Welcome back to the fortieth episode of the Financial Advisor Success podcast!
My guest on today’s podcast is Philip Palaveev. Philip is the founder and CEO of The Ensemble Practice, a practice management consulting firm that helps financial advisors to build sustainable multi-advisor, multi-generational, ensemble practices.
What’s fascinating about Philip, though, is not merely the consulting work that he does to help advisors build ensemble firms, but that he’s actually the one who coined the phrase “ensemble practice”, during his early days working on the Moss Adams advisor benchmarking studies more than 15 years ago… and later, wrote the definitive book on the subject of ensemble firms!
In this episode, we talk in depth about the concept of an “ensemble practice”, the different ways that advisors can share office, staff, clients, profits, and ultimately equity in becoming a multi-professional advisory firm, and what it really means to create an advisory business that puts the interests of the business before the interests of any one advisor partner… along with why, as the business grows, it becomes crucial to create a means of quality control to ensure that, with multiple advisors, the advice of the firm really is delivered consistently.
We also discuss the dynamics of what it takes to actually introduce a new second generation – or G2 – owner to the firm, the mindset shift that advisory firm owners need to go through if they want to find and develop the right new advisors, and Philip’s answer to the age-old question of whether G2 advisors should purchase, or be given, their equity shares.
And be certain to listen to the end, where Philip shares his tips and wisdom about what G2 advisors should bear in mind as they pursue a path to partnership, and what founders need to do to ensure a G2 transition is successful… which Philip can speak to not only as a consultant, but as someone who himself has both become a partner in a larger consulting firm, and been a founder who has brought a G2 partner into his own consulting practice.
So whether you’ve wanted to learn more about what it really means to be an ensemble practice, how to structure and grow a multi-advisor firm successfully, what it takes to bring in next-generation G2 owners, or how as a G2 owner you can best position yourself for success, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- What happened when Philip was trying to enter data into an Excel spreadsheet for the Moss Adams advisor benchmarking study and how it led him to coin the term “ensemble practice.” [2:38]
- The natural progression and challenges when a solo advisory practice transitions into a multi-advisor ensemble. [12:05]
- Why someone would want to start an ensemble, even if he or she is successful in a solo practice, and why it takes many years to gain clarity in your career path. [15:34]
- The characteristics or traits that lead people towards or away the ensemble path, and why it’s important to be mindful of your surroundings to help your decision-making process. [22:00]
- What the term ensemble practice actually means, and what Philip does as a consultant for these types companies. [24:26]
- How Philip found his partners, and why a business partnership requires a leap of faith no matter how much you think you may know someone. [31:02]
- How Philip went from being an entry level employee to a principal at Moss Adams, to becoming a partner, and then starting his own consulting firm. [39:30]
- How firms can make mental shifts when it comes to integrating newer staff members into leadership positions. [48:45]
- Why advisors cannot fully delegate the final decision in the hiring process, where firms can look for quality staff, and how to maintain a low staff turnover ratio. [54:41]
- How advisory practices can overcome common hurdles with growing an ensemble practice and training younger staff who may take over someday. [1:30:40]
Resources Featured In This Episode:
- Philip Palaveev – The Ensemble Practice
- The Ensemble Practice: A Team-Based Approach to Building a Superior Wealth Management Firm by Philip Palaveev
- G2 – Building The Next Generation by Philip Palaveev
- Fusion Advisor Network
- Moss Adams Consulting
- Financial Advisor Success Episode 5 With Mark Tibergien
- Financial Advisor Success Episode 7 With Matthew Jarvis
- Financial Advisor Success Episode 18 With Angie Herbers
- Arcaro Boxing
- New Planner Recruiting
- Dowling & Yahnkee
- Live Oak Bank
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Full Transcript: Building A True Ensemble Practice Beyond Yourself And Training G2 Successors with Philip Palaveev
Michael: Welcome, everyone. Welcome to the 40th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Phillip Palaveev. Philip is the Founder and CEO of The Ensemble Practice, a practice management consulting firm that helps financial advisors to build sustainable multi-advisor, multi-generational ensemble firms. What’s fascinating about Philip, though, is not merely the consulting work that he does to help advisors build ensemble firms, but that he’s actually the one who coined the phrase ensemble practice during his early days working on the Moss Adams advisor benchmarking studies over 15 years ago, and later wrote the book on the subject.
In this episode we talk in depth about the concept of an ensemble practice, the different ways that advisors can share office, staff, clients, profits, and ultimately equity in becoming a multi-professional advisory firm, and what it really means to create an advisory business that truly puts the interests of the business before the interests of any one advisor partner, along with why, as the business grows, it becomes crucial to create a means of quality control to ensure that, with multiple advisors, the advice of the firm really is delivered consistently.
We also discuss the dynamics of what it takes to actually introduce a new second generation or G2 owner to the firm, the mindset shift that advisory firm owners need to go through if they want to find and develop the right new advisors, and the answer to the age old question of whether G2 advisors should purchase or be given their equity shares. And be certain to listen to the end, where Philip shares his tips and wisdom about what G2 advisors should bear in mind as they pursue a path to partnership, and what founders need to do to ensure a G2 transition is successful, which Philip can speak to not only as a consultant, but as someone who himself has both become a partner in a larger consulting firm and been a founder who’s brought in his own G2 partner to his consulting practice. So with that introduction, I hope you enjoy this episode of the Financial Advisor Success Podcast, with Philip Palaveev.
Welcome, Philip Palaveev, to the Financial Advisor Success Podcast.
Philip: Good morning, or good afternoon for you, Michael. Pleasure to be here.
How Philip Coined The Term “Ensemble Practice” [2:38]
Michael: I’m excited to have you on. I’ve followed your work for probably 15-odd years or so, since you worked in Moss Adams Consulting, doing RIA benchmarking with Mark Tibergien and Rebecca Pomering. And as far as I know, you’re actually the one that set forth this term that we all use today of calling successful multi-advisor practices ensemble practices. So I’m excited to have you on as the progenitor of the ensemble practice label, just to talk to us about practice management and the growth toward larger firms and all the dynamics that go with that. But I guess, starting point, correct me if I’m wrong, but the ensemble practice did come from you originally? That was the start?
Philip: I legitimately can claim ownership of that label, or at least the first use of that label. It was kind of a funny story, and a peculiar one, as most stories tend to be. But not to belabor it too much, but really what happened was, I think it was the year 2000 or 2001, and me and a gentleman by the name of Dustin Highland were entry level analysts in Moss Adams, sitting in a cubicle together. Literally we had one of these small cubicle desks, and we were crunching the numbers of what turned out to be the first big FPA benchmarking study of the industry. It was the first sizeable benchmarking study of the industry, and of course, Mark Tibergien was leading that project, but Dustin and I were charged with crunching the numbers and writing the report. And we were looking to explore what are the characteristics that make a practice successful. Even at the time we weren’t talking so much about a business or a firm, we were talking about successful practices. And by the way, curiously enough, back in those days, a large practice was a practice with more than $500,000 in revenue. Those were the largest practices.
Michael: So that would be like $50 million under management at 1% was a big practice at the time.
Philip: That was a big deal. How times change, but 17-18 years ago that would have made you one of the bigger practices in the industry. So Dustin and I are looking at the characteristics of successful practices, and of course one of the obvious ones is that larger practices, particularly practices with multiple advisors, with multiple professionals in them, tend to be bigger and more profitable. Somewhat of an obvious statement, but probably a statement that’s worth repeating. And we were looking for a way to describe these multi-professional practices, multi-practitioner, multi-advisor, multi-partner. So we were trying all these multi permutation labels, but Michael, you’ll probably appreciate this. You know how Excel is, you’ve got to put a label on a column and you’ve got to squeeze it into a cell?
Michael: Yes, a cell of limited width, because if it’s too long, it gets truncated by the next cell that’s got another column label in it.
Philip: Exactly, and we’re trying to juxtapose three or four columns next to each other. So we’re looking for a shorter descriptor, and multi-professional is a very long one. It just doesn’t fit very well. So I literally remember talking to Dustin and going, “Give me something, give me something that describes multiple people working together.” So obviously team and those kinds of terms we were trying, but they’re not quite descriptive enough. So I’m walking around the floor literally just opening doors and talking to people like, “Okay, tell me something that describes multiple people working together.” And then in this sort of solo brainstorming session, all of a sudden I ended up with the word “ensemble.” And of course, ensemble is a way of describing multiple musicians, most of all, working together and playing music together, but of course ensemble also, if you speak French, is just a word for together. Ensemble means together in French.
And that seemed to be a very good term, first of all, because it fit in the cell really well, and second of all because it very naturally juxtaposes with the term solo. So as soon as I came up with ensemble it was very easy to turn around and then say, well, the other practices are going to be solo practices. And then actually later we tried a little bit, we got carried away. And I think if you dig up the old surveys, somewhere in the surveys there’s the term “orchestra” somewhere in there. That one didn’t take off at all, but ensemble kind of stuck. And it really stuck and it played a surprising role in my personal career. To this day that’s the name of my firm, The Ensemble Practice. But little did I know back in 2000 and 2001 that Dustin and I were going to sort of coin this term that stuck there for quite some time, and to this day people are talking about it quite a lot.
Michael: All because multi-professional didn’t fit in an Excel column. I love that that’s the genesis story at the end of the day. Like if monitors were wider and we printed more things on larger paper, and columns didn’t need to be narrow, we might just call them multi-professional advisor firms.
Philip: Very likely if we didn’t have to copy and paste from Excel into a Word document, we probably would have stuck with a more descriptive term.
Michael: There is actually, to me, an interesting distinction between just using the label multi-professional and a term like ensemble, and I think to me at least it’s part of why the term resonates so well, is that the nature of an ensemble, even in the musical context, it’s one of these, the whole is worth more than the sum of the parts. I don’t go to an ensemble to hear a collection of individual musicians. I go to an ensemble to hear the ensemble, because what they produce together as a cohesive unit is a thing unto itself that’s more than just what the individuals contribute that, to me, you don’t get with multi-professional.
