investment side, there’s sort of a secondary split, which are the people who like talking the investment talk and just love talking about it to whoever they can talk to it about, so great for investment team conversations, great for client conversations, and then there are some who they really like doing their investment analysis, not so excited to talk about it with others. And I’m just imagining from a practical perspective like, there are folks that I know who are brilliant investment folks, brilliant mind, brilliant analysis, does not mean I actually would want to put them in front of a client. They don’t always explain it well. Or the truth for a lot of investment conversations with clients is it’s less about, “Explain to me the technical stuff about markets” and more that, “I just need to hear someone say, “It’s okay. We’re watching this. We’re monitoring this.”
Martine: You could say that about a tax person, too, though. You could say that about a planning person as well. There’s analysts in all these areas, I think is what you’re trying to say.
Michael: But that’s a good way to frame it. So there are people who are more analyst types and people who love to actually have the conversation about it. Maybe that’s just literally like some people are introverts, some people are extroverts, and the introverts go towards analyst roles and the extroverts go towards client-facing roles. I guess my core question, though, is like, do you segment this way on your investment teams? So are there certain investment people on the team who do most of the client conversations and then some others that are just purely internal analysts? Does everybody carry the load to do some level of client meetings, and just how do you train them to talk that talk to clients? Because I think client investment talk is a little bit different than just, know your investments stuff. You’re wearing a slightly different hat.
Martine: Yeah. So the interesting thing and the reason I say there’s tax people like this and there’s planning people like this too, I think this applies in these areas, right? So I think you can apply this more broadly to our profession. And the bigger question I think you’re getting to, and we can go there if you want, but the bigger question is, how do you design a firm that has roles for people more on the analyst side or more on the kind of operation analyst side versus on the client-facing side? And are there roles for that? Or how do you train people to be more client-facing if they’re not as naturally inclined to be there?
Michael: Yeah. Well, I guess even the first question is just…I can handle this one of two ways. I can let analysts be analysts and let client-facing folks be client-facing and just sort of split up the duties that way. So, I don’t know what the numbers are but like, there’s eight people on our investment team, four are analysts and four are in client-facing roles. And we just split it up that way. Or we can say, “No, no, all eight need to learn the client-facing side, at least a little, so we’re going to train on how to have these client conversations better for all eight.” So I guess my first question is just like, are you a four and four structure or are you a train all eight kind of approach?
Martine: Well, I don’t think it’s as black and white as that because we’re definitely…we’re not either. Because if you took either approach, you took I’m a four and four, then you might be missing somebody who wants to learn and grow. You might be missing that analyst who wants to incrementally take steps to become the consultant. And you might take the consultant who wants to incrementally learn more technical skills and you might miss the opportunity to grow people in all those areas. If you take the I’m going to be eight and make everybody everything, then I think you’ve got that whole rabbits don’t swim issue, where you’re forcing…you’re throwing people into the pond and they’re going to drown because you’re trying to force them to do something that they probably aren’t going to be very good at.
So I think it’s…this is where I think people management becomes a critical issue within a firm. And being able to recognize the talents and the skills that people have and their natural inclinations versus their developmental skill sets that they can also develop or want to develop, and how you have to have coaching and mentoring and training programs and things that you work on. So we want to have people with a variety of skills, and we want to have people that are motivated.
I always say the best thing I could have is a talented individual who is motivated. Now, talent can mean many different things. They could be a good analyst, they could be a good consultant, but if they’re smart and they’re trainable then I want to be able to take them in one direction or the other. But it might be in different directions, depending on what their talents are. But they have to also be motivated, because sometimes you can’t pull motivation out of people.
And so you have to have a diverse workforce because some people are going to move more strongly in one direction versus the other. We want to take that approach that some people can be more developed to be more on the consulting side. Some people will be more comfortable on the analyst side. And we need good analysts. So we need good people that can be behind the scenes and do some of the number-crunching and be supportive to the consulting process. So we want a mixture of both. And we have that. We have that in portfolio management. We have it in tax. We have it in planning.
Michael: Then let me sort of just come back to the core question of that, which is just, how do you train the investment team to talk the talk? I feel like there’s a version of this that’s, “How do we train advisors to be effective client relationship managers?” And that in and of itself is a challenge for many firms and something that we’re all figuring out over time. But you’ve got, I feel like, a second layer to this when you’re also trying to teach these investment folks to be able to do this. So how are you training these kinds of conversations?
Martine: Well, fortunately, we have pretty good ones that are actually pretty good at delivering that message. The good news is they’ve good leaders because again, the primary ones that were delivering the message before them are the founders. And so they’re sitting on the investment policy committee, they’re listening to the messaging from the core people who developed it before them. They’re sitting in client meetings. They’re listening to how it’s being delivered to clients. And then we’re creating internal programs where they’re getting the necessary mentoring that they need to get. So you unleash them on the easier clients, you give them a little bit of rain on that, and then you coach them and mentor them…
Michael: To get some good easy wins on your belt first.
