Welcome back to the forty-fifth episode of the Financial Advisor Success podcast!
My guest on today’s podcast is Rebecca Pomering. Rebecca is the Chief Practice Officer of Moss Adams, a mega-accounting firm with more than $600 million in revenue and 2,800 employees… which includes a wealth management division with more than $2.1 billion of AUM, and an advisor consulting division that originated benchmarking studies for financial advisors.
What’s fascinating about Rebecca, though, is her own personal career across all of these business lines at Moss Adams, having started as a 23-year-old in the firm’s financial advisor consulting division, becoming a partner with Moss Adams by the time she was turning 30, taking over as CEO of Moss Adams Wealth Advisors at $800 million of AUM right before the financial crisis and nearly tripling the size of the firm in the 7 years after the market bottom… and now becoming the Chief Practice Officer of the entire Moss Adams enterprise, applying her practice management expertise across all the professionals in the firm’s 28(!) industry niches.
In this episode, we talk in depth about Rebecca’s lessons learned in practice management in a career that’s spanned consulting, leadership, and executive roles, with a particular focus on how to structure compensation for employee advisors, why bonuses should be tied to both business development and the profitability of the firm, and why it’s a good idea to share your advisory firm’s income statement with your entire team so everyone understands how the business really works.
We also talk about the challenges of growing a wealth management firm within an established accounting firm (which makes a lot of sense on paper, but is much more difficult to implement in practice!), why accountants actually feel that it’s risky to make referrals to outside financial advisors (but can be even riskier to referral internal financial advisors at the firm), and her lessons learned in taking over Moss Adams Wealth Advisors right before the market crash… and the changes she had to make to keep the firm on track.
And be certain to listen to the end, where Rebecca talks about how she established her own credibility as a young consultant by focusing her expertise into a particular niche, and how, even and especially at the size of Moss Adams crossing $600 million of revenue, Rebecca still sees the firm’s path forward as being entirely focused about going deeper into niches. Which at the size of Moss Adams and its 2,800 employees, actually means going into 28 different niches simultaneously!
So whether you’ve been contemplating your own firm compensation for employee advisors, wondering how transparent you should be with financials within your firm, or interested in the challenges of growing a wealth management firm within an established account firm, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- The major challenges of growing a wealth management firm within an established accounting firm (and how to improve your messaging to make this easier). [14:38]
- What makes accountants hesitant to make referrals to outside financial advisors—and even more hesitant to make referrals to advisors at their own firms. [18:59]
- What advisory firm owners should consider if they’re worried about the next downturn in the market. [28:46]
- Changes Rebecca had to make to keep Moss Adams on track through the 2008 financial crisis. [33:18]
- How to structure bonuses tied to both business development and the profitability of the firm. [43:05]
- How Rebecca established her credibility as a young female consultant. [1:09:22]
- Rebecca’s take on how the advisory industry is likely to evolve. [1:29:04]
- Why Rebecca believes it is important to develop a niche. [1:35:07]
- How Rebecca’s priorities changed throughout her transition from the consulting end to the implementation end. [1:37:17]
- Why it’s a good idea to share your advisory firm’s income statement with your entire team. [1:39:59]
- Rebecca’s advice for young advisors just getting started in the industry. [1:42:01]
Resources Featured In This Episode:
- Rebecca Pomering – Moss Adams
- Mark Tibergien Interview: Episode 5
- Philip Palaveev Interview: Episode 40
- Practice Made Perfect: The Discipline of Business Management for Financial Advisers by Mark C. Tibergien and Rebecca Pomering
- Practice Made (More) Perfect: Transforming a Financial Advisory Practice Into a Business by Mark C. Tibergien and Rebecca Pomering
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Full Transcript: Compensating Employees For Generating Profit Instead Of Revenue So They Understand The Advisory Business with Rebecca Pomering
Michael: Welcome, everyone. Welcome to the 45th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Rebecca Pomering. Rebecca is the Chief Practice Officer of Moss Adams, a mega accounting firm with more than $600 million in revenue and 2,800 employees, which includes a wealth management division with more than $2.1 billion of assets under management, and the consulting division that originated benchmarking studies for financial advisors.