There are lots of advisor multi-professional firms, I’m kind of putting that in air quotes, because they have a partnership and a shared business entity, but at the end of the day, your clients are your clients and my clients are my clients, and the other guy’s clients are the other guy’s clients, and our shared business is really nothing more than, we share the overhead, office rent, maybe a little bit of technology budget and some admin staff, but we’re really, like it’s multiple professionals under one umbrella running three independently siloed businesses. And there’s something about really, like the ensemble label as, no, no, it’s not three people under one umbrella. It’s a three person ensemble, that I think does mean something different, and not just as a literal interpretation of the word. I really do see these in practice and advisory firms, that there are firms that run, you know, there are two or three or more people together, but they say, “It’s not my clients and your clients. These are our firm’s clients and we all own this firm as an ensemble,” and they really do act differently than simply three advisors who happen to share an entity and some overhead, but my clients are my clients and your clients are your clients.
Philip: I mean, the idea of an ensemble is aspirational. No one issues certifications for ensemble businesses. It’s not like The Ensemble Practice will give you a certificate that says, “You are now a true ensemble.” Being an ensemble is an aspiration, and really it’s the aspiration to do things together, to put the firm, to put the business first, as opposed to putting your own interests first. Much like advisors describe to clients a fiduciary relationship where the interest of the client is first, in some ways being an ensemble is having that same fiduciary attitude toward the business, that the business goes first, before the interests of the owner or individual advisor, and that we’re committing to work together. We are committing to improve each other, we are committing to improve the business together, we are committing to take care of that business together. And then to share, to share clients, to share revenues, to share profit, to share equity, to share our time and our passions and our interests and our talents. But it’s an aspiration.
I think in every business that you look at, as long as there are multiple professionals working together in some form, there’s an element of an ensemble there. There’s an element of camaraderie, there’s an element of sharing, there’s an element of trying to enhance each other. But even in the most pure firms, if you look at that firm, I think you will find some elements of solo silo, you will find some elements of advisors working on their own, perhaps not sharing as much as they could, perhaps behaving in a way that, even though the firm is structured as an ensemble, there are certain partners and certain advisors who will behave in a way that maybe pulls away from that idea. So it’s an idea. It’s an aspiration. It’s not a certification, but it’s a powerful idea. It’s almost, you know how in biology, to distinguish the characteristics that are genetically determined versus those that are learned or acquired from the environment, they often do the twin studies where they trace what happened to two twins, and the more they converge, the more it was perhaps due to genetics, and the more they converge, the more it was perhaps due to upbringing or environment or something like that.
So almost if you do the twin study of advisory firms, there’s actually a number of firms that you can look at that started together, that started at the same time, but one went the direction of actually hiring and training and developing people and working together, and one remained as a solo practice or silo practice focused on the desires or needs of one or two professionals. And it’s interesting to explore what happened, and almost invariably you’re going to find that the firms that work together are going to achieve more.
The Natural Progression When Transitioning To A Multi-Advisor Practice [12:05]
Michael: So I’m just wondering, so to kind of take this distinction between multi-professional firms and true ensemble firms, I’m wondering, could you see a difference between them in the data when you were doing these benchmarking studies? And was there something in particular that defined what was an ensemble and what was multi-professional? I know you said there’s no official certification, but could you see differences in the results? And then how did you figure out who was who and which was which?
Philip: Yeah. Almost in a certain way, let’s stay away from the moment for a moment, but if we logically examine what brings professionals together, it’s almost a progression, and I think you’ll find that progression is you open somewhere in the first five pages of my book, “The Ensemble Practice,” you’ll find that progression there somewhere. But trying to replay it from memory, the easiest form of sharing is, really, like you said, sharing an office. Just going to share overhead, we’re going to share a fridge, and we’re going to share a receptionist. But then you have your clients and I have mine. And that sharing of overhead is perhaps step one, or it’s perhaps the easiest form of sharing. Then the next step is really sharing the staff, sharing the teams, sharing the employees. If you and I are sharing the same support person, if you and I are sharing the same team of analysts and financial planners, and perhaps portfolio managers, the same operation team, that’s a more committed type of relationship. We have more at stake. It gets more complicated.
We have to devote more time to sharing those resources and building those resources together. In other words, we’ve got to train and develop the employees that we share. So the first step is sharing overhead. The second step is sharing employees. The third step is sharing clients, and that really is perhaps the border between silo and ensembles. Then once you start sharing clients, then sharing the rest of the business becomes more natural and almost inevitable. But sharing clients is very difficult. That means that you’re going to stop using the term “my client” and you’re going to use the term “our client.” That means that you agree to comply by our practice standards and not your way of doing things, “your” in the singular, that you agree to perhaps invite me to some of your client meetings and you agree that I will speak to your clients, and perhaps I will play a role in your client relationships. The clients will recognize me as one of the people working with them as opposed to just you being their advisor, their person, their trusted counselor.
And sharing clients is emotionally much more difficult than sharing a fridge, because our entire training goes in the direction of gaining the trust of that client and impressing them, and making an impact in their lives. So we want to be that person that makes an impact. We want to be that person that contributes to their life, and sharing that contribution, sharing that experience, is perhaps not very easy, much like with musicians. If you’re a singer, you want a microphone in your hand, and sharing that microphone is not easy. Just watch the Grammys sometimes. You see these solo artists trying to sing duets. It’s not very easy.
But once we share clients, that’s the next step. And then of course, the natural progression from there is we start sharing profits and sharing equity. Once we start sharing equity, we are really a firm, and this is sort of the highest form of being an ensemble, is once we don’t have a business anymore, we have shares in a business, then you and I are really tied together in one firm.
Why Someone May Want To Start An Ensemble Even If They Are Successful In A Solo Practice [15:34]
Michael: I love that label at the end. It’s when we don’t have a business, we have shares in a business and we’re all contributing to a common whole. The distinction you made of just the challenge of going from individual to ensemble is a fascinating one to me, particularly because in our industry, you can make a phenomenal living as a solo advisor, as a highly efficient solo advisor, if you leverage technology and leverage some of the tools around you. I mean there are people out there that make phenomenal incomes. We had Matthew Jarvis on episode seven. So people can go back to Kitces.com/7 if they want to listen. Matthew’s doing about $1 million of revenue a year with one and a half support staff members and takes 83 days of vacation with 50+% profit margin. I mean, it’s an unbelievable business, and he’s an individual.
And I don’t think at this point, at least he doesn’t particularly have aspirations to move towards ensemble or anything else. He makes way, way, way above the average income for an American, will be able to pay all of his bills and put his kids through college, and retire happily, and he’s fine with that and he’s happy with that. And so there’s an interesting distinction of who even decides to go on and try to become an ensemble practice and build a business beyond themselves when you can be so financially successful as an individual youreslf.
Philip: Mm-hmm. Well, you know, success, much like beauty, is in the eye of the beholder. I frequently have these conversations of, what are the measures of success in the advisory business, and I almost don’t feel it’s right for me to define what success is, because almost by definition success is something very individual. I think each and every professional has to ask themselves, “What do I consider to be measures of success? Is that achieving a certain level of income? Is that creating wealth? Is that building a larger business? Is that having happy clients? Is that going to all the soccer games of your kids? Is that playing the saxophone, which I personally would love to learn how to do? You know, there are many possibilities and many definitions of success, and I would probably say no advisor and no business owner should be painted in a corner by somebody else’s definition. You don’t have to comply with that. And it’s very dangerous to be chasing someone else’s definition of success. You may very successfully achieve something you absolutely don’t want. And I have frequently seen advisors who have built large businesses that they absolutely hate.
So you’ve got to be very clear with yourself, “What am I trying to achieve?” Unfortunately that clarity doesn’t come until the later stages of your career. I don’t think either you or I will claim to have had clarity about our careers until we were about maybe 10-15 years into them. And so in the first 10-15 years it’s very easy to chase somebody else’s definition of success just to realize that’s the wrong one. But I would probably say advisors who are looking to build something of lasting value, who are looking to build a business, who really are making long-term commitments to their clients, really need to take a very good look at creating an ensemble firm, because it’s impossible to live up to those long-term commitments to your clients within your personal time, energy, and lifespan. Those are very vulnerable commitments. If I am the only person who knows what’s supposed to happen with these clients, and I’m the only person who’s supposed to work with these clients, and I’m 65, that is somewhat of a dangerous proposition.
Michael: Well, and I love just the label you gave, or the point that you made, that it may take 10-15 years into your career just to figure out what your own definition of success really is. It’s a really powerful point to me. I mean I look back even on my own career, and I realize we basically started the same time, 1999-2000 timeframe. There were things I thought I wanted to do to follow my career and be successful, but really when I look back, basically the decade of my 20’s I didn’t really know. I mean I sort of thought I knew some things that I wanted to do, but I look at where I am today, and 10 years ago I didn’t have a website, I didn’t have a newsletter, I’d given maybe a couple speeches, I’d just started doing a tiny bit of public speaking, I was working as a fulltime employee in the firm, I never started a business. All of these things now that are so core to my life and my business and what I do that I do in part because I’ve found I really enjoy them and it fits my personal definition of success, I hadn’t done any of that in at least the first eight years or so of my career, and then I finally, I think, as I was coming up on 10 years in the business, realized maybe at least subconsciously I was dissatisfied with some of my initial path and started looking for other paths, and then ultimately found my way to what I’m doing right now. There just really isn’t effective…You just don’t know, in the early stages of your career, what that success definition is really going to end up being for you. You kind of find it as you go.
Philip: It’s kind of funny, actually, even listening about your career, because we did start at the same time. I distinctly remember when I would go to a conference and you and I would be the youngest people in the room, and let’s just say not anymore. Not at all. That hasn’t been the case in a long time. If I find myself to be the youngest person in the room, that’s a seriously old room. You never know. You know, 25 years ago I wanted to be an archaeologist, and then I wanted to work with software companies. I actually joined Moss Adams to work with high tech and software companies, and to consult with them. I sort of fell backwards into this practice simply because Mark was looking for a team, he was looking for consultants that were willing to join him and learn about this industry, and I happened to be in the same consulting division as he was, and let’s just say Moss Adams wasn’t very successful in the software industry.