Martine: Exactly. And then the key thing I think is coaching and mentoring them and giving them feedback right after that meeting. So it’s like, “What went well? What didn’t go well? What can we improve? How could we say something there?” But they’ve got to know how to listen to that process and hearing the experienced professional deliberate, and then they’ve got to be able to try and deliver it on clients that are a little more forgiving. And then they start to let that leash out a little bit more and work with them. And if they’re motivated and they want to do it, it will start to take hold.
Michael: Interesting. And I guess that’s part of the opportunity where you’re doing this from the position that you are. Like, you do still actually have some of your founders around who’ve done this conversation for a long time that can help train it. I guess this is the first generational training shift, which maybe is a little more straightforward to train and implement than the second or third step removed in 5 or 10 or 15 years where the trainers have to train, the trainers have to train the trainers down the line.
Martine: Well, and the beauty of where we are right now is that we’ve actually made a concerted effort to get our founders out of a lot of relationships so that they are not the primary advisor anymore. So they’re really freed up now to be more the leaders for the firm, working on these sort of broader-scope leadership issues. And they’re not doing the heavy lifting in the client relationships. So it’s really, I think, freed us up as a firm to raising the next level of leadership. And that’s a core goal that we have is we’ve got to move this next level of leadership up where we’ve now got a chief financial officer that’s not a founder. We have a chief investment officer that’s not a founder. We’ve got key hires in higher levels within our firm that are not founders. And we’re continuing to move ownership to individuals who are not founders. That’s really important to us to continue to do that so that this firm is sustainable.
How SBSB’s Onboarding Process Works [59:01]
Michael: So take me further through what happens with clients as they’re coming on board. We’d sort of started out with this first meeting, client gets introduced to someone from the investment team who’s going to be having these investment conversations while there’s a lead advisor, I guess, who’s having the planning or planning/tax conversations. So what happens next?
Martine: Well, typically, and they’re going to go through a planning process. We use eMoney as our planning software. And they may do a full robust plan, like a retirement projection, and then walk them through any planning gaps or needs that they may have. There’s insurance gaps or there’s other estate planning gaps, they may be introducing them to other professionals that we need to fill those gaps. And then obviously the portfolio implementation is likely going on at the same time to make sure that we’re getting the assets moved over and the portfolio objectives implemented. Then at a certain point, there’s going to be a cessation in sort of the frequency of the communications and the meetings so that the client is starting to feel like they’re onboarded. And we kind of go from there. Then it becomes, what is the frequency of the meetings? What are the needs of the clients on an ongoing basis? Are they comfortable with the technology that we have in place for them to view their portfolios and view their planning? And what do we need to do from there?
Michael: And how often are you typically meeting with clients? Is there a standard cadence, like we meet with them once a year, twice a year, quarterly?
Martine: It totally depends. It depends on the client. Depends on the size of client. Depends on the client’s needs. It could be once a year, it could be quarterly, but it’s going to be very dependent upon the complexity of the client and what the client’s needs are. We do not have necessarily a set standard there.
Michael: Because it just, you couldn’t find one that works because every client wanted to be more specific or just as a matter of firm policy like, “We’ll just adapt all these to whatever the client wants the frequency to be?”
Martine: Well, it’s got to be managed. Obviously, we have a business to run, so we can’t be meeting with every single client every single month. And we do have kind of internal guidelines that we’ve developed that help us look at clients at different levels and say, “Okay, it’s going to kind of make sense for client of this size. This is sort of how often we should be meeting with a client or working with a client for it to make sense for the firm.”
Michael: So you have your own internal client segmentation, like, “A clients, B clients, C clients. We try to see these three times a year. We try to see the B’s two. We try to see the C’s one.” That kind of structuring?
Martine: We have some guidelines. And it’s intended to give people a rough understanding of how we might look at a relationship. And we’re kind of working on rolling those out now. Because I think it’s important for relationship managers and for the team members to understand how you might look at that from a business perspective, but we don’t…you don’t want to get to the point where you’re totally boxing people in from taking away all of their autonomy from making the smart decision for doing what’s in the client’s best interest, right? But yeah, we certainly want to have a framework in place. And I think that’s important.
Michael: Because I know for some advisory firms, this becomes a challenging issue. When you hire advisors who are very service-oriented and want to give great advice for clients, that’s why they took the job and the opportunity, I know for a lot of firms, those folks have trouble saying no to pretty much any requests the client makes because you’ve got a service mentality and you want to serve the client and answer their questions or do what they ask. And if you don’t set some guidelines, you run the risk that just advisors who end out with particularly high maintenance or needy clients end out really having their time consumed by a small subset of clients if you haven’t set some kind of guidelines of, “Look, you have some autonomy and choice, but if your client is asking you to meet every month, this is not standard around here.”
