My guest on today’s podcast is Michael Nathanson. Michael is the CEO of The Colony Group, a private wealth management firm based in the Boston area that has nearly $6 billion of assets under management. The Colony Group has managed to systematize its wealth management and investment solutions to the point of driving a whopping 39% profit margin, and nearly quadruple the size of the firm in just the past 5 years alone, through a combination of both a series of major acquisitions, and organic growth across multiple niches – including corporate executives, athletes and entertainers, and an ultra-high-net-worth family office division.
What’s unique about Michael, though, is how he functions as a true CEO of the Colony Group – where as he puts it, his primary job is to be the “Chief Inspiration Officer” that sets the vision for the firm, and tries to get their more-than-100 employees excited about achieving it, with a focused strategy to attract, develop, engage, and retain the top talent in the industry.
In this episode, Michael gives a behind-the-scenes look at how a large independent RIA thinks and operates, where the investment management duties are entirely separated from the wealth managers (who help clients select strategies, formalized in an Investment Policy Statement, but let the investment management team actually run and manage the portfolio), the firm has formalized its career track into a progression from associate to senior associate to financial counselor to senior financial counselor, and partners have formalized criteria to buy units of their LLC entity (with financing arranged by the firm).
We also talk about how Colony Group built its core technology stack with a combination of Tamarac, Junxure, and eMoney Advisor, its compensation policy for all the advisors in the firm, and how the Colony Group differentiates itself with prospective clients its four Es – Expertise, the Entirety of its comprehensive services, its Enhanced open architecture, and its ability to execute as an Enterprise.
And be certain to listen to the end, where Michael talks about what he sees as the true threat for advisory firms in the future – where it’s not about fee-compression, robo-advisors, DoL fiduciary compliance, or the generational shift to Millennials… but instead is all about the ability of the firm to keep its people inspired to achieve the vision of the firm. Because if the team doesn’t believe, then the firm won’t be able to execute.
So whether you’re trying to grow your own advisory firm to become a mega-RIA, or simply want some perspective on what it’s like inside a large independent advisory firm, and the role of a true CEO, I hope you enjoy this latest episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- How The Colony Group has evolved as an RIA over multiple decades. [5:19]
- What it means for a CEO to be a “Chief Inspiration Officer” for a team of intelligent, independent employees. [5:19]
- How the firm charges clients, and allocates their investments, based on their preference for proprietary or passive investing strategies. [20:51]
- Effective strategies for segmenting clients to create a series of multiple niches within a single large advisory firm. [30:02]
- The specific hierarchy of advisory role that Michael has formalized to create a clear career path for his employees. [41:13]
- The Colony Group’s well-thought out compensation structure, and expectations set for each role. [49:38]
- How The Colony Group differentiates itself in a crowded advisory firm marketplace. [49:38]
- The core technology stack, including CRM, portfolio accounting and trading, and financial planning software, that The Colony Group uses to operate and achieve scale. [1:07:30]
- Why client reporting and advisor usability drives the technology decisions the firm makes. [1:09:47]
- Why The Colony Group gives advice on everything, but often delegates out the implementation, with the philosophy “We’re the architects. Other professionals are the builders.” [1:14:50]
Resources Featured In This Episode:
- Michael Nathanson – LinkedIn
- The Colony Group
- Focus Financial Partners
- eMoney Advisor
- How Google Works
- “What’s On Your Company’s Dashboard?” by Michael Nathanson
Full Transcript: Scaling Up A $6B Independent RIA Using A Full-Time CEO As Chief Inspiration Officer with Michael Nathanson
Kitces: Welcome everyone. Welcome to the 28th episode of the Financial Advisor Success Podcast. My guest on today’s podcast is Michael Nathanson. Michael is the CEO of the Colony Group, a private wealth management firm based in the Boston area that has nearly $6 billion of assets under management, and has managed to systematize its wealth management and investment solutions to the point of driving a whopping 39% profit margin, and nearly quadruple the size of the firm in just the past 5 years alone. Through a combination of both, a series of major acquisitions and organic growth across multiple niches including corporate, executives, athletes, and entertainers in an ultra-high net worth family office division.
What’s unique about Michael though, is how he truly functions as a CEO to the Colony Group. Where as he puts it, his primary job is to be the chief inspiration officer that sets the vision for the firm, visits with a nearly 100 employees across 7 different locations trying to get them excited about achieving that vision, and crafting a focused strategy to attract, develop, engage, and retain the top talent in the industry.
In this episode, Michael gives us a behind the scenes look at how a large independent RIA operates where investment management duties are entirely separated from the wealth managers who may help clients select strategies and formalize an investment policy statement but then let the investment management team actually run and manage the portfolio. Where the firm has formalized its career track into a progression from associate to senior associate, to financial counselor and senior financial counselor and how the partners have formalized criteria to buy units of their LLC entity with financing arranged by the firm.
We also talk about how the Colony Group built its core technology stack with a combination of Tamarac, Junxure, and eMoney Advisor. Its compensation policy for all the advisors in the firm and how the Colony Group differentiates itself with what it calls it’s for E’s. Expertise, the entirety of its comprehensive services, its enhanced open-architecture, and its ability to execute as an enterprise.
And be certain to listen to the end where Michael talks about what he sees as the true threat for advisory firms in the future where it’s not about fee compression and Robo-advisors and DOL fiduciary compliance or the generational shift to millennials. But instead is all about the ability of the firm in its leadership to keep its people inspired to achieve the vision of the firm because if the team doesn’t believe then the firm won’t be able to execute. And so, with that introduction, I hope you enjoy this episode of the Financial Advisor Success Podcast with Michael Nathanson. Welcome, Michael Nathanson, to the Financial Advisor Success Podcast.
Nathanson: Oh, it’s good to be here Michael. Thank you for having me.
Kitces: I’m really excited to have you on the podcast today because a lot of the advisors, we’ve talked to so far on this podcast are…or either solo firms or maybe multi-advisor partnerships with one or two advisors but you’re the CEO of Colony Group which is a very large multi-billion-dollar RIA. I think you guys are well over five billion dollars of AUM now, multiple offices multiple states, have an investment from focused financial that boosted acquisitions and I think…I’ve heard you guys have quadrupled or so in the past five years. Which puts Colony at one of the maybe few dozen largest independent RIAs in the in the country. And I know that the reality is that life is different in a larger RIA like yours than what… I think what most advisors experience is on their own. I’ve gone through a version this to myself when I started at Pinnacle Advisory Group 15 years ago. I think I was like employee number eight or nine. We were little over $150 million under management. You know our holiday parties…like, everybody and their spouse sat down at one table and we all had dinner together and now we’re closing in on $1.8 billion, and 50-plus staff and the firm has changed a lot, and now we’re having trouble finding restaurants in town to do the holiday party when you nametags. And I’m sorry to say, I thought it would be a great opportunity for you to give our advisory listeners some perspective on what it’s like in a larger firm and how the leadership of a larger RIA views the landscape as it exists right now in the advisory industry. So, I really appreciate your willingness just to join us and share some perspective.
Nathanson: Well again, it’s a real pleasure to be on with you. So let me just say that, it is a different experience and I can speak to that because when I joined the Colony Group we had under $600 million under management and that was back in 2004. So, I’ve experienced life back then as well as what it’s like now to be, “Yes, I’m 10 times the size that we were back in 2004.”
How The Colony Group Has Evolved As An RIA [5:19]
Kitces: That’s a heck of a trajectory to run 10x in 13 years or so. So maybe as a starting point can you just tell us a little bit about Colony as it exists today? Like paint us a little bit of a picture of what do you do, and how do you size the firm, and how do you look at Colony as an advisory business?
Nathanson: So to in order to understand what Colony is today it is important to understand what it has been. And here is the way I think about it. You know I think about the evolution of an RIA as false. I think that most are RIA’s begin as practices, you know typically surrounding an individual, sometimes more than one individual. Many practices evolve into collections of practices sharing resources and in turn, many collections of practices sharing resources evolved into businesses. I would say that in the 80s we were largely practice. I would say that in the 90s we were a collection of practices sharing resources trying to develop into a business. I think we became a business sometime in the 2000s and so then the question is, “Well, what’s happened since then?” And what I would tell you is that, you’re right that we joined focused financial in 2011. We joined with the intent of, of trying to do something that very, very few advisory firms do, which is to convert a business…to evolve a business into an enterprise. And I believe that that’s where we are now.
So I think that the you can describe the Colony Group now as an enterprise. And what I mean by that is we now are an organization that I hope is perpetual in nature, one that is not reliant on any 1, or 10, or 20 people and one where there is extreme specialization, not just in terms of what we do from a service perspective but in terms of the way that we operate, so we don’t have anyone wearing multiple hats. And so, that’s who we are today. We’re an enterprise in terms of what I do at that enterprise. I am that the CEO and Chairman, I’m very careful not to say that I run the Colony Group because that is not the way that an enterprise operates. My responsibility, my accountability to my partners, and I have 37 partners and also to my clients, is to make sure that the company is operating effectively. But I like to tell people that my ultimate responsibility is to be the chief inspiration officer. And what I mean by that, as you know, there’s a great book called “How Google Works.” I’m not sure if you’ve read it before. Ever read that?
Kitces: I haven’t, although I’ve heard of it. So we will make sure we put a link out to it in the show notes for this, for people that are curious because I’ve been wondering for also how Google works.