So I didn’t have that much to do. I was really just looking for projects, and that’s how I ended up working with this industry and never looked back. But some of the best things in life happen by accident. Like my favorite management philosopher, Mike Tyson, says, “Every boxer has a plan until they’ve hit been hit.” That’s kind of how it goes. You get a hit a lot, but that’s not a bad thing. That’s how you learn.
The Characteristics That Lead People Towards Or Away From The Ensemble Path [22:00]
Michael: So for advisors that are listening that maybe are wondering where they are on this, I don’t know, cusp or divide, I mean how do people figure out whether they should be going in the ensemble direction or not? I realize it’s to each their own, but are there particular indicators of success or things that you find that tend to work better, whether that’s goals or success or mentality or whatever it is that leads people towards or away from the ensemble path?
Philip: I would probably say, first, look around. Rule number one is look around, because chances are you’re not alone. If you’re already working within a firm, if you’re already surrounded by a team, you may not have so much of a choice. In fact, one of the greatest tragedies in business can be that you are trying to swim against the current and create something that’s just not compatible with your environment. If you’re working in a firm and that firm has a lot of partners and professionals, you’ve got to join that team or leave that firm. You no longer have a choice. It’s the firm that has already committed to work as an ensemble.
So you either have to find that passion to be part of a team or you have to leave that team and start on your own, which may be very difficult to do. Even if you’re working on your own and you’re a solo practitioner, look around you. You probably have some employees. And even if you have one employee, that makes you an employer, and that makes you a leader, and you still have to spend at least some of your time and energy thinking about what happens to that employee and what happens to the people you hire. So you may be less of a solo than you think.
But generally speaking, the characteristics that would drive someone towards being a solo practitioner tend to be things such as, for example, you have very specific rules or very specific expectations about what you expect from your life or your career or your income. If you need to have certain flexibility in life, if you need to work a certain number of hours, if you need to achieve certain life goals, if you need to be driving a very specific amount of income or pattern of income, those are the kinds of requirements that may make it difficult for you to be an ensemble. Those are the requirements that, you know, generally speaking, you probably will need to meet on your own, if that makes sense.
What The Term Ensemble Practice Actually Means [24:26]
Michael: Okay. So it’s just that dynamic that, if you’re not really ready to give it your all about trying to build a business that’s larger than yourself, then this isn’t going to work well, because everybody in the ensemble has to be willing to give into that, or it just doesn’t work?
Philip: Exactly. You know, you can accommodate the individual expectations or requirements of one or two or three people. Imagine you and your friends go out to dinner, and let’s say one of them eats gluten-free. That’s no problem. We can probably find something on the menu. And one of them is a vegetarian, we can probably find something on the menu there as well. And one of them doesn’t drink red wine and one of them stays away from sugar. We can still have a good time. Even though there are a lot of specific requirements, we can probably still have a good time. But grow that group of people and make it a 20-30 person group, and now all of a sudden it becomes almost impossible to find a restaurant that can accommodate that, if that makes sense.
And sometimes I get carried away by these parallels. So forget the dinners and everything else. What I’m trying to say is that at the end of the day an ensemble is defined by putting the best interests of the firm first. So the question in a true ensemble firm is not, “What do I want to do? What does Philip want to do?” The question is, “What does the firm need? What does the business need?” And the needs of the business supersede the wants of the Philip. Not just speaking of myself in third person perspective, but even using the definitive article. But I think a lot of advisors kind of get confused that somehow they can have their cake and eat it too, that they can build a big business, but by the way, they can achieve all of their personal goals. And I think that’s where businesses get in trouble. If you build a business, it’s almost like having a kid.
You’ve got to acknowledge that the needs of the business are more important than your personal needs. It’s almost like having a child, because Michael, you’re a parent. You recognize that feeling. Whatever the needs of the children are, you’ve just got to do it. Even if you don’t feel like watching a little league baseball game on a rainy Tuesday afternoon at 3:00 and you have better things to do with your life, you’ve just got to sit there and watch that game. And it’s a horrible game, but you’ve just got to do it. It’s the same with a business.
Michael: We had Angie Herbers on episode 18, Kitces.com/18 if anybody wants to go back and listen. Angie had a fascinating analogy or way of explaining this, that your business is like a needy partner that you’re in a relationship with. Not just the other partners in your business, but literally the business as an entity. It’s like another person that you’re in a relationship with, and the problem is it’s a very one-sided, greedy relationship where the business only wants and needs and wants and needs, and will take from you everything that you can give it and more. So from the flip side that means if you want to ever regain control of yourself and your life and your schedule, at some point you have to create clear boundaries between you and the business about what the business does and what you do, and otherwise you can’t extricate yourself from the business to actually live your own life or control your own time.
Philip: You know, at the end of the day we may all be using very dramatic terms. Most of the business people I know live a pretty well-rounded life. They’re parents, they have a variety of hobbies, they have a lot of personal time, they travel quite a bit. It’s not that having a business somehow is going to consume you, but it will demand a lot of your time and a lot of your energy, and a lot of your money, and a lot of everything you have. I tend to agree with Angie, it’s like a very needy partner, but it’s a partner you love, you love a lot. And that’s why you’re in this relationship, because at the end of the day, that’s where you want to be, that’s where your passion is. And that’s why being in an ensemble probably, first and foremost is a function of, that’s where your passion is. You want to work with other people, you want to be surrounded with other people, you want to have partners, and you want to share that success and you want to build that success together.
Michael: So how do you find those people?
Philip: You know, sometimes they find you. Sometimes you try and fail. Sometimes you get lucky. You will find your partners in many different ways. I found my partners, as I said, you know, Mark Tibergien was one of my partners in Moss Adams, and I found him almost by accident. I joined the same group, but to do something different. But then sort of the gravity of charisma that Mark has and the gravity of opportunity that he creates, that’s what drew me to that practice. I found my next partner in Rebecca Pomering, and Rebecca and I started at Moss Adams within a year of each other. So she was not just my partner, she was my friend. She was the person I would go to for advice, because she was somehow always more mature than I was. She would see things more clearly. I was a little more of the hotheaded one. Still I am, probably. But you know, we shared a cubicle and she became my partner and she became first my friend and then my partner.
And then my next partner, Stuart Silverman, actually Stuart was a client. I always joke with Stuart that, first he was a client, and then he was a friend, and then we were friends and partners, and then we were partners, and now we’re friends again. So it was kind of a progression over the years. He was a client and we’d frequently talk, and then we became partners. We became friends first and discovered we have a lot in common. He kept calling me almost every holiday season saying, “Hey, you’re not a corporate guy. Why are you in this big corporate firm?” until 2007, I picked up the phone and said, “You know what, Stuart? You’re right, I’m not a corporate guy. Let’s do this together.” So that’s how I found my next partner.
Then today Brandon. You know Brandon Odell very well, Michael. You’ve worked with Brandon, too. Brandon was part of the Moss Adams team, and I worked with him in Moss Adams, and then when I started Ensemble we kept in touch and he joined me here, and now I have another partner. You know, just to finish that story of partnerships in my life, I also happen to own a boxing gym in Seattle. It’s called Arcaro Boxing. I own it together with a partner. Tricia Turton is my partner in Arcaro Boxing, and she’s an amazing boxer and an amazing coach. And once again, I found Tricia by walking into a boxing gym, and she was the coach there, and I just really enjoyed working with her as a coach, and the next thing you know she said, “Do you want to go and grab a beer?” I said, “I’m always game for a beer,” and we went and had some beers, and then she said, “Do you want to start a boxing gym?” And there we go.
So some partners find you, some you are going to find. Some maybe are trial and error. Unfortunately one of the worst things in business is sometimes you find the wrong partners, at least initially.
How Philip Found His Partners [31:02]
Michael: So you seem to have a pretty good string of finding the right ones. How do you figure out it’s the right person with the right fit, that they have all the right mentality that you’ve been talking about? Have you just been on a good ol’ lucky streak that they seem to just keep working out? Are there things that you look for to try to figure out is this person going to be a good business partner for me?
Philip: No. You know, it’s somewhat the problem of the inverse selection. You look at people and you see the ones that survive. Those are the partnerships that work out. I purposely skip through the ones that didn’t. But also, even in the best of partnerships, there are going to be tough times. I can tell you that Mark and I have argued, and have argued in a heated manner. One time Rebecca left my office and slammed the door so hard the picture fell from the wall and the glass crashed and broke. She didn’t intend to smash it so hard, but that’s what happened. I remember Stuart and I very much not talking for days and not exactly being on good terms. I remember Tricia and I fighting over things that had to do with the boxing gym. Chances are Brandon and I have not been on the same page about something, actually many things, maybe even today.
So in any partnership, most importantly you’ve got to remember what you’re trying to achieve together, what you’re trying to build together, and you’ve got to continue trusting and respecting each other. Partnerships are built on trust and respect, and as long as you trust and respect your partner, you may not necessarily agree with them, you may even be angry with them, but trust and respect will bring you back together. If you lose that trust, if you lose that respect, if you’re not sure your partner’s making good decisions, if you don’t respect their decision making or skillset anymore, if you don’t trust them to do the right thing, that’s where partnerships fall apart. And when they fall apart, it’s horrible and it’s heartbreaking.
But I would probably say that partnerships are a little bit of a leap of faith. You can’t really analyze someone. You can’t really somehow, you know, open a spreadsheet and list all of their characteristics, and then enter a few formulas and the answer will come up whether you should be partners or not. But before we become partners, try to know the other person as much as you can, and try to see all of them, their business decision making and their value system and their approach to people and their approach to clients and staff and employees. Try to understand what motivates them, try to understand what their measure of success is, try to understand what their vision about themselves and their lives. So ask a lot of questions, get to know them really well, but at the end of the day it’s still a leap of faith. You’ve just got to believe that it’s going to work, it’s going to work well, and that you trust and respect this person enough to take on this journey together.
Michael: I think you make a good point that good partnerships are still going to have fights and disagreements from time to time. I suppose in a lot of ways it very much parallels marriage as well, that you will inevitably have fights with your spouse. As long as there’s still a basis of trust and respect, you sleep on it and get over things, or whatever your process is for getting over the fights that come up. And then you move on and keep building your life together. And there’s very much a parallel to that with business partners as well, that I mean, to me the fact that you fight occasionally means, A, you still are both passionate about the business, and B, you come at it from different perspectives, which I find is frankly how a lot of good decisions ultimately get made. It’s just, when you take people with different perspectives who have a strong belief about something like a business, and you put them in a room together, they’re going to have disagreements and sometimes they might be loud.