Martine: It’s a challenge. And that’s why we do have someone in a role that…working in a role that we call advisor services and development. And they are tasked with sort of looking at working with each relationship manager and overseeing those types of issues. So what does your client base look like? How frequently are you meeting with your clients? What your service level look like. What your team structure look like. We do want to manage those metrics. We do have KPIs, key performance indicators that we look at at a firm level. We do manage the firm to those types of metrics. And we want to be looking at those metrics on a regular basis so that we aren’t overstaffing the firm and overserving the clients to the extent that’s detrimental to the metrics that we’re trying to accomplish.
Michael: I actually want to ask a little bit more about how a firm like yours looks at KPIs, but first, let me just start with this interesting role that you put forth. I think you said it was a director of advisor services and development? That is not a job title I have ever heard before. And I talk to a lot of folks. So tell us more about this role. You’ve said a little bit of it, like, they’re working with relationship managers to understand how they’re working with their clients.
Martine: Right. And it’s also a strategic role that we have as well that’s going to be looking at growth and business development and potentially mergers and acquisition area as well. So it’s broader than just working with the internal advisors. But when you get to the size that we are where we have basically around 10 client service teams internally, you need a role that sort of helps oversee how all those teams are working because you want to have consistency in the framework that you’re working under. We also recently hired a new director of financial planning that is going to help us with that as well. How do we deliver financial planning consistently across all those client service teams?
Michael: So that was actually going to be my next question is, is this different than a director of financial planning?
Martine: It is. It is. Because the director of financial planning is really more about the delivery of the planning services model. This other role is more about how you manage the actual practice. It’s more about practice management, less about the service delivery.
Michael: Okay. Yeah. So the director of financial planning focuses on, I guess, planning process, planning deliverables, sort of like advice quality and excellence.
Martine: Right. Now, these two people would be working closely together on things like pricing, for example. Like the project that we were talking about earlier, how do you price planning services? That would be something the two would be collaborating very closely on. Because from a practice management perspective, the advisor services person would be very finely tuned from a strategic perspective on, “How do we want to manage the practice?” and the financial planning director would be saying, “What’s the value of the service?” So you have those two kind of closely aligned and saying like, “How do we work together on pricing our planning services from a strategic perspective? And how do we consistently execute that across the practices?” Right?
Because as you grow, it’s tough. You’ve got 10 different primary relationship managers servicing, let’s call it 100 clients each on average. It varies. But you’ve got to then sort of bring that together in managing that. And you’ve got metrics that you’re looking at. So you have this person that you want looking at all of these metrics and then helping them with, “How are we making sure that we’re staffing you correctly? How are we managing your business development process? How are we looking at your key performance indicators, making sure that you’re spending the right time in the right places? And how can I assist you?” And that’s really what this person would help with.
Michael: Yeah, I love the framing that just like…I’m sort of thinking of this as an internal practice management consultant for these sort of 10 teams that are like mini-practices within the firm that still have to answer all the questions that any firm has to answer, even a large unified one when you break it down to 10 teams, so like, “What are your service levels with clients? What are the expectations that you set? How exactly are your teams structured? How are you allocating tasks and time across your team? What best practices can we learn from all the other teams?” Because otherwise, you put 10 advisors in charge of 10 teams and you’ll leave them unleashed for a couple of years and they’re inevitably going to start growing in varying different directions just depending on the styles of the people at the top of each team, which isn’t necessarily bad for client service but does mean not every team delivers the same client service anymore.
Martine: That’s right. And I think in a smaller firm, that’s a role that a CEO or a COO or even a CFO could potentially carve out and put a portion of their time to dedicate to. But we’ve gotten to the size where that can’t be part of my time or somebody else’s time because we’ve gotten too big. And it actually was a portion of one of our founding member’s time last year, but it’s gotten to the point where we can’t dedicate that person’s time to this role anymore. So it’s something that was a strategic decision on our part.
Michael: You’ve mentioned a couple of times the data that you track. It sounds like there’s some KPIs, some key performance indicators at the team level and then some at the firm level. Can you share what kinds of KPIs you’re actually following and tracking? At a firm at your size with 10 advisor teams and 60-plus employees and almost $4 billion under management, what do you look at as, I guess in the true sense, key performance indicators that you track in the business across the teams and across the firm?
SBSB’s Key Performance Indicators (KPIs) [1:09:41]
Martine: Yeah, I think I’m willing to talk about it at a high level. I think as a business person, you obviously want to be looking at…on a regular basis you’re obviously looking at major numbers, like AUM, profits, and then obviously, the things that contribute to that. So it’s the assets that are coming in. Where are they coming from? The new clients that you’re adding every…it’s a lot of the new client metrics. So new clients that are coming into the firm, clients that potentially are leaving the firm, additions that are coming in. And are the additions coming from new clients? Are they coming from existing clients? And then withdrawals.