Nathanson: Yeah, that’s a great book and of course it’s not about how the search engine works but how the company works. And what they talk about is that when you hire smart people…and at the Colony Group, we like to say that we seek to attract, develop, engage, and retain the best people in the business. When you hire smart people…in the “How Google Works” book, they call them “Smart Creatives” you can’t tell a smart creative what to do and that’s really not going to be helpful going forward. What you as a leader can do and should do is provide them the environment that they need to do their best work and inspire them, fuel their work with inspiration and that is how I would describe my role.
Kitces: Yeah, Mark Tibergien has a kind of a similar way of framing it that I had, I had heard from him years ago and loved. And it was that… you know the way he puts it, “Our job as the leader of a firm is not to motivate people, it’s to create an environment in which motivated people who will flourish.”
Nathanson: Exactly. Well said. Better said than the way I just said. That’s exactly right. You know another concept they talk about in “How Google Works” is they talk about, you know sort of the way people look at organizational structures. You know there’s this concept span of control this concept…if you look at an org chart, you shouldn’t have more than X people reporting to you etcetera. And that in that book what they talk about is this concept of making sure that every manager has at least seven people reporting to them. And they do that because if you have that many people reporting to you, you can’t micromanage them. And again, it’s the same kind of theme. That’s what really makes people grow. It’s a great concept. I wish it were mine.
Kitces: You should have at least seven people reporting to you because it will force you to make sure you’re not micromanaging.
Nathanson: Precisely. It’s an interesting concept, and that is the philosophy that we have here as well.
Kitces: Yeah. So what does the firm look like overall? I know by asset base you guys are over $5 billion. I don’t even know if that’s how you typically think of the business when you size it. It’s like, how do you view or characterize the size of Colony Group?
Nathanson: Sure, so most importantly we have just over 100 employees. Equally importantly, we have about 2,000 clients. Now, the vast majority of our clients are high net worth and ultra-high-net-worth individuals, and families, private clients, but we also do have a very substantial institutional practice as well. About billion dollars really is, is in the institutional space. We have seven offices, we have two offices in Massachusetts, two offices in New York, one in Virginia, one in Florida, one in Colorado. We are assets under management. Our regulatory assets under management are just under 6 billion and our total billable assets are just over 6 billion.
Kitces: And the difference between those, like, what is your fee structure such that you have billable assets that’s higher than your regulatory AUM? Is like there’s some things that you advise…since there’s some things you advise on but don’t manage with discretion.
Nathanson: Right, exactly. So from a regulatory perspective, we have again, $5.8 billion, $5.9 billion of assets on which we either, in most cases have discretionary authority or its non-discretionary but we’re ultimately pulling the trigger in terms of making the trade once it’s approved by a client. And then we also have assets where we’re advising on the assets but we don’t pull the ultimate trigger. We don’t have the final say as to whether our advice actually is implemented. And so, in those cases, were not in pursuant to the SEC rules. We don’t get to call those assets.
Kitces: And what would those situations be? Is that…like, do you know people who are still working, you’ll give them advice on a 401K plan and then tell them how to manage it or are there other situations where you’ve got none discretionary billable assets?
Nathanson: Yeah, that would be one example. Another example where we would be serving as a sub-advisor to another manager and providing them with our recommendations, but then it’s up to that manager to implement the recommendations.
Kitces: So, if I do kind of the rough math here about 2,000 clients, a billion in institutional… so I guess close to 5 billion is on the individual side, 2,000 clients and a $5 billion like a typical client is two and a half million dollars of investment assets with you guys, give or take a little. Is effective or essential?
Nathanson: Yeah, something to that effect, maybe a little bit higher than that, but yes that’s probably about right.
Kitces: Okay, and so said that’s the client base. Now you set 100 employees. I’m assuming that’s, that’s lots of different roles because there’s lots of things that go on in a firm at your size. So of the 100 employees, like how many of those are client-facing advisors? How many of those are operations? What else is in the firm? Like, how do you slice of 100 different employees across the…all the stuff that has to get done in the firm?
Nathanson: Sure. Sure. So, first with regard to clients, I want to be clear that…you know we have a number of clients that have 50 plus million with us. We also have clients that have well under a million with us just for you know for whatever legacy reasons or other reasons. So there, it is a pretty broad, broad group of clients. With regard to our employees, I’m going to say that we have probably have about, I’m going to say 60 plus are on the advisory side.
Now some of those are not…some of those are what we call associates or senior associates that may not be managing relationships directly but rather are supporting senior advisors. But importantly, as you think about our structure, we also have a very substantial group of investment professionals. I’ll speak to how we manage money in a little bit. We have a pretty, a pretty…a strong and large group of people who are, you know in most cases CFAs or CMTs, who are working behind the scenes not necessarily facing clients on a daily basis but working on the money management function. And then, of course we have a pretty large operational team. We have management people, we have marketing people, compliance people, legal people, HR people, etcetera.
Kitces: So, the investment side is interesting. So I’m presuming then there’s a complete separation or at least the partial separation from what the advisors do with clients and how the firm manages money. The advisors don’t actually set the portfolios, the firm sets the portfolios and the advisors, I guess, advise them everything else besides the portfolio?
Nathanson: The advisor knows the client the best and therefore it’s their responsibility to help set the goals and to ultimately settle upon an asset allocation strategy and indeed, you know work on the investment policy statement. That being said, we want our advisors focused on the wealth management aspect of what they do as well as on building that strong relationship. We also believe that there is a benefit to again, extreme specialization. And so, well, we have no doubt that there are good people out there who, you know have the CFP designation and are also managing money. We believe in a model where you have the financial planning professional out front and behind-the-scenes available to speak to the client but, you know typically, not regularly interacting with the client. You have a team of analysts, and portfolio managers, and assistant portfolio managers who are managing money behind the scenes. And so, what happens is they get effectively the asset allocation order, so to speak, from the relationship manager. Their job is to fill the order, of course, you know working with the advisor to make sure that we’re accomplishing everything the client needs and then to ultimately maintain the portfolio going forward.
Kitces: So that’s an interesting separation. So how many people live in this world of being invest managers and assist invest managers or portfolio manager system portfolio managers? Like, how many people are on that side of the business?
Nathanson: Yeah, I’m going to say maybe 15 or so.
Kitces: Okay, and so, what is that that structure look like? Like, are they…are these people just working with clients? Just they were the, like the investment trader had or do they also have investment management and the research duties for the portfolios that you create? Does that make sense you make? A distinction between serving investment research folks and trading and implementation folks or are they all wearing one common hat?
Nathanson: No, we actually do make that distinction. So here’s what we have, we have a chief investment officer. And so, our chief investment officer ultimately is accountable for that the entire…we call it Colony Investment Management, it is a division of the Colony Group. So CIM for you know what we call it CIM sometimes. And so, we have a chief investment officer who leads that function. Now, under our chief…and that and of course we have an investment committee comprised of multiple people from different components of our company. But under our chief investment officer, we have someone who leads our proprietary strategies, and so we do have some proprietary strategies which I’ll talk about in a few minutes, but we also have someone who leads what we call public market strategies and these of course are mutual funds and index funds and ETFs etcetera. And then, we also have someone who leads private market strategies, and these are typically closed vehicles such as hedge funds or other private investment vehicles.
In addition, under proprietary strategies we have someone who is managing… we have people in charge of equity strategies and people in charge of fixed income strategies. So, we have people who are responsible for different functions and effectively someone you know, who’s accountable for proprietary equity strategies, someone who’s accountable for proprietary fixed income strategies, someone who is accountable for public market strategies, someone who is accountable for private market strategies. All of those people are supported by our research teams. We have a director of research and of course, there are people under all those people. Now, on the trading side, we have assistant portfolio managers who support our lead portfolio managers on the proprietary strategies and who also implement our public market strategies.
Kitces: So the portfolio managers are the leaders on these strategies, propriety equity, proprietary fixed income, public market, private market, and then the assistant portfolio managers are reporting up to support those portfolio managers, and then also, I guess liaising across to the advisers and their clients to actually implement the strategies and do the trading and make sure that clients are allocated appropriately into whatever strategy that they’re associated with.
Nathanson: Well, that was perfectly described because that’s exactly the way that they work. So they…you know you can think of these assistant portfolio managers as effectively bridging the gap, that’s right. And they work directly not only with the investment people, with the CIM people, Colony Investment Management people but also with the Colony Wealth Management division people or CWM or CWM. So, that’s right. They’re working on both sides to make sure that portfolio strategies are being implemented and monitored.
Whether The Colony Group Charges Clients Based On Preference For Proprietary Or Passive Investing Strategies [20:51]
Kitces: So, with that kind of structure, I guess if I’m a wealth manager at Colony, basically I’ve got this suite of portfolio strategies that I can offer to my clients. So if you’re higher net worth, we’ve got some private market strategies, and maybe if you’re an average mere millionaire like we’ve got some great public market strategies for you, and then for specialized situations, we’ve got some of our proprietary strategies, and part of my job as a wealth manager or like I don’t get to design these things but I’m the one that figures it out which of them is appropriate for the client given needs, circumstances, goals, taxes, and all the rest?
Nathanson: So, here is the thing. Every company has bias and you know you hear people who are pure passive managers and they say, “Oh, well, you know if you’re not passive you’re biased.” And then you hear the active people you know who say the same thing that, “Well, if you’re passive that’s because all you can do is be passive.” So you’re…you know there’s a bias there. Some people are biased for proprietary. Some people are biased for nonproprietary strategies. The fact is we all have to acknowledge that there is some bias in the way we manage money.