Philip: Yeah. I read somewhere, there was some research that indicated, with couples, that couples that fight early on in their relationship have a longer and better relationship. Fights are actually very positive in some ways. You know I’m a boxer, I believe in conflict. I think a lot of good things come out of conflict. I actually believe a lot of businesses make the mistake of avoiding conflict. Conflict is beneficial, particularly in a partnership. It’s beneficial because it says that you and I have a strong enough relationship to where we can fight but not hurt each other, that I trust you enough to where we’re going to passionately disagree and we’re going to have a heated argument, but we also trust each other enough to that not breaking the relationship. Basically that kind of disagreement and that sort of fight says that we trust each other enough to both, eventually, ultimately act in the best interest of the business, and while we’re trying to figure out what’s best for the business, we also trust each other enough not to kill each other, we trust each other not to hurt each other and damage each other and damage that relationship.
And there’s something very positive in the fact that, you know, we’re going to fight and then we’re going to come back together and grab a beer or whatever our ritual is, and then we’re going to feel that the relationship is stronger that way, that I don’t always have to suppress any disagreement that I have, that I don’t have to always shy away from conflict, that we can experience conflict and we’ll be just fine. Because a lot of truth comes out of conflict, depending on what you believe in, but the big bang is an explosion. Potentially that’s how the universe was created. I’m trying to be very careful about everyone’s beliefs, but if you believe in the big bang theory, the big bang was the biggest of conflicts, if you will. It was the explosion that created everything. You know, many things come out of revolutions. Conflict has a way of bringing clarity.
Michael: Yeah, I really like that framing. I like that conflict has a way of bringing clarity, but that idea that our business relationship is good enough that we can fight and not hurt each other. I know at least for me that dynamic has always been…I’m a very strong-willed person. That’s part of why I end up in entrepreneurial endeavors, but virtually always with partners. And for me it’s always been that we may have disagreements, we may fight, it may even get loud from time to time because we’re both passionate about what we’re working on, but…I feel like this is so canned to say, but it’s not personal, it’s business. Like the disagreements and the fighting isn’t personal attacks and things to each other. It’s just, we have some potentially very different views around the business and what’s good for the business, and that’s still a conflict to be worked out, but we maintain the relationship because we’re not attacking each other. We’re just having a strong and occasionally loud disagreement about what the best course of action is here for a business that we both care about but just have different views on.
Philip: Yeah, exactly. Although I was going to say, it’s not personal, it’s business. Isn’t that what Don Corleone used to say?
Michael: Yeah. I realize that there are some bad connotations to that as well.
Philip: You know, you could say that the mafia was an ensemble as well.
Michael: Yeah, well and apparently one that executed very well. No pun intended.
Philip: You know, forget that for a moment. It’s really fascinating, I came across a book. I don’t remember the title, but it was a history of piracy. It was describing the organizational structure of a pirate ship. It was really funny to actually-
Michael: It’s run like it’s a business with a leader that must run as a well-functioning team or things don’t go very well.
Philip: Exactly. It turns out pirates actually had a very specific way of organizing their ships. First of all, captains were somewhat democratically elected. There was definitely a board of directors meeting to elect a captain. You could sort of vote the captain down. Everybody had a pretty well-defined share of the loot. So literally they were like unit partners, and depending on your position in the ship, you may have one unit or two units or three units. Also depending on whether you get hurt or not during missions. If you get hurt, then you get awarded more, a bigger share. If you have a more dangerous job, then you, generally speaking, get more. But it was kind of really interesting. I guess the idea of ensembles is not some kind of a new idea that sprung in the late 20th century. It’s something that has always existed. If you look at pirate ships, look at how the Italian Renaissance shops functioned, the kind of shops that produced the work of Leonardo and Michelangelo and so on, how they were training their apprentices to become accomplished artists and so on, all the medieval guilds and so on, they definitely functioned in similar ways. They were partnerships of people coming together for a common purpose.
Philip’s Path To Starting His Own Consulting Firm [39:30]
Michael: Interesting. I’m curious now to hear more of your path of how you’ve come to all this experience and realization work with advisors. You said you started with Moss Adams back in 1999-2000, the Moss Adams consulting division that Mark Tibergien was building out and growing. So what was the business like back then? I mean what did you come in to do, and what was Moss Adams Consulting doing at the time?
Philip: You know, that almost is sort of the fuzzy, distant past. I graduated from the MBA program in Oregon, University of Oregon, and I was looking for a job. It’s as simple as that. Any job. Actually at the time it was just any job whatsoever, and then my wife found a job that she really liked in Seattle. So I drove to Seattle looking for an apartment, and I happened to be playing soccer with a guy in Eugene, Oregon. He was a Russian guy who happened to be on the Russian Olympic rowing team for the Olympics, which is a completely irrelevant fact, by the way. But he said, “You should give Moss Adams a call,” because he was a CPA and he was working for Moss Adams in Eugene.
So I gave Moss Adams a call completely out of the blue, and somebody was just a really kind lady, who was the receptionist at the time, who picked up the phone and connected me with Cathy Gibson, who was one of the partners there. And it just so happened I was carrying in my briefcase a business plan for a software company and Cathy was working on something very similar at the time. So she kind of took notice of that. And I interviewed for Moss Adams and somehow convinced them to hire me, and I joined the Consulting division and found Mark, and so on and so forth.
But that seems like the distant past.
Michael: How long did you stay in the organization then?
Philip: About nine years or so. So I joined in 1998 and I left officially in 2008. So about nine, 10 years.
Michael: And I guess you went the path from being an entry level, like an entry level analyst up to becoming a partner with Mark and Rebecca by the end of that journey?
Philip: Mm-hmm, yeah. When I joined, Mark was obviously the leader of that division. I was an entry level employee. Rebecca and I were working in a cubicle. We were sort of at the very beginning of the career path. So it was really interesting, as I mentioned to you, I just wrote a book called “G2: Building the Next Generation,” focused on the non-founders, the generation that came behind the founders. That generation, I very much believe, is taking over the industry today. But as I was writing that book and trying to describe career paths, I was very much writing from personal experience. I mean I started there in that cubicle with the spreadsheet and then nine years later became a partner in Moss Adams. And then as soon as I became partner, I left, and that was kind of the next chapter. That happened almost 10 years ago. So Moss Adams for me is, to some degree, distant history.
I always felt like consulting is an interesting business. You keep talking about what other people are doing. It’s almost like being a sports commentator. You’re talking about what’s happening on the field, but usually sports commentators are retired players. They’re someone who played the game and now he’s talking about the game because their body can’t handle it anymore. And I realized at the time, I literally was 34 years old, I was telling myself I’m just too young to be talking about what other people are doing or should be doing. I want to do something. And that was really, most of all, the motivation that drove me to pick up the phone and talk to Stuart Silverman, my partner in Fusion, and say, “You know what, I’m not a corporate guy. Let’s build this together.” And he had started Fusion in 2003. So by 2007, when we had this conversation, Fusion was kind of a fairly established business. It was already successful, it had momentum, it had a lot of support and some very good strategic partnerships. So when I joined him it wasn’t a startup business, but it was still relatively young and new. We had seven employees, it was a relatively small team.
Michael: So for those who aren’t familiar, can you describe just what was Fusion Advisor Network? What was this thing?
Philip: It’s a group of highly motivated, successful advisors who are, most of all, coming together to build better business and experience the camaraderie of doing it together. You know, in some ways it reminds me of the XY Network that you are building. It’s really the concept of practitioners who are trying to build a better business, joining forces to create some resources that they can utilize together, but most of all, who can learn from each other and sort of experience that camaraderie of working together. Because being a business owner can be a very lonely experience. I’ll talk to you more about that, perhaps, in a moment. But it can be very lonely. So Fusion was meant to bring resources together, but also dispel some of that loneliness, that you’re not alone in business, that you always have a friend, you always have other advisors that you can call for advice, that you can just associate with, because as Bulgarians will tell you, it’s not a good idea to drink alone. You shouldn’t be drinking alone. You’ve got to find company.
But Fusion still is about all of those things, but Stuart and I were together for about five years or so, I was the president of the firm. So I literally, speaking of partnerships, I went from having 240 partners at Moss Adams to having just one.
Michael: That must have made decision making a little bit simpler, right?
Philip: You know, very much so. I remember the partner meetings at Moss Adams were these very formal affairs at the Fairmont Olympic here in Seattle, in the big ballroom. And everybody was well-dressed and with a formal agenda and presentations and things like that. Stuart and I had our annual planning meeting, we usually went to play Colorado skeet for a day and drank beer and ate French fries and chicken wings.
So it was a lot of fun building a business together, and it was kind of much more that experience of starting not from scratch, but starting from the beginning and building the business and sort of confronting all of these decisions that have to be made. And that really is the burden of being a business owners, is there are a lot of decisions to make, and you are responsible for all the outcomes and all the results. It can be a crushing burden, but it also is one of the best experiences in life, to create something out of nothing, to bring a group of people together, to excite them about the opportunity and what you can achieve together. And Fusion was fantastic that way and it continues to be to this day. The organization didn’t stop existing.
Just in 2012 Fusion was merged into what today is Kestra Financial. It merged with that organization and Stuart continues to be closely involved in Fusion. And then I remember about consulting, the good thing about consulting. The bad thing is you’re always talking about things but you never get to do them yourself. The good thing about consulting is the amazing variety of situations and people you encounter. And I always missed that a little bit, so that’s how the Ensemble Practice started, literally on the next day after the merger. And then Fusion became the first client, and to this day continues to be one of the clients we work with.
But since 2012 it’s been the Ensemble Practice, and that team has grown, we have five people now, and of course Brandon Odell is my partner now. So I went from 240 partners to one partner, to no partners, and then I guess I’m building up again. I don’t know if I’ll get to 240. I actually don’t want to get to 240, but certainly building the number up again.