Michael: Asset and revenue flows.
Martine: Yeah. So the asset and revenue flows, and then obviously the breakdown of that, the more micro details. And then you want to try to break that down by team or by relationship manager, in particular, to sort of see where the client base is coming from. And so looking at that at a deeper, more micro level helps you internally then manage that. So that’s what that services advisor would kind of be looking at as their major metrics, and then working on understanding how that flows.
Then there’s obviously at the more macro level, at the executive level, you’re going to be looking at key performance indicators, revenue per professional, operating margins and profit margins and different things per professional or per employee or different metrics that we’re kind of slicing and dicing our financials in different ways to be looking at how profitable we are, or on the expense side, certain ratios. Where’s our spend on technology? Where’s our spend on marketing? Are we hitting certain metrics that we’re trying to look at? We do go through a budgeting process, for example.
And as a business owner, that’s what you want to be looking at on a regular basis is, where’s your spend? Your biggest spend in this business are your staffing and your rent. So you better have that right. Then it’s the mix, on the staffing side, it’s the mix between your professional staff and then obviously your support staff and then your back-office staff, your operational staff, what you would call your true overhead. And so getting that mix and that spend right is really critical. And then trying to get you through growth periods and stall periods and when people leave the firm, and how do you deal with that. All of that is really important and critical. So having those metrics available is crucial. And we look at that frequently and we have regular reports. It’s not like we just decide to pull it together once a year and take a look. We’ve gotten to a point where we now have regular metrics that we’re sitting down and looking at on a regular basis.
Michael: And how do you collect all of that?
Martine: It’s not the easiest process. So we’ve got a lot of data and a lot of systems in a lot of places that have been growing over time, but it’s something that we’re working on streamlining even more. But when you’ve got your portfolio stuff in Tamarac and you’ve got your accounting stuff in QuickBooks and you’ve got other metrics in other places, it can be quite a system. In fact, one of our projects this year is to work to streamline that process so that the reporting is a little bit more streamlined. So we’re going to be working on that.
Michael: Interesting. And what’s the core technology systems for you guys for just managing CRM, portfolios? You said eMoney on the financial planning side.
Martine: Yeah, so we’re eMoney on the financial planning side. We have Tamarac for performance reporting. We have Salesforce for our CRM, ProSystem for the tax returns, BNA for tax planning. We use Seismic to help us with presentations and content management. I think those are probably the main systems that we have.
Michael: Okay. Okay. And so I guess a lot of these KPIs from a practical perspective are sort of Salesforce reports and Tamarac reports since that’s where the revenue and the asset information is?
Martine: Yeah, and QuickBooks because QuickBooks is where we hold all our financial accounting.
How Martine’s Role Has Changed Over The Years With The Company [1:15:06]
Michael: Okay. So tell us a little bit more about just the journey for you with the firm. As you said, you started as a new associate 17 years ago. By three years ago, the firm bought itself back from the bank, and you were one of the people who did the buyback and are now in a partner position. Help us understand what this journey has been for you.
Martine: Yeah, it’s been an amazing ride. It’s been very fulfilling. I left a career in IT. Well, it was a very short career because I graduated in 1999 and went into IT consulting when it was all the boom, and then made a decision to leave that in 2002 and just came into this firm. And I happened to, literally, it was a cold resume drop on Greg Sullivan’s desk. Felt very fortunate that he kind of had a similar philosophy, or I guess a philosophy maybe even I picked up on or got from him about hiring talented and motivated individuals. So he took a chance and hired me back in 2002. I probably could barely tell you what a 401(k) was back then.
But I started on the planning side and got my feet wet and learned what a CFP was and did my CFP learnings and passed the exam. Worked on a client service team at that time, then decided…kind of got my hands wet a little bit more on the operational side. I was really good with software. So at the time, we were using NaviPlan. If you remember when NaviPlan kind of first came out with their really more rigorous cash flow-based system. So I was really good with technology. I picked it up quickly and sort of became good at training people in that system. So they were using me on some internal projects that I think were sort of whetting my palate and putting me back more in my sort of operations mindset of where I wasn’t in consulting, and I started working on some more internal projects here and there.
And there came a point in my career where I was actually…went back to grad school and was doing my MBA. I think Greg approached me and said something of the mindset of where, “We need a COO eventually, or we need one now, but we’re having trouble thinking about how to go about and hire one.” And I think they had tried to hire one before I had been on board and it had failed miserably. And he said, “I can either go out and hire one from the outside or I can develop you. And what do you think?” And at the time, I was like, “I think he’s crazy.” I think when you’re young and you’re just working and I was stressed and I was in graduate school and I was so…I was very comfortable in my role. And I think that’s very common when you get sort of comfortable and you’re kind of plodding along and you’re learning and you’re growing so fast. It wasn’t even really kind of in my mind. Even though I was such a motivated and a tough worker, he kind of surprised me a little bit with it. But the more I thought about it, I was like, “Why would I not do this? This is so fascinating to me.” So I kind of made that shift and he started working with me.