What’s fascinating about Rebecca, though, is that her own personal career spans across all of these business lines. Having started as a 23-year-old in the firm’s financial advisor consulting division, becoming a partner with Moss Adams by the time she was turning 30, taking over Moss Adams Wealth Advisors at $800 million of AUM right before the financial crisis and nearly tripling the size of the firm in the 7 years after the market bottom, and now applying her practice management expertise across all the professionals in Moss Adams’s numerous industry niches.
In this episode, we talk in depth about Rebecca’s lessons learned in practice management in a career that spans consulting, leadership, and executive roles, with a particular focus on how to structure compensation for employee advisors, why bonuses should be tied to both business development and the profitability of the firm, and why it’s a good idea to share your advisory firm’s income statement with your entire team so everyone really understands how the business actually works. We also talk about the challenges of growing a wealth management firm within an established accounting firm, which makes a lot of sense on paper, but it’s much more difficult to implement in practice, why accountants actually feel that it’s risky to make referrals outside financial advisors, and can be even riskier to make referrals internally to advisors at its own firm, and Rebecca’s lessons learned in taking over Moss Adams Wealth Advisors right before the market crash and the changes she had to make to keep the firm on track.
And be certainly listen to the end, where Rebecca talks about how she established her own credibility as a young consultant by focusing her expertise into a particular niche, and how even and especially at the size of Moss Adams crossing $600 million of revenue, Rebecca still sees the firm’s path forward as being entirely focused around going deeper into niches, which at the size of Moss Adams and its 2,800 employees actually means going into more than 2 dozen different niches simultaneously. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Rebecca Pomering.
Welcome, Rebecca Pomering to the Financial Advisor Success podcast.
Rebecca: Thanks so much. I’m happy to be here.
Michael: I’m excited to have you on because you’ve had, I think, a really fascinating journey just for your own career. You were at Moss Adams and in the consulting division and, you know, in the past couple of months we had both Mark Tibergien and your, I guess former coworker, former partner Phillip Palaveev on, and I know you have some very interesting perspective about the consulting days. And then you actually shifted internally at Moss Adams. So Mark left to other firms, Philip went other directions. You actually stayed at Moss Adams and became the CEO of their internal very sizeable RIA and grew it for a number of years. And now I know you’ve actually shifted further to the point where you are the chief practice officer for the overall Moss Adams umbrella, which is an absolutely enormous accounting firm.
And so I feel like you bring very interesting perspective. There’s sort of this…I know to me there’s just like past, present, and future effect that you can talk about, consulting and what the business looked like in the past, the RIA business and what a large firm looks like today, and I think a little bit of our future because there’s a lot of discussion in the industry these days that over the next 10 years we’re going to see a couple of, like, large national advisory firms come together and create a real national footprint to become market dominators. And I know a lot of the predictions around that is because that’s what happened in the professions of law and accounting. And Moss Adams is certainly one of those firms. How many accountants at the firm now? Like, how many professionals are there?
Rebecca: We’ve about 2,800 people at the firm, about $600 million in revenue.
Michael: Twenty-eight hundred people, $600 million in revenue. Where like, for a large billion-dollar RIA, it’s like, woo-hoo, we are one-sixtieth the size of Moss Adams. I mean, that’s just kind of a mind-numbingly large numbers to me. So I think there’s some interesting perspective that I’m hoping here you share around what does the future of the industry look like. Maybe what lessons can we learn given how this has really evolved in the accounting space, as you are bearing witness to at the executive level of such a large accounting firm?
Rebecca: It’s great.
Michael: But let me start with kind of the present and the RIA. I realize it’s definitely not the present for you because, as we’ll talk about a little later, you transitioned out of the RIA last year to take the higher executive role now that you have at Moss Adams itself, but can you paint a little bit of a picture of us for Moss Adams Wealth Advisors? So the RIA division. Like, what did you do there? Who did you serve? How did you size that business?
Rebecca: Yeah. Well, just a little bit of background on that business. So Moss Adams has been in business over 100 years as a public accounting firm. And back in 2000, Moss Adams decided that we needed to have an RIA to serve our clients. So a theme I think you’ll hear from me over and over is I think every time we put our clients’ needs at the center of our decision-making, it guides us in the right direction. And that’s what Moss Adams did back in 2000 and said, “We either need to start an RIA or acquire an RIA, but we really need to be in this business to serve our clients well in an integrated way.” And at that time we ended up buying an established RIA practice here in the Seattle area. They had about $200 million of assets at the time and joined Moss Adams in 2000.