Michael: So can you talk to us a little bit about what Ensemble Practice is? So you coined this term, ultimately now you’ve named a business after it, which would make a lot of sense. So can you talk about what Ensemble Practice is? Like what do you do and who do you do it for?
Philip: I mean, consulting is really the process of helping business owners make business decisions. To be running a business, managing a business, is all about making good decisions, and consultants can be very instrumental in making good decisions, particularly in situations that are relatively new to a business. In other words, as an organization, you have not encountered this before. It’s the first time you are adding a partner, it’s the first time you’re doing a merger, it’s the first time you’re creating a partnership compensation structure, it’s the first time you have to retire a partner, it’s the first time you’re negotiating the sale of your business. So those are the first time, situations or times when a consultant can maybe bring experience and perspective. Consultants can also help in situations that are perhaps very political.
As businesses grow, some of the larger RIA’s in our industry have as many as 50 partners. That’s many points of view and many agendas and many ideas and many strategies and many client bases and locations that need to be reconciled. And sometimes internally that’s difficult to do. Perhaps people coming from the outside have a little more objective point of view, but also perhaps a better credibility in trying to bring those parties together, and that’s part of what consultants do. And of course consultants can also bring some knowledge. Business owners see one business, and they see that business over and over and over again every day. A good consultant can bring the experience of all these other businesses that they work with so you don’t have to repeat every step that they’ve ever taken. You can learn from them and you can learn what’s the outcome of these different strategies without having to experience it.
How Firms Can Make Mental Shifts When Integrating Newer Staff Members Into Leadership Positions [48:45]
Michael: And are there particular first-time situations that you’re finding are the most common ones that advisors are struggling with today that they’re coming to you for? I mean what’s popular? Is it introducing new partners? Is it retiring partners? Is it staff compensation structuring? What kinds of things are you finding are the buzz in the advisory industry right now?
Philip: Forgive me if I stay away from the word buzz, because I think it’s not just some kind of a temporary occurrence. This is something that’s of critical importance to every single firm in the industry. Every firm that wants to continue to grow and be successful needs to find a way to develop its next generation of advisors, and of course those advisors, some of them need to be the next generation of leaders. I say that very purposefully every firm. Obviously solo practices may find a different path to succession and may go to a different lifespan, but any firm that wants to continue to exist as a firm needs to find a reliable, systematic process of creating the advisors of the future, and then of course finding the future managers and the future leaders, those that are going to be the next CEO’s and CIO’s.
And it’s not just the succession process. Very often we talk about succession in the industry. This is not a process of succession. This is a process of growth. It’s a process of evolution, that as firms continue to add clients and continue to have staff members and continue to grow in the number of people and locations and revenue and assets and clients, we just need people, and you can’t grow a good advisory firm without having people, and those people need to be put in positions of prominence and leadership. They need to become leaders of their teams, they need to become the voices of their firms, and we need to find out who are the best ones that are going to lead the firm into the future.
These days that’s consuming most of our time and a lot of our resources. The G2 Institute, which is a training program for next generation leaders, the “G2” book which is coming out any moment now, literally within an hour or two, but also a lot of our consulting engagements ultimately come down to, how does the next generation of advisors become more prominent and then eventually take control of those firms.
Michael: And so what are you finding emerge as some of the best practices? If I am an advisor that’s got one or a few young people and I’m trying to figure out how do I bring them up in the business, how do I ultimately get them to partners or make sure they’re ready to be partners or make sure I don’t add them and find out they’re bad partners, what are the best practices that are emerging around this now?
Philip: You know, I would probably say that number one, and a very obvious step, but very often ignored is, if you need to have talented young people, then you need to go out and hire talented young people. If you want to have young people on board, you need to be recruiting. I say it’s obvious, but many businesses actually wish they had younger advisors, wish they had younger people in general, but they haven’t hired anybody in five years. And I remember even back in the Moss Adams days, at one point in time we came to the realization that for the last seven years we’ve been looking for hire someone with five years of experience. Ironically, had we hired that person, we’d have had them for a long time.
Michael: I love that. Have you been trying to hire someone with five years of experience for the past seven years?
Philip: Yeah, and that happens a lot in the advisory industry as well, because that’s what everybody wants. Every advisory firm is looking to recruit that CFP experienced advisor that can be put in front of clients almost right away, and where she or he is very capable of retaining client relationships or even growing client relationships almost right away. But that’s a person with, perhaps, seven, eight, nine, 10 years of experience, and they need to accumulate that experience somewhere. So I would probably say step number one, and a very obvious one, is hire young people. And then step number two is develop them.
Michael: How do I do that? Because most advisory firms are still relatively small. I mean even sizeable advisory firms in our industry are like, were 1/10 the size of being a small business by the Small Business Administration’s standards. We’re like a microbusiness. So when it’s me and a couple of staff members or me and one staff member, or maybe I’ve got one partner and there are five or six of us, I don’t have a lot of spare time to train and develop young people to come in, especially with the concern that I’m going to do it for a couple of years and then they’re just going to leave. So how do I do this to figure out how to actually find the time to train them and have the confidence that if I do they’re not just going to leave at the end of the training period?
Philip: You know, I really hear you. I’m smiling because, when I started the Ensemble Practice, it was really just me and one other employee. So it was Johnathan and I. We wanted to recruit an office manager/project manager. But then Johnathan for some reason wasn’t in the office. I think he was on vacation just when I was interviewing project managers, and that would have been employee number two. And I realized, when those people come for an interview, they’re going to find me all by myself, alone in an office. There’s just no way a quality person is ever going to join that firm that’s really just a guy in an office. So I literally called a temp agency and hired a couple of temps just to mingle in the office, just to make an atmosphere of being a real firm.
Michael: You hired temps so it would look like more of an office.
Philip: I am not joking. Literally we had two temps in the office to just, you know, open the door and welcome the candidates, just so it looks like a real firm and it’s not just a guy in an office.
Why Advisors Cannot Fully Delegate The Final Decision In The Hiring Process [54:41]
Michael: Were you kind of worried that if it worked out and you hired one of them, at some point they look around and say, “Where are all the people that were here when I interviewed?”
Philip: I don’t think I was thinking that far ahead. I was just thinking, let me find a good person, and then I’ll do some explaining later. Plus, Johnathan will be back. So there will be more people than just me. But anyway, it is difficult to recruit when you’re a smaller firm. Obviously Moss Adams, when they needed to hire an MBA, they just went to the local MBA schools and said, “Who are your best?” When you’re a two or three person firm like Ensemble is, you’ve just got to be more entrepreneurial, you’ve got to be more creative.
But look, people are there to be hired. This entire generation of millennials is dying for an opportunity. Actually one of their biggest complaints is that they’re not getting an opportunity to join the workforce and show what they can do. There are a lot of young people out there. Michael, I think you of all people are in contact with many of them because your XY Network is so young.
Michael: Well, and we hire a lot of them with our new planner recruiting business as well.
Philip: Yeah, and George’s new planner recruiting is definitely one of the ways to go. Many of our clients use that. Just simply advertise, network, talk to other people, look around, go to the CFP board, go to the FPA job sites, go to your strategic partners, custodians and broker-dealers, let the world know what you’re looking for, and it’s out there. I mean it’s shocking how many highly qualified, eager people there are. One of the best recruiters in this business that I’ve known is Dale Yahnke, one of the founders of Dowling & Yahnke in San Diego. If you look at Dale’s team, I mean the quality of people there is amazing. They are all Wharton and Harvard MBA’s, they’re engineers and CFP’s and CFA’s. Everybody went to a really good school, everybody is really talented, and the reason for that is Dale is a nonstop recruiter. He himself told me that he approaches recruiting people with the same amount of energy and passion as he approaches business development. He’s constantly networking, he’s constantly looking around to see who’s talented, who’s good, and who can join him.
I even remember, actually Bob Bunting, the former CEO of Moss Adams, told me during one of the conferences that the last thing he did as the CEO of Moss Adams was he made 100 phone calls to people he wanted to recruit to Moss Adams. So literally he made 100 phone calls to professionals across the country that he believed should be part of the Moss Adams team. And in many ways it shocks me how often when there is a hire to make, advisors, particularly the CEO’s and owners are frequently saying, “I don’t have the time for that. I’m just going to delegate it to an office manager or a project manager.” It’s this complete disconnect of, you really need that person, that person is very important to the future of your firm, but by the way, you don’t have even the time to screen them and to talk to them and learn a little bit about them and hire them.
Michael: Or for some I feel like it’s hard enough to find the time to find them and vet them and hire them. You can outsource that to recruiters, but like heaven forbid you actually offer a job to one and they say yes. Now you have to train them, when most of us have no training experience.
Philip: Well, that’s kind of the realization that, first of all, hiring, training, and developing people is one of the most important activities that, particularly a business owner can undertake. Somehow, especially in this industry, many professionals have been trained that if you’re not servicing clients or developing new business, you’re wasting your time, that those are the two most valuable and the only activities that should be occupying your schedule, and that god forbid you’re training people, hiring people, or managing people, then you’re wasting your time and that’s something you should delegate.
Nothing can be further from the truth. I think if you see yourself as a business owner, you’ve got to realize that your team is perhaps your most important client. As Mark Tibergien would say, your best people are more important than your best clients. The time you spend to develop and manage that team, the time you spend to make sure that they’re ready to be prominent professionals and prominent leaders in that business, it’s time well spent and it’s perhaps one of the best activities that you can dedicate yourself to as a business owner. It doesn’t mean that every single advisor in every single firm has to become a coach, but that said, in every firm there have to be at least a few good coaches, and no one’s in a better position to coach advisors than an advisor. It’s this utter fallacy that somehow we’re going to hire professional managers and the professional managers are somehow going to create this next generation of advisors. That won’t happen. The people who are in the best position to train advisors are the advisors themselves, because the best training happens in a client meeting, it happens in a staff meeting, it happens in the office. It doesn’t happen somewhere in a classroom. Classrooms are important. They play a role, but you can’t just leave the classrooms to train your future advisors.
Michael: And so if this actually works out with them, how do I make sure they stay?