Fast forward five years after that, it took a lot of incremental time and work and learnings, but I…it was probably about a three to five-year process of really working with him and with the other partners in the firm to get really comfortable with the chief operating officer role. And then that’s how I got to where I kind of am.
Michael: So had you already sent your…? I’m just trying to understand the timeline. Had you already taken yourself back to get an MBA at the time? Were you working on it at the time?
Martine: Yeah, I was midway through my MBA program, which was a three-year program at Georgetown. So I was in the evening program there and was doing that in the evenings and working full-time still. But I was in more of like…I was kind of at a manager level now within the organization and was still working on clients, but I was also doing some internal work, managing kind of portions of the financial planning department and serving as a little bit of an expert on the software and some other internal processes. So they had put me on some process work because I was good at processes. And that was an area that I was developing more and more. So I was institutionalizing certain things that the company needed to have institutionalized. And I think that’s where Greg was picking up. So I was kind of halfway through my MBA program at the time. And then after finished the MBA, I did the CPA because why not?
Michael: So were you putting yourself through these programs? Was the firm supporting you?
Martine: Yeah, the firm had some tuition reimbursement. I was spending a lot of my own money but also the firm was spending some money as well. We had a tuition reimbursement program in place. But I would say for a graduate degree, I was paying the majority of the costs, but there was some reimbursement.
Michael: Okay. And so for you just, you wanted to do it. You wanted to learn it. You just saw it as your own career path forward that you were willing to reinvest the dollars?
Martine: Yeah, I was a student at heart. I’m the daughter of a Ph.D., of a professor, and I have an identical twin sister who’s a professor. So it’s kind of in my DNA to be a learner. I joke that in my 20s, I was a lot more boring than I am now because I just had my head in the books. It was a decade of my…really a decade of my life that I committed to learning. And I think as you know, I also taught CFP education programs at that time, too just to kind of give back and just also improve my learnings as well. So I really just spent a pure decade of my professional career soaking in about as much learning as you possibly could through the CFP, through the MBA, through the CPA, and through teaching for the CFP course review through one of the companies. I really just sunk it all in. It was really beneficial for my growth at that time. It was what I needed, I think, to excel and move, I think, quickly, in my learnings and in being able to contribute to the organization.
And then after that, that was really when I got into the COO role and then my learnings became much more on-the-job and through trial and error, and learning how to make mistakes. I think that’s where you really start to learn by messing up. You’re in school, and if you’re a good student like I was, you kind of can’t fail. And then when you start running a business and you start running a division and you start running a department, you start having real responsibility and people’s jobs are in your hands and you start making decisions that have impact, you screw things up sometimes, or more than sometimes. And you start to understand the implications of being human and having failures and learning from those and having then also to just rely more on teamwork.
That was probably the most…the decade of my 30s was more about that. And I find that to be probably the most powerful thing that I could have gone through in the growth in the organization. And the good news is I had such a supportive organization and a supportive team that it gave me an environment in which I could learn and fail and thrive along the way because you’re not a solo learner anymore. When you get to that point in your career where you’ve been successful, you’ve done these projects, you’ve gotten your credentials and now all of a sudden you’re in charge or you’re having to make critical decisions, there’s a lot of responsibility. And to be in a safe environment where you can make mistakes and learn and continue to execute, that was a lot in that decade. So I’m very fortunate. It’s been a wild ride.
Michael: I have a few more questions about kind of the COO transition but first I’ve going to ask just, you said the decade of your 20s was sort of this immersion in book learning, education. You got a master’s degree and then went back for your CPA on top of that. So just 10 years of reading and studying. Then your 30s was this decade of learning to manage and lead and, as you said, making all the mistakes in the real world where they have consequences and impact on people and learning from those mistakes and experiences. So what’s coming up for the decade of your 40s? What’s next on the horizon for you?
Martine: I think what I’d really like to see is now where the leadership and where we can bring in this next generation of leadership and how I can help motivate, grow the firm, bring on the next layers of talent and continue to see this thing grow. It’s been such a fun ride. And you’re at the point now where or I’m at the point now where I feel very comfortable and I can be authentic and can make decisions and feel confident. And I have a confidence about me. And I am my own person, I am my own leader, and I have the authority to do the things that I need to do in my job, but now I want to try to bring up the talent that’s around the firm and see what we can do together. And I think there’s just so much more talent out there. And if we can recruit more talent, if we can recruit other firms, if we can bring all of that to the table, I think there’s just bigger and better things that we can go do.