What we have endeavored to do…and you know, at some point during this conversation I hope we have a chance to talk about mission vision values. You know at the top of our value list is being open-minded always open to learning never being committed to being right, never being committed to, you know to feeling like we have all the answers. And what we’ve done is over time we have evolved our offering to incorporate what we hope our best judgment is sort of the best of all worlds. And so, while we certainly don’t endeavor to be everything to everybody, which is a cliché and overused cliché, well we don’t endeavor to do that. What we have said is, “Look, there are certain areas where we think we can provide value on the proprietary side,” but we also know that in some areas, it’s more difficult to do that. And so, we have been very comfortable using the combination of active and passive, a combination of proprietary and non-proprietary. And we charge the same regardless. And so, we think it’s been a good combination that exposes our clients to just the right mix.
Kitces: Interesting. That was going to be one of my other questions. This is, is there a difference in how you charge for proprietary strategies versus public market strategies versus private market strategies for some of these more profitable or beneficial for the firm? Or is it just, “Everything’s exactly the same on pricing. We really don’t care which one you choose. Just find one that’s appropriate for your client. We’re giving you a menu as the parent firm for all of our wealth managers to use.”
Nathanson: Yeah. It’s tempting as it would be to say, you know, like, this is one of the things that we can say and others who do what we do can say the same thing, which is that, “Okay, you know, we have the ability to manage a portfolio for…” And let’s say that our client, you know is looking for some sort of large cap domestic equity exposure, so great. So, we can use… you know, pick a Mutual Fund, you know, the Fidelity Contrafund, Great Fund. You know we can use that fund. We’re happy to do that. We’ll charge our fee, Fidelity Contra has its expense ratio. The client is effectively paying both. If we decide that it’s better for the client and we are fiduciaries, if it’s better for the client instead to use the Colony large-cap strategy, that’s fine, then we’ll do that but we don’t double charge our clients. So we still just charge the one fee…the same fee. And there’s no underlying expense ratio. And so, one of the benefits of our being able to utilize our strategies is that, the client saves the whole level of fees. In addition, we can customize better and hopefully be a little bit more tax efficient than a mutual fund would be. So, we think it’s a value add. We think it’s an important differentiator in a space where there it’s increasingly hard to differentiate and we’ve been doing it for a long time.
Kitces: Playing devil’s advocate, then why doesn’t every client just send out there if you’ve got the scale to customize it and you can drill down further and the cost structure is out lower you’re buying individual securities you don’t have a mutual fund or an ETF wrapper layer adding to the cost on top? Why doesn’t everybody just end out in one of those?
Nathanson: What many of our clients do but many don’t, and there are a variety of reasons for that. In some cases, the client will have a preference for either mutual funds or other managers. In some cases, to be fair, remember that the Colony Group, and again, we haven’t gotten into this yet, but the Colony Group is actually comprised of six constituent firms merged together over the last five to six years. And we have great respect for what people have built in terms of our merger partners. Every one of them has been a tremendous firm. And so, they often come to us with portfolios that consist of what they consisted of. And so, you know there’s a legacy. We’re not going to sell the portfolio just to make it more efficient for us and you get put the client first. And so, a lot comes from just historically positioned portfolios. And also, you know to some extent you get people…you get you get an advisor who’s been doing this for 25 years and some advisors love mutual funds and some love individual securities and some love passive, you know, the index funds or ETFs. Those are all good ways to manage money and we don’t get too upset about different ways of accomplishing the same objectives.
What we do search for, always though, is a constant approach to asset allocation. How you fill the pieces of the pie chart is important, but to us the most important thing, what we do have to have you know absolute consistency is on the asset allocation side.
Kitces: Okay, so you guys as you would view it…all right if the clients plan and goals and risk tolerance necessitates a 60/40 portfolio. We’re going to make sure they get to a 60/40 portfolio, now we can have a discussion, “Okay, so for that 60 we’ve got proprietary equity strategies, we got some public market strategies, and we got some private market strategies. How are we going to fill in that 60 percent equity slice with the various strategies were able to implement because of the capabilities of the firm?”
Nathanson: Well, that’s right and keep in mind that there are size issues as well that, you know, really we like to see at least a half a million dollars. We go as low as 250 but we like to see a half a million dollars in a proprietary equity portfolio. You know, if you’re in our dividend growth portfolio, you know, we like to see you with a half a million dollars. And, you know, given a full asset allocation approach that means you’re looking at a much larger amount of assets and so, it’s just not for everybody. In some cases, we’re going to need to use funds.
Kitces: Right, and so that becomes much of the drawing line right there. I mean, if I’ve got a half a million-dollar portfolio but only 60% it’s going to go to equities so there’s only two or three hundred thousand and you’re going to buy me a whole bunch of individual stocks. At some point even at $5 to $10 bucks a trade, like that adds up if you’re going to buy dozens or a 100 stocks and in relatively small pieces.
Nathanson: That’s right. I mean, you’ll be buying you know 1.3 shares of Amazon or whatever you know. So that that’s exactly right.
Kitces: Okay, makes sense to me. So from the wealth managers’ perspective, I’m going to go through a planning process with my clients, I’m going to figure out what kinds of investment policy statement, asset allocation is appropriate. I’m going to start slotting some strategies in, and then I go out to my assistant portfolio manager because I may interact with several of them as one wealth manager because depending on where my clients are determines which traders I have to talk to for particular issues with that client, with that strategy.
Nathanson: Right, that that’s right. Again, we believe in specialization. We believe that we should take advantage of our size and the depth of our team. And so, in turn, you know we want to have professional money managers, you know managing the money behind the scenes. We leave it to the relationship manager to decide the nature of that. How it’s going to work.
Kitces: Right, okay. Interesting. So where does your invest…where does your operations support then fit into the process here?
Nathanson: So, we have a chief operating officer. Our chief operating officer controls several functions within the company. So, specifically, those would include the HR function for the entire company but it would also include the investment operations function as well as finance, and legal, and compliance. Now, for finance, we have a separate chief financial officer, for legal and compliance we have a general counsel and a chief operating officer but ultimately, that really does all role up to our chief operating officer.
Effective Strategies For Segmenting Clients To Create A Series Of Niches Within A Firm [30:02]
Kitces: Okay, so can you tell us a little bit about how things get structured from the wealth manager you side? You said 60 plus of 100 employees are advisory but you say there are levels or senior advisors and associates? So how do you structure advisors or advisory teams? What does that look like in Colony?
Nathanson: Right, so a couple things. So first of all, we believe in…so there are really three ways to think about teams. So every one of our advisors belongs to a team and that team is a support team that the team meets once a week, they talk about, you know everything that’s going on, what’s in everyone’s calendar for the week and we’re very careful about those teams. You know, we don’t want them to be they about any one person, so we talked about you know Bravo, Charlie, Delta.
Kitces: So you deliberately…it’s not like, you know if I’m if I’m John Smith it’s not the Smith as the lead advisor it’s not the Smith team. It’s the Charlie team.
Nathanson: That’s exactly why we do that because it’s not about a particular person. Again, we seek, you know enterprise status and you know, so it’s not about a person it’s about a team. Each team has a group of senior financial counselors, which are the people who are at the very top, financial counselors who are aspiring to be senior financial counselors but very senior people who themselves have some clients, associate financial counselors, and senior associate financial counselors. Each team is also supported by a client service administrator that can do much of the account work and some of the administrative support as well as you pointed out by an assistant portfolio manager. And that’s one way that we work in teams but there are two other types of teams. You see, you know I read an article recently. I think it put up by Deloitte that talks about modern organizations and how they think about teams and they think about organizational structure.
And, you know, as you become larger and more modern, it’s very hard to just have everyone fit in a single box or in a single line in an org chart. And that’s really not the best way to run an organization and the way we think about things are that, you know, every single team has to have leadership. So we have team leaders. In some cases, that’s more than one person, the co-leaders, and that changes from time to time but someone’s got to be accountable for each team but it doesn’t mean that someone can’t be on multiple teams. And here’s what I mean by that, so while we have specific service teams, we also have people that are accountable for different segments of our clients. And I don’t mean typical segments that is in you know size which is the way people typically segment their clients.
Kitces: A-clients, B-clients, C-clients…
Nathanson: Yeah, exactly. I’m not talking about that. What I’m talking about is clients that we consider to be family office clients. That is led by Dina Lee from our New York office and she serves as president of Colony family office. Now, you could have…as she does that there are many people who have, you know, these kinds of multi-family office clients, sees very large clients that require a different type of service, so she leads that team. We have someone leading our institutional client team. We have someone leading our corporate executive team, a big part of what the Colony Group has always done is served corporate executives, and so we have someone who’s accountable for that. We have two people who are co-presidents of our athlete and entertainer group because we have a very substantial practice in that area.
Kitces: So you’ve got a whole series of basically niches underneath the broader Colony Group, a high-net-worth family, the office niche, an institutional niche, corporate executive’s niche and athletes and the retainer’s niche, all as part of the Colony umbrella?
Nathanson: Women and wealth, exactly. And these are functions that also need to have leadership and so, we do. And then the last area where we have leadership and again, there’s overlap and a lot of some of these things is across offices. So every office also has to have leadership. You know, that may or may not sound confusing to an outside observer, but I will just say this that what it does is it creates more opportunity for leadership and empowerment within the organization, but it also creates, in my mind greater opportunity for cross-pollinization and for some flexibility but specialization. In other words, you know, we have people who love providing service not just for one segment. They want to provide service for… sure they do have a lot of corporate executives.
Kitces: Well, that was going to be one of my questions. Like, if I’m a senior financial counselor that has corporate executives, like, am I expected to focus in and own that niche or can I have some corporate execs in an athlete, and some institutional and three people from family office?