Philip: Well, you know, no one ever leaves a successful, good firm. If the firm is successful, if the atmosphere is collegiate and collaborative, if the culture is strong, if the environment is exciting, people tend to stay. If the firm is struggling, if the culture is dysfunctional, if people are fighting each other all the time, people tend to leave. So the easy answer is make sure that you create opportunity, most of all, and make sure you have the right atmosphere and culture in your firm, and you’ll have no trouble retaining people.
Michael: And I find in practice, one of the things I’ve observed over the years of lots of advisors that have left firms, particularly when it’s really active with next gen, and in the early days there were a lot of advisors that were leaving firms, is just the simple dynamic of growth and how much growth matters. Is the firm growing? Because just a 15% annual growth rate compounding basically doubles a firm every five years. So a firm that has 10% or 15% growth rates that’s going to double every five years, there are a lot of opportunities that come. If you look around the org chart and say, “I don’t know where I’m going to move up,” well the answer is, well there are going to be twice as many jobs here five years from now. So I’m not quite sure where you’re going to move up, but there are going to be a lot of opportunities, and 10 years from now it will be quadruple the size for compounding, doubling twice. That just the nature of growth, I find very few advisors that leave growing firms. If they do, it’s a personal need, it’s starting a family and want to go back home or just, “I just want to serve a different type of clientele. Nothing wrong with the firm, but I just don’t want to serve the people that the firm serves.”
There’s always some personal overlay to it, but as you say, people rarely leave in that environment, because the growth creates the opportunities. It’s the firms that tend to be individual solo practices where someone who’s a firm owner has gotten to a good, healthy income and they’re making good money and they’re very happy with it and they’re not growing very much because there’s not much reason to, because you’re making good money and you don’t need to grow it more, and that’s wonderful and fine as a lifestyle practice, but I find these are the firms that tend to churn through the employees because eventually the new person that comes in, it may take them two or three years, but they get it. There’s no upside, there’s no new opportunities, there’s nowhere to move up if the firm isn’t growing. It’s almost impossible to get equity in a firm that’s not growing, because the firm owner giving up equity in a firm that’s not growing is literally like every share I give to you or sell to you is just profit I don’t get. My pie just gets smaller. When you’re in a growing firm, I can keep giving or selling shares to next generation owners coming in, and if the firm is growing, the stuff I’ve got left still ends up being…A small piece of a large pie ends up being worth way more than a large piece or 100% of a small pie.
So the growth increases the value of what you’ve got left faster than the dilution happens as you sell or transfer shares to next generation. And so there are a lot of advisors I still talk to from time to time that ask this, “Why growth? We all talk about growth. What if I don’t want to grow?” And I’ve always been in the camp that it’s fine if you don’t want to grow. If you want to run a lifestyle practice that’s built around you, that’s your prerogative, but recognize that that means it’s going to be brutally difficult to attract and retain good employees, because they’re going to figure out there’s not much upside, and if you manage to hold on to people, I’d say you’re going to tend to hold onto a certain type of employee profile that may be a good worker, but is probably not going to be someone that takes a lot of initiative and has a lot of ambition. Because if they did, they’re going to realize in two or three years or less that there’s no upside where they are, and they’re going to leave. And just the simple factor of growth and whether the firm is growing, seems to be remarkably predictive of how much turnover is happening in the firm.
Philip: I absolutely agree with every single word you said. The key term there is opportunity. For as long as there’s opportunity in a firm, opportunity is the magnet for talent and opportunity is what keeps talent around. When opportunity dries up, when year after year I’m likely to do the same thing over and over again at about the same levels of income and recognition and achievement, that’s where people start leaving and start looking toward the door. Growth creates opportunity. It’s very difficult to create opportunity without growing. That’s not to say that every firm needs to rush out and try to pile up as many clients as they can or as many assets as they can, but there’s got to be a consistent flow of opportunity, and that will attract talent and that will retain talent and that will develop talent. Because speaking of what you need to do in order to develop talent, the talented people need that opportunity. They need clients to be in front of. They need staff to manage, they need teams to lead. And without those opportunities to establish themselves and experience those leadership positions, they’re not going to develop.
Michael: Okay, but from the flip side, as an advisor firm owner, it’s a little scary to put an inexperienced advisor in front of my valuable clients, to put an inexperienced manager in charge of employees at the firm. How do I deal with the fact that, I hear you from the end of, in order to develop them you’ve got to give them experience, but from the business ends, they make very costly mistakes when they get into these positions of responsibility and they don’t necessarily know what they’re doing yet.
Philip: Well, you know, I think the first step is you’ve got to trust and respect your own colleagues. These are people you hire, people you train, people who hold degrees and designations. They’re probably not that inexperienced. They’re probably not that bunch of clueless young professionals. Generally speaking, when we describe G2, G2 are not 22 years old that just graduated from college and are trying to figure out what to wear to a client meeting. The G2, the second generation in this industry today are people in their 30’s and 40’s. They have 10, sometimes 15, sometimes more years of experience. They are very well-credentialed, they’re very well-trained. They have done this quite a bit. So I would probably argue that, you know, the next generation is not inexperienced. They just need an opportunity. But also, Michael, my son is almost 20 years old these days, but I distinctly remember when he turned 16, he got his permit, and he was learning to drive. It’s kind of the same process. How do you let your son or daughter, for that matter, because my daughter is coming up to that age now, how do you let them learn to drive a car? And the only possible answer is you give them the keys to the car and you put them behind the wheel.
There’s no other way to learn how to drive. Believe me, I’ve tried. You can sit with them in the car, you can talk to them while you drive, but at the end of the day, if they’re going to learn to drive, you’ve got to give them the wheel and the keys. And yes, they can make costly mistakes. Let me just say that my son parking in strange ways has cost more than a couple of claims to the insurance company, but they’ve got to make those mistakes, because if they don’t, they’re never going to learn to drive, and if they don’t learn how to drive, they’re going to have a very hard time in life. And it’s the same for your firm. It’s kind of a realization that if you never let your younger professionals make some of those mistakes, you’re never going to have much of a firm. And if you don’t have that much of a firm, that’s not good for the clients either and that’s not good for your professionals. And frankly, I think, first of all you’d be surprised at how knowledgeable and how good some of those professionals are. Very often even in my own experience I sometimes find that my colleagues are sometimes way better than I am at some of the things that we try to do.
So they may actually not just be adequate drivers, they may be better drivers than you are. But second of all, I think you will find also that clients will tolerate some of the mistakes if they believe that the firm is really trying to do its best, and of course that those mistakes are caught and corrected. These things are not fatal. I mean all of us learn somewhere and all of us got that opportunity to be in front of a client for the first time, and that’s what G2 needs. And I believe sometimes professionals are way, way, way too overbearing and overprotective, and I don’t think it’s good for the clients, to begin with, but it’s certainly not good for the team. It’s not good for the development of G2.
Michael: So I guess, if I have to, at worst just mentally earmark some mistakes are going to happen. At worst maybe a client or two might turn over. Call it a cost of doing business to develop staff and just accept some costs and move on?
Philip: You know, in somewhat of a cynical statement, I would probably say yes. At the end of the day, as the French say, you can’t make an omelet without breaking some eggs. Consider the possibility. What is more important, retaining a couple of clients or creating a future partner that’s going to work with 100-150 clients?
Michael: Right, I mean if you just start doing the math of how many clients can a successful advisor partner manage as clients and revenue of the business of the future, if I can find a person that does that well and develop them well to do that, it’s worth it even if they make some mistakes along the way and it costs a client or two along the way.
Philip: The math is overwhelming. You’re much better off developing another capable advisor, another capable professional, another capable partner that’s going to continue managing client relationships and developing new relationships even if that costs you two, three, four, five, six, seven client relationships. The reason I said it’s somewhat cynical is, you know, imagine advisors were doctors. Obviously you don’t want to make mistakes with patients. You don’t want to harm someone, you don’t want to hurt someone, you don’t want to make mistakes that really cost the client something irreparable. As a firm you have to create quality control process that allow you to catch those mistakes if they’re ever made, to mitigate and correct them.
Michael: So what would a quality control process look like?
Philip: Well, you know, it always amazes me, like at Moss Adams, in a CPA firm for example, no report ever goes out to a client unless it’s been reviewed by another professional, and there’s a very formal review process. For example, if you’re sending a report out, I, as your partner, or another professional in our firm as to read that report, has to go through a checklist of verifying that all of these components are in place. Very easily the same can be said about a financial plan. You know, that’s why firms have compliance departments. Compliance departments should be reviewing all of the investment and financial planning decisions in some way. That’s why firms have in committees. Obviously all the trades and all the things that are done, there should be someone taking a second look at that.
And that’s another reason why, generally speaking, there should be no meetings where only one professional is sitting with a client. There should be other people in that meeting. Those could be associates, those could be partners, those could be other advisors, but the more there are other sets of advice, the more there are other people present in that relationship, the more someone’s going to notice that, you know, what we’re doing here is not a standard recommendation. It’s not our policy, it’s not what we usually do, or this number doesn’t look right. Those are the kind of processes and systems that can be created and that will help the development of professionals.
But you know, in all of my practical experience, about 18 years or so, I can’t really recall ever having a client who said, “Oh my god, we tried developing John or Sally or Amanda, and you know, Amanda really messed this up and she cost us thousands of dollars of liability and mistakes, and we lost thousands of clients.” All of the “horror stories” that I hear are things that are relatively minor. Somebody didn’t quite please the client. Somebody perhaps didn’t quite say the right thing. Maybe we lost one client or two, but maybe they were disgruntled clients anyway.
Michael: Right, and the truth is they were probably going to fire you anyway. They just used Amanda’s mistake as an excuse for it. This kind of thing.
Philip: Yeah, the danger of having a firm, and I say that being a business owner myself, the danger of the Ensemble Practice being a three, four, five person team, 10 years from now is much greater than the danger of us losing a client or two. Of course I don’t want to lose clients. And particularly most of I all never want to be associated with not doing a good job for a client. Of course we want to do our best, but at the end of the day, if we don’t develop the next generation of consultants in our case, we’re not going to have much or a firm, because 10 years, both you and I are not getting any younger, 10 years from now I will definitely not be one of the younger people in the room, and at that point in time I’m hoping to have a lot of partners and a lot of professionals, and the only way to do it is to give them an opportunity to be in front of the client. And you know, the funny thing is, when you do, when I realized that and gave my son the keys, and he started driving around on his own, and yes he’s crashed the car a couple of times, but you know what, today I think he’s a much better driver than I was, and still am. And I think that’s kind of the best thing about developing people, is that not only are you replenishing the things that you can do, but very often you as a firm develop capabilities that you just didn’t have before. People bring knowledge, experience, expertise, and talent that you just didn’t have before.