Michael: So to me, it sounds like it’s just, it’s a dynamic of developing people now? Like, your 30s was how to manage them and your 40s is how to find and develop the next ones?
Martine: I think my 30s was also figuring out how to be a more authentic self and how to live with more intent and how to manage different dynamics within the office and what is it that I really wanted out of a career, out of a company, out of a life. And I feel like I’ve gotten to that point where I sort of have that direction and I’m living with a lot more intense and a lot more…I know now what I want, and now there’s more of this desire to give back. So can I give back to the other people around me and figure out ways to raise everybody else up as much as possible? Can I mentor? Can I train? Can we bring the company to bigger level than it has been before? I would love to see us just continue to move everything forward.
And it’s not about me, it’s about all the people that I serve. And I mean that because it’s…I look at the impact that I have or that we can have as an organization on all the…and for me, it’s about all the employees just because, when I don’t work directly with the clients, I’m working day-to-day directly with the employees. And I have such amazing, long-standing relationships, especially with the people on my direct team. But even across the firm, the amount of loyalty we have with… Our average tenure of our employees is upwards of about nine years. And I’ve got people that have reported to me or worked with me for 13, 14, 15 years. And you look at that and you’re like, “These are some of the people that I’ve spent more time in my life with than a lot of people. And I want us all to be working together and building something.” And we have been for a really long time. And I think we can just continue to be doing that.
What It Was Like Selling And Then Buying Back A Firm [1:29:35]
Michael: So now bring this back for me to this transition a couple of years ago where you grew to a COO role. I’m presuming that means BMO bank actually gave you a pretty good amount of flexibility to still run the firm the way that you guys wanted to run it. That they weren’t in there dictating all of this stuff to you that you were, I guess, a subsidiary that they at least partially left alone. But you’ve come up as a COO with some of the founding partners who are still there, and then somebody gets a harebrained idea of, “What if we bought the firm back from the bank?” So tell me how that conversation goes. How do you get to that point?
Martine: Well, I think that was probably a lengthy one. It was something that we had thought of over time. And it wasn’t an easy one because we had a very good relationship with the Bank of Montreal. And I don’t want to speak too long about it because I have nothing but good things to say about them. They were amazing to work for. I learned a ton while working with them. But I think over time, we got to the point where we felt comfortable enough to think about what it would be like if we were independent again. We had some internal conversations, and it was over a lengthy period of time, just decided to make a decision.
Michael: Was it about control or something else? You said sort of this idea of being independent again, but it also sounds like they weren’t that horribly controlling and taking away your independence before. Were there particular factors or drivers that just said, “Hey, this relationship is pretty good, but there’s these things we want to be independent about that we can’t, so we think we have to go back and take ourselves private again to get back to where we want to be?”
Martine: Well, I think there are certain things that had changed in the environment. I think as you know, there were certain things like rules with the CFP Board where they were cracking down on being able to call yourself fee-only. Even if you were a subsidiary, you couldn’t do that. And we were strictly fee-only. And that actually was a major issue for us.
Michael: But you couldn’t talk about yourselves as fee-only because CFP Board’s rule is if you were owned by a parent company that also had their commission-based thing anywhere in their org chart, which is pretty much impossible to avoid when you’re owned by a large financial services firm.
Martine: And that gnawed on us quite a bit because we truly were…as an RIA, as a self-standing RIA, we truly were fee-only. And that gnawed on us a little bit. But of course, that’s not the reason. And there’s no one single reason, but that was a tough change for us that came through. And we wrestled with that because we’ve always been fee-only in the way that we’ve practiced. And then I think there’s just…there’s always going to be management that you’re reporting to and having to manage through transitions where if there’s staffing freezes or hiring freezes, and you have to deal with that.
Michael: Right. Because you’re subject to all the bank’s policies.
Martine: Yeah, exactly. More regulation issues that you have to deal with when you’re a subsidiary. So certain constraints like that. But like I said overall, it wasn’t necessarily a bad thing, it was just more of, we saw I think a longer…a list of positives that I think we felt like we could accomplish. And there was just a desire that we wanted to have for ourselves. So again, we can’t really say anything bad. And I think that’s a good place to be in. There’s not many people out there that I think could confidently say that. That could feel comfortable saying that.
Michael: So what does it look like when you make this decision that you want to buy yourselves back? How does that get done? What has to happen? Like, everybody just takes out a giant bank loan together and says, “We’re buying this thing back all of us together?”
Martine: Basically, in the simplest of terms.
Michael: All right, it’s just a big number.
Martine: Yeah. Yeah, that’s pretty accurate.