Nathanson: Well, we want you to be focused in an area but never exclusively, and if we did then I think that we’re going to have a hard time again attracting, developing, engaging, and retaining the best people in the business. Because I think people are looking for something beyond that type of specialization on the wealth management side. They want exposure, and I also think that they become better counselors. That’s what we call our planners or our relationship managers. And they become better counselors when they do have a broader exposure because, you know what you learn for…okay, so, it’s true. If you’re if you’re a professional athlete you’re not likely to have a whole bunch of ISO issues, you know, Incentive Stock Option issues but you are going to have cross-border issues in many cases, and you are going to have multi-state tax issues, for example. And I think that, that kind of exposure is very helpful to someone who is providing advice to a corporate executive. So, you know there’s some value to it. Same thing with the teams, you know if you’re just exposed to the same five or six people and you’re not getting a broader exposure to other people, I think you’re losing something.
Kitces: Makes sense to me, although I can imagine at some point if people don’t eventually choose into a specialization it gets hard just too, hard to remember to all the different areas of expertise when you’re serving clients in five different niches at once.
Nathanson: Well, that’s right, and I think that as you think about business development, as you know, there’s marketing. And then as marketing gets closer to sales, you know you’re being more specific. And so, in order to attract people… if you want to attract a family office type client or a professional athlete client, you really do need to be able to say you have expertise dealing with those people specifically. And so, there’s a…you sort of want to have your fun and work with lots of people but if you really want to be successful at business development, finding a niche is a very helpful way to do that.
Kitces: So, I’m curious going back to the advisor teams themselves. So you have these four tiers, senior financial counselor, financial counselor, senior associate, and associate. You know does advisor team Bravo have one of each of those on a team or several of those on a team? Like, what actually constitutes a team?
Nathanson: Yeah, several of them and we do it in a variety of ways. We look at…we’re very…we actually think about who the clients are. We do think about geography. We think about pairing people together based on their needs from mentoring, “Who is a good mentor? Who can teach people about this, that or the other thing?” And so, it is strategic. Much of that work is done by the president of our wealth management division and people supporting that person. And once you’re on a team, it doesn’t mean you have to be on that team forever. We do constantly make changes depending on what we think is best. But in most cases, there are multiple people at each level for each team and that’s a good thing as well because we know full well that, you know, when you’re an associate it’s often more comfortable to speak to another associate with a question as…we of course try to be hoping to those things but it’s good to have peers throughout the process and so, we certainly encourage that.
Kitces: So like wealth management team Bravo might have like 2 senior financial counselors, and 2 financial counselors, and 1 senior associate, and 3 associates and the 8 of them serve like 400 clients, and that’s one big team? Is that, like, the kind of thing that they adds up to?
Nathanson: What we do is on the senior financial counselors, at this company, we endeavor to make sure that no senior financial counselor is ultimately the primary. We call them primary counselor. You know that sort of primary relationship manager for more than say 60 people. That’s not a fast rule in some cases that someone may only have 40 clients in some cases they might have 65 clients. We really endeavor to keep…to no more than 60 clients because we just think that once you get beyond that, you get to a place where you’re not able to provide that, that true customized intensive service that we seek to provide.
Kitces: Now, what does that mean for everybody else downstream? Like, a senior financial counselor can only serve 60 but there may still be 2 financial counselors on that team that each serve another 80 and the whole team still serves 200. But the one at the top has more limited on the quantity ostensibly because they also tend to end out what the biggest clients on their team?
Nathanson: Yeah, they’re ultimately accountable for all of them. The financial counselors will have in some cases primary counselor responsibilities. In other words, what will happen is, you see this in many, many larger firms, where the senior financial counselors will supervise the financial counselors and often transfer business to them or allow them to take on some clients but under their supervision. So there’s always a senior person that serves in a…so we have…our clients all have primary counselors assigned to them and in some cases, they have a secondary counselor. And the secondary counselor will be a partner. It will be a senior financial counselor and that will happen in two cases, one where there’s a more junior person involved and then the other place they will happen is we do segmentation by size as well. And so, when you have key client, that key client will typically assign a secondary counselor just to make sure that there are two senior level people who are available on the relationship to provide better service but to also make sure that in the event there’s any disruption and in event that anyone leaves, which happens very, very rarely, but if it does happen for whatever reason, that there’s another senior person who’s attached to that client.
The Formalized Career Path For The Colony Group Employees [41:13]
Kitces: So just as a retention strategy, you’ll tend to double up financial counselors on particular key clients. And so, as we move further down that team structure, now our senior associates and associates also working with a subset of their own clients or is their role different at their level or their tier?
Nathanson: Yes, so the senior associates in some cases will get their own clients. Ultimately they’ll need to get their own clients in order for them to advance. So, we much like the best-managed firms I think have written career paths. We have a written career path and the written career path is broken out into basically four categories, client responsibilities is one, technical expertise is one, management skill, and then business development. On the client responsibilities size, we expect a senior financial counselor as I said to be managing 50 plus relationships typically around a 60 client cap. A financial counselor…in order to become a financial counselor, we want to see someone managing somewhere between 25 and 50 clients. And, you know for the senior associate they may have a handful of clients, say 5 to 10 clients, just as they sort of learn the ropes.
Kitces: And the idea is they’re developing their own clients? Like if I’m a senior associate and I want to move up, my path of moving up is I got to get me some of my own clients, that’s the deal?
Nathanson: As much as I would love for that to be the case, I think it’s a little unfair to expect someone who… we do expect that everyone is involved with business development. It’s difficult for someone. So, think about it this way, an associate is someone with sort of two to four years, you know and then a senior associate another two to four years, and then financial counselor another two to four, and senior financial counselor two to four. So should take you know a minimum of eight years to become a senior financial counselor. Hopefully, it doesn’t take 16 years. But a minimum of eight years to become a senior financial counselor, you know someone who’s been in the business for two to four years or even five, six years, it’s awfully hard. And so, that will happen and it does happen and we celebrate it and certainly, that person can take on those clients. Most of the clients are handed to them, though.
Kitces: Okay, and how do you view capacity overall for advisors. So, I know you said senior financial counselors you believe to start capping out at 60 or it’s hard for them to provide the service expectations. Do you expect beyond that point? I know just in our industry discussions of what is an appropriate capacity for an advisor is kind of a widely debated thing right now. Some firms run 100 plus insist you can do that some say the whole key to scaling your business is you have to get your advisors up to 120, 150. You guys are running at 60. How do you do that number? Is that like a deliverables capacity issue? Is that just sort of a revenue number? Like, “Hey, the revenue adds up, so we’re just going to cap it here because we think we can service them well.” How do you come to a number like 60?
Nathanson: So, through trial and error, through our experience as to our service model. Our service model, we consider it to be…you know Michael, I don’t have to tell you the most overused cliché in our industry is comprehensive wealth management. It’s a term that people…everyone says they do it, very few people do it. People use that term to describe, you know a few estimated tax projections and maybe a retirement projection or there are people like us that use it to describe, you know intensive estate planning, and tax planning and, retirement planning, and risk management, and cash flow planning, and balance sheet planning and blah, blah, blah, etcetera. So, that is our service model. And when you have someone who is providing that level of service, you know that level of an intense service who is reviewing estate planning documents and meeting with clients at least quarterly to go over all of their financial circumstances, we’ve just learned that a counselor really just can’t handle any more capacity and still be able to maintain, you know what we’re trying to…and keep in mind by the way, what I told you which is that, remember that unlike other firms our counselor is also being supported by investment people behind the scenes, which theoretically should free them up to do even more because, you know unlike at other firms where the relationship managers also effectively operating as portfolio manager.
We don’t do that and yet that’s just what works but I’ll tell you, though, Michael our margins have not suffered, our client retention is excellent, and we track that…we do dashboards. So our company has a dashboard that we circulate on a monthly basis and every individual relationship manager has a dashboard which tracks their own circumstances. And I will tell you that, you know this model works well. I actually have our company dashboard up in front of me and I’m looking at a greater than 99% client retention rate, you know year-to-date and that comes from…that just come…and I know that, you know but in our business, you do have higher retention rates but that type of retention rate comes from this kind of intense service.
Kitces: So this leads me to a couple of questions or thoughts. So, I guess on the flipside even at a capacity of 60 at your multi-million-dollar client sizes, I’m presuming, like a senior financial counselor at a capacity of 60 clients is probably still over a million dollars of revenue for that client base?
Nathanson: That’s right. I mean in order for someone to become…so our top…so you know, so actually, there’s one level beyond senior your financial counselor which is partner. Now partners, however…you’re a partner and the senior financial counselor. So we have people who are senior financial counselors that are not partners, people who are but both have the same kind of top-level responsibilities. At our company, at our path, you know we…again, our written career path which were very clear with people about what our expectations are, what we tell people is that if you want to become a partner at our firm you have to be, and if you’re on the relationship management side of things and many of our people are not. So again, someone like me I’m not managing relationships on a day-to-day basis although I certainly do interact with clients. But if you want to be a partner…so these are the top senior people managing relationships, we expect you to be managing at least $750, 000 of revenue.
Kitces: And is that what it takes to actually become a partner or make partner at Colony or is there other criterion beyond just the amount of revenue that you’re responsible for?
Nathanson: Oh, no. It’s certainly beyond that but that is on our path. And again, we put our path out there because we want to make sure that everyone has clarity. Again, I’ve said this now multiple times, I’ll probably say it again, we seek to attract, develop, engage, and retain the best people in the business. We think that in order to do that you have to give them clear expectations as to how they can achieve what you have. You know if you really want to get and keep the best people, and that really is the whole business, right? Get people, keep people, and get clients, and keep clients. If you really want to do that, you’ve really got to offer them, we think, a path toward ownership. So, what we expect is, you know we give them those kinds of statistics. We want to see them have, you know sort of 50 plus clients, 750,000 plus of revenue, and we want them to have, you know, 95% to 100% retention.