Michael: And so if I do find a good person, they’ve been developed, and we want to actually elevate them to become partner, how do you typically see these kinds of partnership arrangements being structured now? Do you give equity? Do you require a buy-in? Do you require a buy-in, but the firm finances it? Do you make them go to the bank and get a loan? How are G2’s actually becoming partners these days?
Philip: When there’s a will, there’s a way. I think that’s kind of the short statement. But I would probably say, in the simplest possible fashion, first of all, partners should be partners. I’m not a fan of synthetic equity or nonstandard arrangements where we have partners, but they’re not quite partners. Profit interest participants, phantom stock owners, nonvoting partners, income partners, and so on. All of these arrangements, I frequently compare them with the economy plus in an airplane. You’re still in an airplane. You get an extra drink and a little more room, but you’re still in economy. You’re not in first class. So if you’re going to have partners, have partners. Meaning share equity and share your future with them. And then you’ve got to remember that the reason you’re bringing them to the partnership group is because you believe they’re instrumental for the future of the firm. So act accordingly. Never give up equity. I very much believe that.
Don’t just give it away, because when you give it away people don’t value it, but that said, price it in a way that it’s practical, where the new partners can actually buy into their share of the business. Perhaps help them get financing, especially today there are a lot of financing options. There are a lot of lenders that even specialize in lending in some situations. A bank is a very easy example to give here. Help them get some financing. Use a fair valuation method, whatever fair is. That’s a long discussion.
Michael: You wouldn’t necessarily advocate a discounted value because maybe they helped to grow it to get it there, kind of thing? You would still say get a fair value at the time of the deal, but it should be an actual market value?
Philip: Get a fair value. And I don’t want to get tangled up in the technicalities of what’s fair market value and what’s market value and what discounts apply or don’t apply, but just be fair. I think that’s the standard, is just be fair. Don’t discount. But discount is such a relative thing. Mike, I’ve noticed for example, my book, “The Ensemble Practice,” the list price is $75. So you could look at a price of $50 as a fairly steep discount, a 33% discount off of the cover price. The reality though is that no one ever pays the cover price. I don’t think anybody has ever bought my book at $75. The reason is the book is available on Amazon, and on Amazon it’s always $49.95. And honestly, between you and me, I suspect that publishers these days are setting the price at $75 just so after the Amazon discount it sells at $49-
Michael: It looks like a big deal.
Philip: $49.95, yeah. And literally the same is true for equity. It’s like, when advisors say, “I’m discounting it.” Well, discounting it relative to what? At the end of the day, for any equity deal to be viable, there has to be a willing buyer and a willing seller. So it has to be a fair value that entices the buyers, but also the sellers. You don’t want to punish those that are selling.
Michael: Well, understood. I have to admit, I’ve seen these from both ends, because we’ve introduced partners at Pinnacle as well as buying in, but I hear you that it takes a willing buyer and a willing seller, but in practice, I find it is rarely a balanced negotiating conversation between an owner who may literally own all the equity and an employee who doesn’t. Not only do I have to negotiate this deal for myself, but I have very little control over the terms, and if I say no I risk not only not becoming a partner, but I may or may not still have a job here at the end as well. So my stakes from the buyer’s end often feel very elevated and less flexible. And that just seems to lead to a lot of negotiation breakdowns. So I’m still curious as to what happens commonly in terms of how you buy this and how you structure the deals. I’m all for being fair, but I’ve seen a lot of disputes that started with a buyer who didn’t believe the price was fair and a seller who did believe the price was fair, and that was pretty much the dispute. They couldn’t come to an agreement on what constitutes fair.
Philip: Yeah, and I see those horror stories all the time. They, unfortunately, happen more often than they should. I think both sides of that discussion have to maintain a very clear view of the fact that they are trying to become partners. This is not an isolated transaction, this is not a transaction that exists in and of itself. It’s a transaction that opens the door to a long-term partnership. And I think the sellers, in this case the founders usually, have to be realistic that, if you misprice the equity, if you set the value too high, sooner or later you’re going to have some kind of a mutiny on board where your present and future partners are going to say, “You’re asking us to buy this at a price that is too high and that we cannot afford to pay.”
Because where the rubber meets the road is that, let’s say I’m buying 5% of your firm, Michael. I’m going to receive a dividend for being a 5% owner, and that dividend is going to be the primary source of cashflow for me to pay that loan that I borrowed from, let’s say some Bank. And if I have to go through 10 years of pain and suffering and eating ramen noodles and not being able to afford a vacation just so I can buy 5% of your firm, you know, to heck with your firm and I can probably find a career somewhere else. Where the rubber meets the road is, ultimately the buy-in has to be affordable given the cashflow that the equity will generate, which means that ideally the new owners can finance the purchase not entirely out of the cashflows, but just about. You know what I mean? They don’t have to give up too much personal income in order to buy it.
Michael: Which means in practice, if I’m selling over five to seven years, then I’m basically going to end up selling for five to seven times free cashflow so that the thing kind of pays itself down over the time horizon?
Philip: More or less, yes. I think that’s the simple answer. The thing has to sort of pay for itself. This is the emotional barrier that founders sometimes get stuck with, which is, they look at this transaction and say, “The next generation is really not paying the price in blood, sweat, and tears that we paid in order to create this firm.”
Michael: Well, I imagine a firm owner is like, “Let me get this straight. I’m going to take cashflow that I used to have, and I’m going to sell shares to a person where the cashflow pays for itself. I’m not giving them the equity, but it sort of feels like I am, because I’m selling them the equity in exchange for the cashflow that I would have had that’s going to pay for all the equity anyway?”
Philip: And not only that, but I think founders feel like they’re having it too easy. They’re not having to go through the sacrifices that I had to go through in order to become an owner.” And I think the answer is, look, first of all that’s human history, that’s what human history should look like. Every next generation should have it a little easier than the previous one did. Thank god we’re not all hunting and gathering anymore, because we learned from previous generations how to do other things. So of course the next generation will have it easier, of course I want my children to have an easier life than I had. I immigrated from Bulgaria. I’m not going to ship my son back to Bulgaria just so he can retrace the same path and have it like I did.
That’s a ridiculous notion. So of course, I think we should be happy that the next generation is having it easier. Of course the next generation also can do a lot better at just showing the founders some respect and showing some appreciation that, no, it wasn’t easy creating it, that no, they actually went 10, sometimes 15 years without much of an income. And yes, they ate a lot of ramen noodles in the beginning. The next generation sometimes dismisses what the founders have to do or how much the founders have to struggle to make it happen, and I think frankly, if founders are guilty of trying to punish the next generation just so they earn it, G2 is sometimes guilty of dismissing what the founders had to do in order to create this firm. Now, the cashflow, look, even speaking of the Ensemble Practice, I’m keenly aware that if I keep all the equity and I keep all the cashflow, yeah, I will own it all. But then it will probably not be worth much, and not for very long.
Only for as long as I’m willing to do all the things that I’m going to do, and only for as long as I work. On the other hand, if I happen to sell half of my equity to my partners who are contributing to the firm, who are handling clients, who are bringing clients, who are developing the intellectual property and intellectual capital, who are building new things together with me, then what I retain becomes that much more profitable and that much more valuable. That’s the whole idea. By sharing, you grow what you keep, and by sharing, what you keep becomes ultimately much more valuable than the things you otherwise can hold onto.
Michael: Well, and again I feel like that’s the piece that often gets forgotten, is what does that next generation owner do to contribute to the growth of the business once they feel like they’re an owner and they have a stake in the business? If you sell them whatever, if you sell them 10% of the business and then they help you double the business, guess what, double the business when you still own 90% of it is worth way more than 100% of it grown on your own shoulders and only your own shoulders.
Philip: Oh yeah, the math works in so many ways. But in order for this to really work the way it’s supposed to, a number of factors have to be in place. The first one has to be, you have to be very selective about who are your partners. And that’s a mistake firms very often make. They try to please people by making them partners, but they don’t really believe they have earned the right to be partners.
Michael: So the difference between making someone a partner because I don’t want them to leave with the clients they’ve got versus making someone a partner because I believe they can actually bring in more clients and grow the business.
Philip: Yeah. Only make partners those that are truly deserving. They have shown you the passion, they have shown you the capability, they have shown you the talent. Be highly selective. And I think it will be easier than to actually share equity with those that you can see are high potential, high contributors.
Michael: But what does deserving mean in that context? Because I feel like, again, that’s different things to different people. Like when you say, only give it to the partners that are deserving, what do you have to demonstrate or show or do to be deserving?
Philip: Always an excellent question and always a question that every firm has to ask for itself and define for itself. Much like success, it’s not something you can copy and paste from the PowerPoint presentation of somebody else. Don’t copy and paste partnership criteria. You have to develop your own. Generally I would use the word contribution. And in different firms contribution will be different things. Typically that means that that person has demonstrated that they’re an excellent professional, that if it’s an advisory firm, they’re an amazing advisor, if it’s a wealth management firm, they’re a great wealth manager, if they’re an investment management firm, that they really are a great investment manager. In other words, they’re at the top of the professional skillset. Not just okay, but really they are one of the best people we have in terms of professional skills.
I think number two is they have to demonstrate that they can actually maintain and retain client relationships, that we can give them clients and they cannot just hold onto those clients with their life, but they can actually make those clients excited about working with them, they can provide excellent client service. And again, a very common mistake I see many firms, where there are partners who have never been along in a client meeting, that at the end of the day, the clients are still calling the founders when something important happens, and the other partners are more or less still helpers, second chairs. So reserve it for those that are capable of maintaining client relationships on their own, and not just maintaining them, but really just taking control of them.