Michael: I know for the original founders, obviously, this was somewhat familiar space to them. They did own the firm in the first place. They were at least used to what it’s like and the risks and dynamics of owning a firm. It was new for you though. So what was this like for you sitting down and thinking about not just being an owner, but being owner in a buyout like this where there’s a giant pile of debt that someone is going to have to sign off on or that a lot of people are going to have to sign off on?
Martine: Yeah, I think that was certainly somewhat daunting for myself. But at the same time, having been with the business for as long as I had been with the business, I had every bit of confidence in the future of the company. Certainly, there’s risk obviously as the chief operating officer and the chief compliance officer. I know those risks better than anybody else in the firm or as intimately as anybody else in the firm does know them, but I’d be as willing to put my money on it. I believe in it. So when you believe in something and you believe in the people and you trust the people around you, it wasn’t very hard for me at the end of the day. And trust me, I was taking on a lot of risk. But at the end of the day, it was not a hard decision because I believed so wholeheartedly in what I had invested so much time and energy in. And I still do today.
Michael: And so what’s it like then just…I don’t know, I’m trying to imagine just the management and team dynamics when you buy back the firm with, it’s essentially a management team of five that includes three original founders and then two “others,” you and someone else who are not original founders of the firm and of the next generation. I don’t know, I guess I’m just wondering, from a decision-making perspective or a management perspective, that’s a generation gap that’s challenging in a lot of firms just to manage leadership transitions, ownership transitions. You have that as you’re going into business together with each other. Like, how do you manage that dynamic?
Martine: Well, we have a very good, open communication dynamic in the sense that we viewed going into the purchase as an investment and we view the management of the company as a separate decision. So we all have different roles within the organization, and they’re separate from the purchase of the business. So if Greg is the CEO and I’m the COO, we have certain roles and responsibilities to the business that aren’t necessarily about whether or not we purchased an equity stake in the company. They owe a duty as an officer to the organization. And new officers could come into the organization that we assign new duties to and new investors could come into the organization that are investors in the organization. And they have. We have nine new owners in the organization, but that doesn’t necessarily give them an officer status to make management decisions.
And we now have a broader management committee that has a management team. We have a broader management team that does not include all 14 owners, for example. And the management team is a management team that makes the decisions for the business and the owners are the investors. So there’s a difference in how we define that internally so that it doesn’t get convoluted about who’s making the decisions for the business. Now, the investors, obviously, there’s a duty to the investors that the management team has to play for executing on major decisions then there’s a duty to the investors that you have to make because they’re investors in the business. But the management team still has to have the authority and autonomy to execute on the day-to-day management decisions without every investor being able to say, “Well, I don’t agree with that management decision.” Right?
So we’ve segmented that as an important distinction internally so that the management team can make the management decisions and the investors can be the investors. And I think that’s very important distinction to make initially and upfront. And we were very clear about that before we did this purchase.
Michael: Pure separation of ownership from management, which I think is a hard thing for a lot of folks, particularly in small-to-midsized firms because there’s…right or wrong, I feel like there’s this classic view of, “I want to be a partner so I can get a seat at the table. Like, I want to have ownership so I can get a seat at the table.” And so I think it’s an interesting reflection of firm like yours that becoming an owner and getting partnership has basically no relationship to whether you get a seat at the table. Like, if you want the proverbial seat at the table to make management decisions, do good at your job and get promoted to the management team.
Martine: That’s exactly right. But we also want the people who are investors to be invested in doing good for the business, right? In making good, sound decisions that will help our growth, in wanting to do the right thing, in managing their teams. So they’re good stewards of the business. And that’s what you want from your investors. If they’re employees of the company or if they’re partners, and that’s what they are, they’re partners, they’re not employees because we’re an LLC, but they’re partners in the business, you want them to be the best stewards of the company in driving really sound business decisions for the company. And they can do that in any role that they’re in.
Michael: Except I would imagine that means it’s actually like, it’s more likely they excel at their job, take on management and leadership responsibilities, act as good stewards and get an opportunity for ownership.
Martine: And that’s right.
Michael: As opposed to, the ownership gives them the seat at the table, for instance.
Martine: That’s exactly right. That’s exactly right. So the people who are going to be getting ownership or getting the offer to buy into the business are going to be the ones who are contributing at the highest levels within the company and who show the loyalty and dedication to and commitment to our company. It does sort of go hand-in-hand, but we also want to make that slight distinction so the judgment doesn’t get clouded. You can’t have every decision that I might make as the COO get challenged by every investor. You can’t have every partner coming in, yeah, saying, “Why did you decide to purchase that desk?” You can’t live in an environment where every financial decision is being challenged just by the sheer fact that someone has an ownership stake in the company. Otherwise, you’ll never get anything done.
What Surprised Martine Most About Building A Business [1:42:18]
Michael: So what surprised you the most about what it takes to build the business and lead the team?