And so, those are kind of, you know fast facts but that’s only one box it looks like I actually have the path right now in front of me. I just pulled it up and it looks like they’re probably about 20 boxes. So that’s one of many things that we look at. You know we look at, at things that are not quite as easily measured, so they may not be, you know so-called smart objectives but they are nevertheless important objectives and ones that we still put out in front of our people.
The Colony Group’s Well Thought Out Compensation Structure [49:38]
Kitces: So, I’m also very curious how you compensate Advisors at Colony because I know particularly when you get new world of talking about capacity, you know a lot of firms compensate advisors by their ability to participate in the revenue of their client base. Which means, when you when you get to a cap on clients for service standards, you also a suddenly end out at a cap on your income upside at the firm, which might still be a really comfortable number for a lot of people by the time you got there but starts to limit upside. So I’m curious how both…just how you structure compensation for these different levels of senior financial counselor, financial counselor, senior associate, and associate and also how do you deal with issues like capping out your compensation because you capped out your clients?
Nathanson: So our compensation plan is based on several important principles and those are that we want clarity, predictability, transparency and an alignment of interests. And we do not believe whenever possible in discretionary kind of random compensation structures. I know that works for some firms. I’m going to make a bold statement, a strong statement and say that I think in many cases founders and owners of companies like those structures because it gives them full control over things and not because it’s necessarily best for the business. That is not the way we do things for our senior people. So for our advisors, I would prefer to just keep it a little bit vague. We do have specificity, but what I’ll tell you is that let’s just say that we pay our advisors somewhere in the area of 20 % to 25% of their revenue. Now, more specifically, the vast majority that is fixed. A very small piece of that is variable based on company performance and individual performance, but the vast majority of it is fixed.
Kitces: You know I can get 20% of my revenue by just doing the basics of serving and retaining my clients, but if the firm has a good year and I meet my individual goals, I can get 23%. And if we have a blowout year and I do all or some my goals I can get to 25%.
Nathanson: Something like that. It’s a little bit more than 20 as the starting point. Yeah, it that exactly right. There’s a little bit of variability. Say about three percentage points of that is variable and we do that on purpose because we want to make sure that it’s pretty predictable. Again, go back to what I just said we’re looking for. So, it’s very predictable but look, we report to our company what our budget is at the beginning of the year. If we beat our budget, you make more. If we don’t beat our budget, you make less but not a whole lot. So, that’s the idea. So that’s works well because…and of course we do incentives as well. If you bring in a new piece of business and we pay a 25% new business incentive that does not apply if you are going to keep the client because if you’re going to keep the client going to get paid on the client in perpetuity. But if you bring in a piece of business and give it to someone else, because it’s appropriate to give it to someone else, and you get 25% of first-year revenue but someone else gets paid on in perpetuity on that client.
Kitces: So that becomes at least part of your upside once your cap is, I can’t grow my personal client based on my recurring revenue anymore but at least if I’m bringing in business and handing it off I can still get paid?
Nathanson: Yes, well keep in mind also though that the vast majority of our senior financial counselors are also partners and we are a profitable business and so, they’re getting a profit distribution in addition to their normalize compensation which is really what this is.
Kitces: And right, and so ultimately, you know you can grow the firm and not get paid anything for your business development, you’re going to get paid off the bottom line of a larger firm regardless of whether you get paid a cash compensation for your internal referral. So, how do people actually become partner for you guys? Like, is this, if you do enough business development and you manage enough clients then you get some shares as part of your compensation or is that still ultimately a buy-in they still even if they’ve contributed to the growth the firm you still got to bring new money to the table if you want to buy in as a partner?
Nathanson: Every one of our 38 partners has bought in. Now some of them have done that in the form of, you know they merged their companies with us so they you have bought into their company and they merge with us but everyone buys in. However, that being said, your ability to become a partner should never be dependent on your ability to pay for the shares. And so, what we have done is we’ve lined up third-party financing. So, we have a regional bank that lends for us nationally, where ever our partners are located, and our company does guarantee the debt, no personal guarantees though. And we have a great structure where people borrow the money. They buy in a devaluation formula, which I’m happy to describe how that works, but they buy in and it’s the same formula going in and out in the bank has thus far, been very generous and has done a seven-year amortization period but even better they do back ended principle amortization. So you can always prepay it but if you don’t want to prepay it the idea is you only pay 5% of the principle back to the first year and then 10% the second year and then it goes up ultimately, I think to 20 or 25%. And the idea is that you have time to make more and more money and hopefully the dividends that we pay will pay the principal and interest at least for the first couple years.
Kitces: And ideally if there’s some growth and you’re participating or you’re trying to help drive growth as a successful partner in the firm that by the time you get to the back end principle parts your profit distributions have gotten larger because the firm has grown and so the mass still kind of works out that you can cash flow it as you go.
Nathanson: That’s right, and thus far that has worked beautifully for us.
Kitces: And how do you guys set the… well, so I guess it’s two questions, one if you’re willing to share. I mean, like what is the profit margin look like for a firm like yours or even how do you think about margins, and is your valuation tied to that? Like, do you do price on revenue? Do you price on margins and, like multiples of free cash flow? How do you set an internal valuation when there is so many different partners involved that may be buying or selling from year to year?
Nathanson: So, our budget for the year, for 2017, is to have a 39.2% profit margin which we consider to be very healthy and…
Kitces: Yeah, 39.2 is a really big margin.
Nathanson: Yeah, it is and, you know if you look at…we care a lot about benchmarks. So, we think, you know, Schwab, Fidelity there are some really good benchmark studies out there. And I believe I saw maybe in the Schwab benchmark study refer to 39% as sort of being, you know, where the best-managed firms are and so, we’re aware of these things, and we seek to be in that category and we think benchmarking is really helpful to understand where we stand in the industry. So, we are, you know, budgeting for exactly 39.2%.
Kitces: When I…sorry I just too brought up can a benchmarking study. So, when I look at traditional benchmarking studies either the classic is usually something like 35% to 40% of your gross revenue goes to your direct expenses, to your adviser staff, and your investment professionals that are creating the portfolios that our advisors are implementing about 30% or 35% just typically goes to overhead, so operations staff, administrative staff, HR management, all the office rent, all the internal stuff the software. And then, if you start with 100 and you subtract off 35 to 44, direct expenses and another 35 or so for overhead, you end up with these 25% to 30% profit margins that have become typical for the advisory industry. So, when you guys drive that margin up to 40%, is that…you know you figure out how to be more efficient on like advisor structuring and the top side? Is that because your overhead expenses at your size are the only 25% of revenue not 35% revenue? Like, where does a firm like your squeeze out that much additional margin?
Nathanson: Yeah, so if you think about our overall expenses they’re about a third before you get to partners and distributing some of that as compensation partners. And again, keep in mind we have a lot of partners that we have to pay but yeah. I mean, it just…we keep our expenses to I think a very reasonable place. But yet, you know, I read a book called…I believe it was small giants. You know, it’s a book that talks about companies that are sort of our size that you know they’re not, they’re not Apple or Cisco but they’re not huge relative to you know companies outside of our industry and yet they’re giants in their own way. Then what they talk about is that these companies learn you to not spend money on things that aren’t important but when they’re important, you spend a lot of money. So, for example, like technology. You know that’s something you just…you need to…technology, people those are things you spend money on research, so we do, but yeah, those are our margins.
You also asked about valuation and I want to just make sure that I’m answering that question as well and so the way we value ourselves is based on discounted cash flow. We look at five years of expected cash flow to be produced from our company. We assume a reasonable growth rate as part of that, we assume a discount rate, we assume the terminal value and we put that all together that gives us an enterprise. We add assets, subtract liabilities. We do not believe in…I think, you know people look at margin…I mean, I’m sorry revenue multiples and asset percentages and things like that. I just think that those are very…those do not often tell the full story and I think when they’re right it’s more coincidental. And so, we prefer to look at, you know earnings and cash flow.
Kitces: So, when you’re a firm that’s been growing so much I mean you guys were are closing in on $6 billion, 5 years ago, you were under $2 billion. I mean, what do you even plug in this a growth rate and then a discount rate coming backwards on a discounted cash flow projection? Like, that your firm is so large and the numbers are so large. And just imagine if I assume the 30% plus growth rates continuing for the next five years, given that you did more than that over the past five years, you get some extraordinarily large numbers for valuation.
Nathanson: No, we don’t do that but we do use a 15% growth rate and that has been, that’s parts been conservative but I hear your point that as we get larger we may have to ultimately revisit that. But here’s the opposite of that though, while we assume a 15% growth rate, we assume a 20% discount rate and I think you could really argue about whether we’re being fair, you know, by using…I mean, in other words, I think that may be a conservative in terms of…
Kitces: And maybe…yeah. And I know a lot of smaller advisory firms. Frankly, 10 years’ discount rates even higher. I’ve seen many valuations for, even from just a couple hundred million dollars, and up that are still using 22% to 25% discount rates, if you just kind of imagine the market rate of return in equity risk premium, a small cap premium, a micro-cap premium, and then like a key people premium because you have a lot of people distributed and just…you start layering the risk premier on and you get a discount rate that’s pretty high. So, I guess even by industry standards arguably, I mean 20% is lower than what a lot of other work firms use but you’re also a much larger more stable firm than what a lot of other firms use.