Number three, and this is a thorny subject, but I always feel that a good partner should be able to contribute to the growth of the business. You and I spoke just minutes ago about how important growth and opportunity is. If someone’s going to be a partner, they’ve got to be able to contribute to the growth of the firm.
Michael: Meaning you’ve got to be able to bring in business and get clients.
Philip: You’ve got to find new clients. This industry for some reason is acting like bringing new clients is some kind of a dirty job we only do in the dark and don’t talk about it.
Michael: The evil of business development.
Philip: Yeah, but it’s a vital, vital part of being an advisor. And frankly, if advisors are really about helping people, what’s wrong with helping more people? Why are we so shy about it? That doesn’t mean run around the neighborhood with a billboard strapped to your chest shouting the name of your firm. Just, you know, continue looking for opportunities, continue looking for places and methods to grow the business, and if you’re really good at what you do, you should find it not that difficult to do.
It always amazes me, so riddle me this. Time and again I have this conversation where we’re describing a professional, and somebody says, “Well, you know, Philip is a good professional and clients really enjoy working with Philip, and Philip is really good at client service, but he’s really not good at business development. He’s never brought in a client.” And I’m thinking, okay, if we look at industry statistics coming out of Julie Littlechild and out of a variety of surveys, something like 60-70% of leads come from existing clients.
So how can Philip be good at servicing his existing clients but not get those referrals? Something’s wrong here, and the answer is very simple. Think of the last hotel you went to. What was the last hotel you went to, Michael?
Michael: The last hotel I went to was the Dallas Fairmont for our XYPN Conference.
Philip: Yeah, how was the Fairmont?
Michael: It was nice, it was a good hotel.
Philip: Exactly. So literally what’s what happens with client relationships. It’s like, if somebody asks a client, “How is Philip as a professional?” “Yeah, he’s nice. He was okay.” Then the question is, would you recommend the Dallas Fairmont to a close friend of yours?
Michael: Yeah, I guess. If someone said they were going to Dallas, it was a fine place.
Philip: Exactly. If someone said, “Well, do you know a hotel in Dallas?” you might say, “Try the Fairmont.”
Philip: And that’s the same, if someone was to say, “Do you know a good advisor?” someone may say, “Well, try Philip.” You know how often clients ask around for the name of an advisor?
Michael: Fairly often, but casually.
Philip: According to Julie Littlechild, it’s only about 1% or 2% of the time. So if you were to take 100 clients, only one of them is potentially asking for a name somewhere.
Michael: Oh, like actually asking for a name.
Philip: Yeah, actually asking for a name. It’s very rare. This is why supposedly good service people don’t develop businesses. They are okay. They’re kind of like the Fairmont. They’re adequate. You know, clients are not upset, and they would stay with them, but they have not created any unusual experience that would make someone go out of their way and say, “You know what, you should try this place. It’s an awesome place, and if you’re not going to Dallas, consider going only so you can stay there.” That’s the kind of place that gets referrals, and that’s what a referral looks like, and I think that’s the reason why so many professionals are labeled as “good at service, not good at business development.” The reality is they’re not that good at service. They’re okay at service. But anyway, I’m starting to sound very judgmental.
All I’m trying to say is that I think a good partner has to be really excellent at client service and has to actually contribute to the growth. They’ve got to find a way to contribute to growth. That’s not to say that people who don’t bring in new clients cannot be partners. There are always careers in operations and investment management and other areas of the firm that are not going to develop new business, but I would compare that to almost like the goalie on a soccer team or a hockey team, if you prefer. A good soccer team needs a good goalie, no doubt about it, and you’re going to lose a lot of games if you don’t have a good goalie. But if you have a team just of goalies, you’re not going to win any games either. You’ve got to find people who score. So by all means, make your goalies partners, but don’t create a partnership team made out of goalies.
Common Challenges To Overcome When Growing An Ensemble Practice [1:30:40]
Michael: That’s a good way to put it. So as we come toward the end here, the one other curious thing I have to ask you, you do a lot of consulting around partnerships and introducing G2 and bringing them up, and I feel like you have a unique perspective on this because you’ve actually lived both sides. You pursued a partner track with Moss Adams from entry-level analyst to becoming a partner, and then you’ve introduced a partner in your consulting firm, and I find most consulting firms are remarkably similar to advisory firms at the end of the day, around what we do and how we’re structured. So you lived both ends of this. Any lessons learned from either having become a partner or having introduced a partner about how to do this well or, I guess alternatively, what to avoid, that’s been challenge as you’ve seen going through it?
Philip: I would probably say the first lesson really goes to G2, and very much my plea to them is, be patient. It’s a strategy with minimum chances of success, asking young people to be patient. Young people by definition are not patient, and they shouldn’t be, but to the degree that you can, be patient. You have a long career ahead of you. The day will come when you forget when you made partner at Moss Adams in eight years, or was it nine years? Was it 10 years? Was it seven years? I really forget, and it really doesn’t matter that much anymore. And you know, especially when you’re younger you almost have this sense that your career, the pinnacle of your career is going to be making partner. It absolutely is not. When you become a partner, you’re just going to see another horizon of careers and opportunities and things that you want to do ahead of you.
Don’t rush it, because it’s not the finish line. It’s just the beginning of another race, and it’s the beginning of something else. More importantly, along the way, create good relationships around you, and that really is kind of one of the mistakes that I personally made. Be good friends with your colleagues. Learn from your colleagues. I, personally, at times was guilty of treating them as if they’re my competitors, that somehow we were all racing to become partners, and there’s only one partnership available, so whoever gets their first. That’s not true at all. In a good firm, there are many, many opportunities to by a leader, to be a partner, to be an owner, to be a contributor. Don’t treat the rest of your team as your competitors. They are your team, they are your friends, they are the people who are going to help you. I would also say find your mentors. Most of the things I’ve learned, I’ve learned from somebody else. You know, good mentors, you almost have to proactively go out and find them. Not every firm is going to assign you a mentor, and even the mentor you get assigned may not be the mentor you really want or the mentor that fits best with you.
Look around and look for the person that really impresses you, and ask yourself, “Who do I want to be like?” and go to that person and ask them for advice and proactively seek their guidance. And you might find that they’re willing to give it, and that person is very valuable in your career. I would also say, you know, not to be too cavalier about it, but the sheer mechanics of compensation and partnership and buying equity and selling equity and things like that, those details are certainly important, but don’t break relationships over small details. Once again, remember that a firm is almost like a ship. Let’s call it a pirate ship. If the ship is sinking, it doesn’t matter if you’re the first to drown or the fifth.
Michael: That’s a good point. The ship’s going down. You’re kind of doomed either way.
Philip: Everybody is going down. A firm is a ship without lifeboats. You’ve got to remember that, first and foremost, the firm has to be successful. So if you have a successful firm, and if you believe that this is a good firm, then look at it in a long-term view. Whatever equity you have in that firm, it will make you successful and it will create wealth for you. And also, be careful. You’ve got to look at your own plate. You know in a restaurant, if you’re going out with a group of people, that happens every time. As soon as the food arrives, everybody kind of starts looking around to see what everybody else got, and you can tell by their faces they’re trying to mentally decide if what they ordered was better or worse than what their neighbor ordered. In a firm I would probably say look at your own plate. Too many times I’ve spoken with people who are bitter and having a miserable time and poisoning their life with thoughts about what somebody else got. They’re making more money, they’re less deserving, how they should be having this opportunity or that. Those things can poison your life, and for no good reason. Long-term, I guarantee you that almost in every single firm that I’ve ever worked for or worked with, those that are the best contributors tend to do well, and those that are not such good contributors, they can fake it for a while or they can grab a reward here or there that wasn’t theirs to have. But long-term they just don’t have that success.
And then for all the founders I would probably say just pay attention to your people and spend a lot of time with your people. They need your time. It’s a lot like having kids. You can send them to good schools, and you should, you can send them to good soccer coaches, and you should, but there’s nothing like playing catch in the backyard and talking to them. That’s where the experience is. That’s what being a parent is for. Spend more time in the backyard playing catch with your best employees because they are the future of your firm, and not just the future. Very often they are the present of your firm. You can’t achieve much past a certain stage in your career without the team around you. And that’s the one lesson that I’m still trying to personally learn, is how do I spend more time with my team, how do I do more for my team, because they’re doing so much for me and I can’t really practice without them.
Michael: Amen, amen. Well, so as we come to the end here, this is a show about success, and as you noted during the discussion, success means different things to different people, sometimes different things to us at different stages of our career. As we said, it might even take 10-15 years to get some sense as to what it means to you, and it can evolve from there. So from your perspective, kind of on the third arc of your career now, the first was Moss Adams, the second was this person at Fusion, now the third is running Ensemble Practice, I’m wondering what you look towards from here and how do you define success?
Philip: My personal definition of success, I would love for the Ensemble Practice to be known as the premier consulting firm in the industry. Of course, premier is a term that, by itself, deserves some kind of a definition, but I would love the firm to be one of the first names that are mentioned in a conversation between advisory firms that are trying to grow faster, be more profitable, have a better partnership. I would love for us to be the firm that works with the largest, the fastest growing, and the most valuable firms in the industry. Sort of, we are defined by the success of our clients. If our clients are successful, we are successful, and we would like to work with the most successful firms in the industry and we’d like to contribute to that success, not just be the beneficiaries of it. But we’d like to contribute to that success. And you know, in some interesting ways, you know…You’re recording this podcast. Let’s say 10 years down the road I would love for you to be recording it with one of my partners, perhaps a partner that doesn’t even work for me at this point in time. And maybe she or he mentions me in the conversation, or maybe they don’t, and that’s a good thing. I would love for the Ensemble Practice to be a true ensemble, let’s put it that way.
Michael: I love that. Nothing better than building Ensemble Practice toward being an ensemble practice. Well, thank you so much for joining us and sharing some of your own story and journey and wisdom and insight about what it takes to build an ensemble practice.
Philip: Thanks so much, Michael. It was a pleasure. It always is a pleasure talking to you. I feel like you and I have had this conversation probably in a bar many times at different conferences or at least segments of it. So I very much appreciated the invitation and hope you have a great week ahead of you.
Michael: Wonderful, thank you. You too.
Philip: Thanks so much.