Martine: Oh, that’s a tough question. What surprises me the most? Always the little things. The challenging dynamics that you face on a day-to-day basis are going to be…I never find the big decisions to be the hard decisions. It’s always the tiny things. It’s the way someone can misinterpret an email. It’s having to say, “Okay, I’m sorry, that’s not what I meant.” Having that conversation.
Michael: So the big, high-level stuff, you can figure out how to communicate and what to send out and get it done. It’s the little stuff that gets communicated that creates all the interpersonal stress?
Martine: Yeah. And I think that that’s…you’ve got to be able to be vulnerable. You’ve got to be your authentic self. You’ve got to realize, as people have warned me and told me, everybody is looking at every little thing, and everything that you say or do could be interpreted differently by every single person. And you can’t please everybody. So no matter what decision you make, there’s always going to be somebody that is going to not be happy with the decision. So I’m a people pleaser and I want people to be happy, but recognizing that you can’t make everybody happy is a tough spot to be in. You learn to grow a thick skin over those years, but I still have those days where I feel sad or upset that I couldn’t make everybody happy, or that I couldn’t get my point across the way that I had intended to and somebody is upset by it.
So it’s those types of things that really weigh on me. The work, I find really rewarding to me. I find the responsibility thrilling, and I find the difficulty and all the things that I do fun. And I like a challenge, and I like the critical thinking and the ball shuffling and everything that I have to do. The deadlines, I find all that fun. And I love working with other people, and I love negotiating, and I love trying to work on it. But the challenging part is, you can’t please everybody. And I’d love to be able to please everybody, but it’s a real tough one. So I’m still working on that. But I’m working on a lot of stuff, as we all should be.
Michael: Amen. Amen. So what was the low point for you in the journey?
Martine: Oh my. There’s always been a few low points. There’s always a few low points, right? It’s cyclical. It comes and goes. I think probably, there were a few times when I’ve been overstretched. And that’s the very nature of probably my sort of workaholic tendencies and wanting to take on…sometimes taking on more than I could manage. I think when I was in graduate school and trying to work a full-time job and manage a graduate school degree and was teaching CFP courses because that gave me extra income to help pay for the graduate school degree, I think that was a really rough time.
Michael: The things we inflict on ourselves in our 20s just to get through?
Martine: Yeah. And in your 20s, you don’t quite have all your mature understandings about what it is that you really want and where you are, and you’re still trying to sort out all those types of dynamics. And then you’re kind of trying to understand where you fit in the…I was trying to understand where I fit in the organization as well. So I think that was probably one of the more challenging times.
Doing the buyback was probably the hardest I’ve ever worked in my life, but it was also the most exciting project I’ve ever undertaken. Having to discombobulate us from a major organization with like a 90-day timeframe was, I don’t think I’ve ever worked harder. But it was also one of the most exciting things I’ve ever done. But we all have our ups and downs. And the beauty I think I have is that I’m kind of that ultimate optimist and I always believe in winning and in having that winning spirit of like, “We can get to the finish line.” So I believe in the people around me and truly believe in the power of a team. So I’m always believing that there’s always a way through it. So that always gets me through it.
Michael: And what comes next from here?
Martine: Well, growth. We’re growing right now. We’ve got four people starting this summer and two interns. And we’re still hiring. And the sky is the limit. I’m excited about what we can accomplish and what we can do. And I’d love to continue to keep growing the organization and seeing where we can take it.
How Martine Defines Success [1:48:10]
Michael: So as we wrap up, this is a podcast about success, and one of the themes that always comes up is even that word “success” means different things to different people, sometimes it changes for ourselves as life changes. So you’ve had this incredibly successful career track from associate to COO and partner of the firm and doing this giant buyback, but at a personal level now, how do you define success for yourself?
Martine: I think that I have finally gotten to a place in my life where my actions are intentional and with purpose. And I have goals to be as generous as possible to the people around me that I care about. I think that has given me a great sense of purpose. And so that to me feels like I’ve gotten to a point of success. And it’s been a long journey. But I think when you wake up with a feeling of, “I know what I want to be doing today and I know what I want to be doing tomorrow, and I’m okay with what I did in the past,” I feel like that’s success.
Michael: I love it. Just waking up knowing what I want to be doing today and tomorrow and then getting to go do it.
Martine: So I’m very comfortable with that. And it’s not been without its struggles and without a lot of hard work, but I’d also like to be able to give a lot to the people around me and organizations as well that I care about. So I have a lot of intentional things to do there, too. So we’ll see.
Michael: Well, very cool. Well, I love it. Thank you so much, Martine, for sharing with us on the “Financial Advisor Success” podcast.
Martine: Well, thank you so much for having me. It’s always a pleasure to chat with you, Michael. And I’m sure that we will see each other soon.
Michael: Wonderful. Sounds good. Thank you so much.