Nathanson: Right, so you know I could argue for even a lower discount rate but we haven’t we’ve used 20% for many years now and I think it works well for us and we use a very low terminal value multiplier at the end. We use a five times multiplier at the end for the year five cash flow, for what the company’s worth presumably after five years. It’s all part of it the DCF analysis and I think we arrive at a very fair valuation and certainly one that we think is very sustainable.
Kitces: One, and I guess the notable point mean to the extent it may be, yeah I may be debatably tilts a little bit in favor of a buyer given that you’ve been beating 15% growth rates and we can debate a 20% discount rate. It encourages your advisors to continue to ask for reasonable compensation but just reasonable compensation because they know their upside is contribute to the firm, make partner, participate in partner upside and that’s the long-term growth ticket. So, I don’t have to…as an upwardly mobile financial counselor at Colony, I don’t have to try to play this game by trying to get the biggest darn salary out of you I can possibly get out of you and in that, like, classic employee versus management battle. Because I know that if I take reasonable comp and everybody else takes a reasonable comp, we just end up with a larger profit margin and I participate in that anyways as a partner. So, I just want to take my reasonable comp and help grow the firm and get a chance of partnership and off we go.
Nathanson: Right, let’s just say that…I don’t think…I don’t remember the last time if ever anyone was looking to sell their shares. You know, we have all buyers but the good news is that we actually do have an internal market and we have a lot of people there looking to buy and so, that’s actually very helpful for us to know that. And so, as we think about our future and as we continue to build value, you know, you’ve got to be responsible about that make sure you’re keeping the war chest, you know for when people start retiring. But hopefully, that war chest won’t even be necessary because the next generation can hopefully come in and pick up shares as the prior generations get redeemed.
Kitces: Well and that’s what I was going to ask. It’s like, in a world where most people want to hold on to their shares, how do you actually generate the shares to sell when people want to buy in? Is the firm just diverse enough in its population and base of people now that there’s always some partners who are a little bit closer out to the retirement and who have some shares to redeem or do you have to kind of nudge people to sell sometimes or do you just issue shares from treasury stock and give everybody a pro-rata dilution to do the share creation that you need? Like, how do you handle share transitions given that the number of hands and the in the pot at this point?
Nathanson: You do know all the right questions to ask. So, a few years ago a number of us…a number of the larger shareholders, when we brought in a class of new owners and we did sell, we quickly realized that, that was not going to be sustainable and we needed to get comfortable with the concept of issuances. What we decided was that we would happily do an issuance as long as there wasn’t dilution. So, yes, if you want to think about percentage ownership, I suppose there’s dilution but as long as you keep the proceeds in the company and don’t distribute them, there’s no dilution of value.
Kitces: Oh, right because I sell whatever is, 1% of company for $100,000 but the $100,000 goes back into the company and then everybody who’s left gets a distribution of the 100,000 of cash or participates in it somehow.
Nathanson: You don’t get a distribution because we keep it inside the company but…
Kitces: But it increases your allocable share effectively.
Nathanson: Which means that in turn you have not been diluted, but what we did even better just to make sure everyone understood that concept and was no longer thinking about what percent they owned is we unitized the company. And so, yes, we’re in LLC and so, it used to be, “Okay, you own 6.1%, and that person owns 9.4%.” And what we did was we unitized and so now, everyone just owns a certain number of units and that, of course, doesn’t change if we do an issuance.
So, that may only be a psychological change but we don’t want people thinking, “Oh, something bad happened,” rather it’s the converse. When someone, when we admit someone who’s now a keeper forever, someone’s got golden handcuffs on, someone who is never going to leave because they’re a partner hopefully for life, that’s good for everybody and we should all be celebrating that and not thinking about, “Oh, what percentage did I just go down to.”
Kitces: Interesting. Interesting, and you still do that within an LLC structure, you never went over to an S Corp. to facilitate some of the transferability?
Nathanson: Well, you’re speaking to a to a former tax practitioner and so I’ll tell you that, as much as I love the S Corp concept, and we certainly would have done that especially because it gives you an opportunity to avoid having to pay self-employment taxes on 100% of the income. You know, whether it’s distributable share or comp we could have done an S Corp that would have helped us in that case. It would have helped us in terms of, you know, as you’re pointing out, in terms of having shares. Massachusetts however, and we do have a big presence in Massachusetts. Massachusetts imposes a sting tax on large S Corp and that tax is sufficient enough to make sure that we will never convert into an S Corp.
Kitces: Interesting. So, once again, good old state tax laws still matter and drive some outcomes.
Nathanson: It does. That option is not on the table for us.
The Core Technology Stack Of The Colony Group [1:07:30]
Kitces: So you mentioned that you drive a lot of your operating efficiency with technology as well and you’ve got dashboards for the for the firms. So, I’m curious both what you actually use to build the dashboards but more generally just what is the kind of a core technology stack of Colony Group but even, like we’ve got the big three. Almost everyone’s got some kind of CRM, some kind of portfolio accounting, and some of financial planning software. So, what does the technology stack look like and which one of those drives really handy business management dashboards?
Nathanson: Okay, so, first of all in terms of the stack so to speak, we use…we had been longtime users of Advent. I think Advent’s a great company. I think we just needed something different as we sought to evolve our business. And so, we moved to Tamarac several years ago. We used Tamarac…
Kitces: I’m just curious, so if I see you…because if you were with Advent, so you decided not to switch to Black Diamond or did you go to Tamarac before Advent bought Black Diamond or brought them?
Nathanson: No. Actually, we were still with Advent we had not upgraded to APX. So, we were still an axis. And so, for us, the decision was, “Upgrade to APX, go to Black Diamond,” which they had just bought about this time or do something else and we looked at those options. We looked at APX, we looked at Black Diamond, we looked at Orion, we looked at Tamarac, and we looked at everything.
Kitces: And I guess at the point that you were on the old Advent access, like, anywhere you went was a complete and total migration and rebuild of your back-end. It’s not like, “Hey, flip the switch to black diamonds and it’ll be a little bit easier.” At least back then, like, you had a full rebuild migration coming no matter what’s you may as well take a fresh look at the market.
Nathanson: And it took 12 months. I mean it was brutal. It was just…it was a lot of work to get it right. You know, we had to run two systems for two-quarters and it’s not something I would look forward to again.
Kitces: Well, yeah, we’ve looked through a similar transition internally for Pinnacle, about two years ago moving away from legacy Portfolio Center, and yeah, just that migration process. Even when it goes relatively well, it’s still pretty painful.
Nathanson: It is painful and we do it every time we do a merger understand unless the firm happens to be on Tamarac, but even then there’s still a migration.
Why Client Reporting And Advisor Usability Drives The Colony Group’s Tech Decisions [1:09:47]
Kitces: So, what led you to Tamarac versus the alternatives when you were looking at the landscape?
Nathanson: So, it actually…you know, so few things. Most importantly was the way we could report to clients. We felt that while APX did offer some nice flexibility and functionality, we looked at the reporting function and also the way our advisors would use, you know, the equivalent of what an advisor view is for Tamarac and we really liked the fact that our advisors could all go in to advise or view prepare any kind of report that they needed to, that we could customize reports for clients, we could customize billing arrangements for clients, and we just felt that the reports look really cool and that the old advisor view and reporting function was just the top.
So, we went with that but also that was coupled with the fact that again, you know, we have a very robust investment management infrastructure and so, we needed to have a good trading system as well. And actually, we were fans of Moxy, you know Advents Moxy. We think that’s a good product that works well but we felt that Tamaracs rebalance are was as good. Although I will tell you that we actually decided that we were going to use rebalancer for everything except on the fixed income side.
And we have fixed income people who swore by a system called Perform which is owned by a company called Investortools and that’s a really high end fixed income system which we did buy for the fixed income. So, I guess I should point that out.
Kitces: But for the core of the business, I guess that the appeal for Tamarac was not just for flexibility and quality of reports and billing management the rest but the fact that their portfolio accounting and their rebalancer is all one system. So you know it’s going to be cleanly natively integrated you have to worry about bad data coming from your portfolio accounting over to your rebalancer because it’s the same software.
Nathanson: Now, they either didn’t have a CRM at time or they were developing it or maybe they just developed it but we did not go with their CRM which is unfortunate because we love, you know just like any firm, we love you know a integration whenever it’s possible but we did go at Junxure instead of Tamarac.
Kitces: And you guys still run Junxure, I’m presuming the cloud version?
Nathanson: We are, yeah. We moved to the cloud last year and that was a big migration. That’s critical for us because, you know with seven offices you just have to be on the cloud. So, we’ve moved to the cloud on much of our technology. You know so for example, you know, we’re on…we use CCH ProSystems fx. We do tax returns as well. So we use that for our tax return function. Yeah, we do…
Kitces: Too a lot of tax returns for you. How many tax returns do you do across almost 2,000 clients?
Nathanson: Yeah, about 1,500, believe it or not. Now some of those our children’s returns and so, it’s not 1,500 clients we’re doing them for.
Kitces: And is that something you charge for separately or is that just had year or a high net worth clients for us and you already pay us $10, 000, $20,000, $30,000 of AUM fees like, “Here’s your tax return.”
Nathanson: Yeah, occasionally we will bundle services but that’s typically for a sort of an ultra large client. We believe in charging separately because we think it’s important that our clients understand the value of that function. We do it purely as an accommodation to our clients. Not all of our clients wants to do it but many of them do.
Kitces: So you’re not trying to price it as a business line with a nice profit margin, it’s just, “Let’s try to cover our costs and get through tax season every year?”