Michael: That was actually a sizable firm back. Like, $200 million in 2000 was actually a big firm. I mean, I’ve looked at your Moss Adams consulting studies from back then and the median firm was like $18 million or something, so $200 million is a big firm at the time.
Rebecca: It was. It was a good-sized firm with multiple partners. They were, at that time, still affiliated with an outside broker-dealer, but they were transitioning to a fee-based model back in 2000. But yes, they were a fairly evolved firm even at that time. And like I said, we had evaluated, “Do we start one up or do we go with something that’s already established?” And it ended up being the right direction to gain some instant scale and building that business. Because Moss Adams was a sizable business at the time and we thought we need to start with some scale in order to have the kind of presence that we need to serve our clients. And that started as a Seattle-based business, and then that RIA pretty quickly moved down the West Coast into some of Moss Adams’s other locations.
Michael: And so, like, I’m just curious what that looks like. I mean, Moss Adams…what was the rest of the business of Moss Adams that they’re creating this? I mean, we’ve seen other…well, we’ve seen CPA firms for 20-plus years saying, “Hey, we do all this tax and accounting work for our business owner clients, we should offer financial planning and wealth management for them as well,” and then they go and do that. But I know Moss Adams is much larger than that. You’re in lots of different industries all over the place so was there a…like, was there a particular impetus to this? Like, you had a group that was working with executives and said, “Hey, you know, Pricewaterhouse and Deloitte & Touche have these financial planning divisions for their high-net-worth executives, we should make one of those at Moss Adams.” Like, was it that kind of shift or just they went to your consulting division and said, “Hey, you all are doing something with RIA, it seems like they’re growing, do you think we should make one?” And you said, “Yes.” Like, where did this come?
Rebecca: There were actually two impetuses, I’m not sure what the…there were two impetuses that got ….
Michael: I’m going with impetus.
Rebecca: …that got that started. And one is we served individual clients, so we did financial planning on the CPA side of the practice. So they did planning and felt like they were helping clients, individual clients with their long-term planning but then weren’t in a position to help them implement on the investment side. And so they would sometimes craft those recommendations, but they really wanted a fee-based, high-quality option to implement. So that was one impetus.
The other one, which is actually a little bit different than the big four strategy in this industry, or maybe it was the big six back at the time, but the difference there was the vast majority of Moss Adams client base is closely held businesses. So we do serve public companies but have always…the core of our business has always been closely held businesses. So as we saw our closely held businesses going through transition, our ability to serve those clients, you know, we had helped them with the startup of the business, the building of their business, the building of value, and then we were helping them with the transition of their business.
And while we could help with the financial planning component, that wasn’t as deep an offering as we wanted on the financial planning side, and then we weren’t able to help with the implementation. So we were carrying these families and their businesses so far in their evolution, and then, you know, we couldn’t continue to serve them after they sold their businesses. So we really felt like to complete that lifecycle, and then, you know, many of those clients, as you know, they sell a business, a few years later they want to start a new one, the opportunity for Moss Adams to really serve a client through its lifecycle and then through the multiple generations of that family, it was just such a great opportunity to enhance that comprehensive integrated offering as a firm that is pretty unique compared to other firms in our footprint.
Michael: I mean, it makes me giggle a little bit just for so many of us on the independent advisor side, right, our dream is finding small business owners that are having a liquidity event. They have needs, they have financial planning questions, there’s money in motion, like, all the things that you need to make this a good client acquisition opportunity, we’re all struggling to figure out how to find them, and you’re sitting there with Moss Adams like, “Oh, yeah, we’ve been working with them for the past 27 years. In fact, we’ve been doing this for 100 years with small business owners.” Like, “Oh, yeah, I guess I see the synergy.”
Rebecca: Yeah, right, there’s the synergy? What’s really ironic, though, is I wrote a column for Financial Advisor Magazine back when I was in the consulting side of the business. So in 2008, early 2008, when Moss Adams CEO asked me to consider moving out of the consulting group and into the RIA group to run that group, I said, “Gosh, no. I actually just wrote an article about how accounting firms and RIAs work together in theory, but it doesn’t really work that well in application. I can’t possibly take a job that I just said is the worst idea in the world.” Like, I do recognize, like you said, that the theory of those two things fitting together and a theory I described of how to serve a client through their lifecycle, it’s not as easy an implementation as it looks on paper. It’s the perfect business model, but as you know, those industries have very different cultures.