Nathanson: Exactly. I mean, what we charge is a fraction of what the big accounting firms charge. Yeah, that’s right. I mean, as long as we are sort of you know, breaking even on it then its great business for us. And you know, I mentioned that client retention rate and I think that’s a big part of it because, you know, we’re much more than just an asset manager or an asset manager or a wealth manager and we’re doing taxes. And by the way, we charge a retainer fee for our financial…for our wealth management services as well.
Kitces: So, I want to come back to that moment but can you finish kind of the technology stack? So Tamarac for portfolio accounting and rebalancing, Junxure cloud for the core, CRM hub for the business, and then eMoney?
Nathanson: Yup. We are using eMoney. We had been using Cheshire for a long time, another good product. We just thought that…
Kitces: I remember old Cheshire product. I used that many years ago.
Nathanson: Yeah, and it was great. It was great. I have nothing negative to say about it. We just wanted to move into something you know that was you know maybe just a little bit more robust for our clients and, you know we’re huge eMoney fans. Love eMoney, our clients love eMoney. We use it not just as part of the advice function, we use it as part of the prospecting. You know we… when we’re doing a prospect meeting, we’ll sit with them and show them how eMoney works and it’s great software, very happy with it.
Why The Colony Group Looks At Themselves As Architects [1:14:50]
Kitces: Very interesting. So coming back to pricing a little bit. So you mentioned there that you charge planning…you charge retainer fees for wealth management services that’s separate from investment management. So, can you talk a little bit more about what that structure looks? Like, what you price, and how?
Nathanson: So if someone is getting just very basic…you know again, when we talk about comprehensive, you know we actually differentiate ourselves. You know we call it the four Es, it’s our expertise, the entirety of our services, our enhanced open architecture, and the fact that we’re in enterprise. Those are the for Es for us.
Kitces: Wait, wait. Say that again. I like that. Expertise…
Nathanson: Yeah, it’s our expertise, it’s the entirety of our services, our use of enhanced open architecture which I described earlier, and the fact that we’re an enterprise. You know people talk about differentiating themselves and the fact is that, you know, it’s kind of nonsense. People talk about unique value propositions, “Well, you know, we’re objective and fiduciaries and we strive for excellence.” It’s like, really? Is that really…you know, you think that’s unique? That’s what everyone says. And so, we try to focus on things that really are differentiated. And so when we talk about the entirety of our services, the second E, we really do mean it’s a very, very deep and comprehensive process. If a client just wants to get estimated tax, projections and some retirement projections, we typically don’t charge anything extra for that, you know we shouldn’t. But if a client is looking for, you know for us to be the architect of their estate plan to be responsible, you sure we’re not drafting it we’re not practicing law even though we have you know 20 or so lawyers we don’t practice law, so, you know we’re not going to be the drafters but we’re the architect. The lawyer is typically the builder.
They want that from us. They want us to do really intensive, you know tax projections. Like, they want to see, you know we had we had a client that needed us to do a section 280G analysis, a golden parachute analysis as to what’s better, you know I limited cut back or a cutback or a gross-up. You know, that’s real work. That takes a lot of effort and a lot of time. So when a client is looking for that level of service, a very intense wealth management service that we love to provide, yes we charger an annual retainer fee. It’s often a little bit higher in the first year and then lower in subsequent years.
Kitces: And when you’re already charging an AUM fee, like, what kind of retainer fee is that? These are in like $10,000, $20,000, $30,000 layers on top?
Nathanson: We have a client that pays us more than that amount but believe me that clients getting the bargain given me you know the amount of work and the number of people working on that client.
Kitces: At least for the typical client.
Nathanson: But, you know classic example is sort of first year 5,000 on the lower end and 10,000 on the higher end and in subsequent years if the work is less after the you know the startup year then we’ll charge less for it. And we always agree upfront on what it is for the year. The client can always say no if they don’t want it, that’s fine.
Kitces: And that’s for folks with, you know a few million dollars or probably at that point giving your typical client.
Nathanson: That’s right, typically. I mean we’re not talking about a lot and people have said, “Well, why don’t you just add that to your asset management fee?” You know, and I hear that and maybe it would be simpler but we actually like the fact that our clients see it and once again, you know our clients understand the value that they’re getting and if they don’t… they shouldn’t pursue it. If they really don’t think it’s worth it, then that’s fine. We don’t have to do those services. We just think that our clients are getting the best of the Colony Group when they are getting those services. And by the way, I myself am a client of the Colony Group, and I pay a fee and it’s so well worth it. My wife loves it. I love it.
Kitces: So, I’m curious and…if you can share a little bit of your own story because I know you didn’t start your career with Colony Groups. So, what was your path to the…I guess to the firm and even through the firms? I know you’ve worn some different hats over the years.
Nathanson: Well, I went to law school in the days of LA Law when everyone wanted to be a lawyer. I was in the same class as Barack Obama and Neil Gorsuch.
Kitces: That was quite a class. That’s a little bit intimidating, I guess.
Nathanson: Well, it’s intimidating. When I think about it now it’s not so much intimidating, it’s really sort of a reality check. You know, what happens to people in our industry is you do really well and, you know you feel pretty good about the way things are going and then you look around and see what your classmates are doing with their lives. You know, there’s nothing like seeing a classmate become the president of the United States or another classmate becoming a Supreme Court Justice, and another one being an ambassador. And so anyway, that’s where I started and I didn’t want to be a lawyer. I had planned to be either a litigator or an international lawyer. It was a summer associate at a major law firm at the time called Halen Doerr. They ultimately merged with Wilmer Cutler Pickering of the former Wilmer Hale, which is one of the largest law firms in the world now. Two weeks before I started I got a call from the chair of the Associates Committee saying, Okay, you can’t be a litigator or an international lawyer. We want you to be a tax lawyer instead. And the reason they wanted me to be a tax lawyer is because Vicki Summers, who is Larry Summer’s wife, you know was now moving to Washington DC and she was a tax lawyer and they needed to replace her.
Kitces: So, you would say you have you have been greatly shaped by our political process in Washington?
Nathanson: Involuntarily but yes. So, anyway, I became a tax lawyer because while I was given the choice it wasn’t really clear that I had a choice but I’ve you know I went in there with an open mind and actually I fell in love with it and loved doing it and became a great tax lawyer. And so I did income tax but also estate and gift tax and I actually over the years I became a partner and had everything going great at a mega law firm and I was developing my own base of clients. I started getting interested in our space in the investment management space. I started building up a whole base of clients there and I had this little client that’s probably one of my smallest clients that I just became really good friends with them yeah started socializing with the people there that client was the Colony Group and at the time they had, you know $500 million or so under management and, I don’t know, twenty-something people or whatever and one office and they started recruiting me to become the successor to the person who was then the CEO. You know at first, I just sort of brushed it off but I started thinking about it and ultimately, I decided that I liked the… I had already done the lawyer thing and done really well at it. I was ready for a new challenge and so, I went and resigned to the managing partner, and the managing partner was great to me. He told me that he understood it if it didn’t work out I could always come back.
Kitces: Well, that’s good. Good to have a fallback plan, makes that a little easier.
Nathanson: Yeah, it did make it easier and I think I think a lot of people thought I was crazy for doing it but I joined the Colony Group on June…so left Wilmer Hale on June 21st, 2004 and I started at the Colony Group June 22nd, 2004. I’ve never looked back because it’s been a phenomenal ride ever since.
Kitces: So, why did you join the firm as, originally? Like what would your hat then?
Nathanson: So, you can imagine that I was doing very well as a senior partner at this law firm and so, my deal was… I said, “Well, I’ll come but I have to be the president and I have to know, yeah there’s going to be a certain period before I you know become the CEO.” And I think the leadership at the time… so Kirby Hamilton’s, our founder, and he retired. He’s now in New Mexico doing great things and enjoying life. You know, having you know really founded a great company. You know, their view was that I really should… it would be intimidating for people if suddenly I’ve know where I started as president. And so I started as the chief financial officer and general counsel and did perform those functions and then a year later I became the president and then the CEO. And then ultimately when Kirby did finally retire which was in 2011 and I became the chairman as well.
Kitces: So, in a firm like yours, can you differentiate… like, what is the difference between a president, and a CEO, and a chairman? Like, you labeled those as, like a migration and a path but what’s the difference? I know a lot of us and small firms kind of mix all those together and sometimes use those terms interchangeably.
Nathanson: I do think there is a difference. So, I think that the Chairman is clear. So, we have a four-person board of directors, I’m the chairman of the board. So, that’s pretty simple. Now, you know in terms of governance we do have a board of director. The board of directors is the legal authority but we really don’t utilize it except when we need to respect the formalities of what we’re doing. So, certainly if we do a merger the board’s got to sign a document etc. but our governance is really through an executive committee, not the board. But in any event…let me just first get back to your question. So I’m the chairman of the board of directors. The CEOs most important role is as I described earlier it’s to create an environment where everyone can do their best and to inspire everybody and that is what I focus on. I want to be an inspiration for people. I want to help people. I’m a servant leader and I love what I do. I’m passionate about what I do and that’s what my role is. I’m the visionary, I set the vision for the company and I can talk about that.
You know I make sure that we’re paying attention to things like strategic plan and I can talk about that as well our mission. So, you know that’s my role now the president is responsible for making sure that all the functional leads within the organization are working together and doing their best job and currently I still do have that role although I do think at some point soon that role probably does need to be absorbed by somebody else.
Kitces: And so as a CEO of a $5 billion or $6 billion firm, like what does your typical day or maybe like a typical week look like? I mean, like, what does a CEO do in a large advisory firm?
Nathanson: Well, one thing that I do that I’m just addicted to that I probably should do a little bit less of is I still do get involved in client advice because I’m a geek for it. I love it.
Kitces: They got tax questions that’s on the is top about them.
Nathanson: Yeah, I love it. That’s right, especially when there’s a tax question you know I just I get my old books out and you know and I just… I’m still into that kind of thing and so I do that… I do some very high-level consulting with some of our…actually some of our big clients some of our small clients but that’s a small portion of what I do. So, what do I do during the day? Well, what I do is I meet with people. I’m on the phone and in meetings on a regular basis. I’m out speaking around the country. I’m constantly at conferences. I’m constantly visiting our seven offices but also I’m working constantly on. And my responsibility is to make sure that our strategic plan is being implemented and our strategic plan is very simple. It’s to focus on our clients, focus on our employees, grow organically, grow inorganically, have a culture of accountability by all-to-all and achieve greater efficiencies within the company, its six prongs.
That’s what I focus on I lead our executive committee, which is the leadership body that’s responsible for that sort of strategic aspect of what we’re doing. I lead our management committee which is the group of people who are sort of the functional operational leads to make sure that they are implementing that strategic plan but I work on making sure that we’re achieving our vision. I do a lot of thinking about what a future ready firm looks like, thinking about and trying to evolve our service model to stay ahead of whatever one else is doing. I also have to say that these days I probably spend as much as a third of my time prospecting for merger candidates and visiting merger candidates and sort of speaking to two people on the strategic side. We also, through focus financial, we are heavy participants in the focus successions program. And focus successions is where companies sign an agreement with us to make us their succession solution when their founder is ready to retire or if something happens and we have 12 of those. And so, I spent a lot of time on that as well.
Kitces: Interesting and so this is why the world of dashboards matters so much because that’s part of your obligation is to keep the data at your fingertips and keep your finger on the pulse of the business, and how it’s doing in all these areas?
Nathanson: Yeah, we believe in transparency and again you know sort of the old adage what gets measured gets done and so we do have a company dashboard. I’ve written about dashboards. I wrote an article your listeners could look up called, “What’s on your company dashboard?”
Kitces: We’ll include a link to it in the show notes. This is episode 28 so folks want to link out to the dashboard article and will include the “How Google Works” book and the rest just go to katces.com/28 for our episode 28 here.
Nathanson: And so on our dashboard, we report things like revenue and expenses and we do this by the way on a monthly basis but also in a year-to-date cumulative basis and then on a projected basis for the entire year but we report you know margins what we also report. So, we track net new assets. So we look at assets from new clients, assets added from existing clients, assets withdrawn from existing clients and then assets lost from terminating clients. So we track that every month. We look to how much are we gaining from markets.
You know the big myth in our businesses is, is people just don’t pay enough attention to how much of their growth is attributable to the markets and we think that needs to be you need to pay attention to understanding how much of your growth is really truly organic coming from just net new asset production and how much is coming from the markets because the markets can give the markets can take. So, we pay attention to all that we pay attention to our average billing rates, we pay attention to a number of clients we have, new clients, terminated client’s, revenue per client, the number of employees we have, and revenue per employee.
Kitces: So, those are kind of the core KPIs you manage through the key performance indicators you manage through the year. So, how does that get like built and populated? I mean there is this, did you guys just build all this from scratch or is this kind of like these outputs you can derive from Tamarac and in Tamarac’s reporting process? Like, where do these things come from?
Nathanson: So, the Colony Group has achieved some great things over the years but there are more things we can achieve and so you just described where we’re going next which is to be able to pull everything directly out of our systems versus having a manual input into an Excel spreadsheet. Unfortunately, I have to confess that that’s what it is right now.
Kitces: So, right now, lots of Excel spreadsheets, we get, we get data reports from various places and dump data into standardized formats that you track, and off it calculates?
Nathanson: Regrettably, that is an efficiency we have yet to achieve but we will achieve it.
Kitces: All right, very cool, very cool. I just the sheer volume of data that you’ve gotten your tracking. I know is far beyond what well most of us are tracking right now or I think what we would like to get to.
Nathanson: And we take it to the individual level. So, remember that…so we have individual counselor dashboards where any counselor can see their entire book of business so to speak and the revenue and the number of clients etc. And of course, we have investment dashboards as well where each of our strategy’s proprietary, non-proprietary are in a single dashboard measured against benchmarks etc.
Kitces: So, as we come towards the end here, I’m curious for your perspective on where you see the industry going from here. Like, from Colony’s perspective what are the, what are the challenges that keep you up at night and what’s the…what are the opportunities that get you excited to look forward?
Nathanson: So, I’ve often been asked that the question about what keeps me up at night. Let me tell you it is not fee compression, it is not Robo-advisors, it is not the compliance environment, it is not the DOL and the new fiduciary rule, it’s not Millennials, and it’s not all the things that others talk about. For me, it’s a very, very simple thing that keeps me up and it really does. It really is something that I worry about. So, we have a very clear vision at this company for truly achieving something extraordinary.
You know, we talk about an external vision. Our external vision is to build a national company that empowers its clients to live meaningful and joyful lives through the services of passionate people that find meaning and joy and providing those services. Our internal vision, and our BHAG, our Big Hairy Audacious Goal, our internal vision is we look at the world, we look at the Goldman’s of the world and we all tend to demonize these firms because they’re operating under the suitability standard and because they’re just riddled with conflicts and…you know that’s all true but they also have some brilliant people and we have to be respectful of that. And we’ve got to be respectful of all the other good things that a Goldman or Merrill has and yet we have the better the, you know, the better service model. We are RIAs, we’ve got the fiduciary standard, the client-centric approach, you know, the no more than 60 clients all that kind of the eMoney, the hand-holding all that, that’s all great. Our vision is to marry both of those worlds. It’s to have every capability that a Goldman has, every bit of technology, research, access, all of that and yet be able to still operate in the fiduciary world in a smaller environment where we’re providing service the way we RIAs, independent RIAs provided.
And in order to do that…and our BHAG, our Big Hairy Audacious Goal, to use the Jim Collins term, is to be universally acknowledged as the leading independent wealth management company in the country. The only way that’s going to happen is if we believe it’s going to happen. The “How Google Works” book talks about Larry Page as in is a four world and he talks about the whole world. We’re all trained to think in terms of gravitational pull. We all think about why things can’t happen. What keeps me up at night, Michael? Is people not believing in what we are capable of doing. If they believe the way I believe, what we’re capable of doing, we will achieve truly great things but when we don’t believe, when we doubt, that’s when it all falls apart, and that is what I worry about. What I worry about is do people truly believe in this vision, in this dream, to do something truly extraordinary. That’s what keeps me up at night.
Kitces: That’s your desire to wear a hat for the firm as chief inspiration officer.
Nathanson: Yes, because that’s what we need. We all have to be reminded of the vision and we have to really believe it’s possible. And again, I think we only look need to look back at past performance. “Okay, it’s true.” From 1986 to 2011, you know it took us that long to get to just over a billion dollars, but since 2011, we’ve gone from, you know a little over a billion to you know if you look at total at billable assets over six billion. We’ve gone from, you know 40 or so employees to 100 and something employs, two offices or one office really…but two offices to seven offices. If we’ve done that in less than six years, five and a half years, what are we capable of doing during the next 10 years? That’s what we have to remind ourselves.
Kitces: Well, very cool. So as we come to the end here this is a show about success and one of the themes that always ends up coming up in the show is that success means different things to different people and sometimes different things to us at different stages of our own lives. And so, you know you’ve articulated the vision around what success for the firm is, both internally and externally but I’m curious how you’ve used success for yourself. Like, what does success mean to you individually?
Nathanson: Yeah, so success for me is, you know just from a business perspective. I’m going to be…it’s really hard for me to just speak from a business perspective. So, my answer to that is I think about the legacy that I’ll leave behind when I’m retired and I want that legacy to be that the Colony Group truly…that I was part of something extraordinary in maybe in multiple ways. I want to know that I was part of something extraordinary that all of our people here at the Colony Group and all of our offices are part of something extraordinary and that I had something to do with the company being extraordinary. But also that, you know that I’ve been an important part of the community. I am the chairman of the National Brain Tumor Society, which is the largest non-profit brain tumor organization in the world, certainly, in the country, we believe the world, we’re not sure about that because we don’t have good data. To me, that’s an important part of my legacy. What have I left behind from a…what have I accomplished from a philanthropic perspective? How have I affected people? How am I remembered? What is my legacy?
Kitces: Well, very cool. Well, thank you for coming on the podcast and sharing that. I love the vision around legacy. It’s certainly one of the themes that we hear for a lot of our guests as they talk about what success means that, you know there comes a point where it’s not just about the money and the dollars, it’s about impact and legacy. It’s not odd saying you can’t take it with you and so, it’s really more about what you leave behind.
Nathanson: Well, I think we in our industry are very fortunate to be in their industry. It’s a great industry to be in and we’re very fortunate to be in it. And, you know the money will come. I think its better. I often tell people, and I know it’s counterintuitive but I often tell people the less you focus on money the better off you’ll be with money. And so, I intentionally don’t talk about it because that comes…you know, and frankly I probably could squeeze more money out of this whole role of mine in this company but that’s not consistent with what I’m talking about and I don’t need to. So, for me it really is about the legacy. It’s really about being part of something truly extraordinary for us, for our clients, for our employees, for our families, for all of our many constituents.
Kitces: Well, amen. Well, thank you for joining us and sharing that on the Financial Advisor Success Podcast.
Nathanson: Thank you, Michael. It’s been a great pleasure.
Kitces: Thank you.