And that’s actually why they asked me to take that role in 2008. They said, “You know, someone that’s been at Moss Adams for 12 years and understands this firm, understands the RIA industry well.” They really wanted that role to be focused on, how do we integrate that offering within Moss Adams and really allow that to impact not just how we’re marketing but how we’re actually serving our clients? And how can we make sure that more of our clients are having that comprehensive integrated experience with Moss Adams? That was honestly my charge when I took over the RIA in 2008 was grow it and help it get more integrated within Moss Adams, and that actually relates to the role, that’s still the foundation for the role I have now, that’s broader across the firm is how do we continue to really distinguish ourselves in the market by taking advantage of all these services that we can deliver as a broad accounting, consulting, and wealth management firm?
Michael: So since you had this Financial Advisor Magazine article that kind of led up to the ultimate ironic transition shortly thereafter, what were the criticisms that you were putting forth about why CPA firms and advisory businesses don’t work together, or likely it’ll work together, right? Because as we just said, you know, intuitively, the synergy seem obvious, so where does this typically fail in practice? Because I’m going to presume you were writing this article because you were doing consulting with people and had seen this fail in practice.
Rebecca: Yeah. At least I knew what I was getting myself into.
Michael: Yes. So where does this fail? Like, why is it so hard to say, “We do all this accounting work for all these clients, we have intimate relationships with them, we know where all of the money is, they trust us.” Why is it so hard to roll out wealth management services?
Rebecca: Well, I think there are a number of reasons. There are some core sort of cultural differences between the two industries, or at least, you know, if you look back 10 years, people thought there were core cultural differences. You know, CPAs might have perceived themselves as the ones that owned all the integrity, and then financial advisors are these, you know, stock shlocking criminals. You know, there’s a little bit of that reputation of the CPAs or the most trusted advisors, and we have to protect our clients from all these people that are trying to, air quote, “sell them stuff that they don’t need.”
The Major Challenges of Growing A Wealth Management Firm Within An Established Accounting Firm [14:38]
Michael: I feel like we see the same thing in the advisory industry now, right? Those of us that are focused on giving advice, and one of the primary challenges we have to deal with is someone pitched the clients or the prospect and now we’re coming in with some product sale that’s barely appropriate. It will maybe pass a suitability bar, but it’s terrible advice. And I feel like we’re now living that same divide even within the advisory industry, between the subsets that are still focused purely on product sales, because that’s still a huge swath of the total people that call themselves “financial advisors,” and those of us that are focused on the advice that end out needing to defend our clients from external financial product salespeople.
Rebecca: Absolutely. And I think we go to a lot of trouble to understand those distinctions between different types of financial advisors, but the rest the world doesn’t go to that much effort to distinguish them, and at least, you know, 10, 12 years ago were kind of lumping all of those things into one bucket. So when I wrote that article, I do think that was one of the kind of cultural underlying things. I’m certainly, as you know, I’m not saying it’s true or that every CPA thought that, or that it was true across the board or even true the majority of cases, but I do think that was one of the integration challenges was there’s still that protective nature of CPAs even when they’re in the same organization to feel like, “Oh, I need to protect my clients from…I need to protect my client relationships above all else.” We even saw it sometimes on the consulting side. So not even related to the RIA, but, you know, we would have a CPA that wanted us to come in and help with the consulting project and they still really want to hold on really tightly to that client relationship to make sure that they’re protecting that client. They see that as their number one role. I think that’s one of the issues.
There’s also, although accounting is a very old profession, they’re not all that many years ahead of the financial advisory industry in their evolution towards working as teams. And I know that as financial advisors, we looked to the accounting profession, the legal profession, you know, when we started talking about building ensemble firms. A lot of that insight we got from seeing how other professional services firms had developed their teams. And I think that’s so much on the right track, but the instinct of, “I need to control this, I’m going to get rewarded for what is mine,” that is still maybe not pervasive in the accounting profession but it’s certainly not obliterated in the accounting profession. So while the structure might be in place longer in the accounting profession, that’s still a challenge that people struggle with.
So as firms try to integrate the wealth management side and the accounting side, there’s still that, “Well, wait a minute, is this my client and I’m asking you to deliver some service to them but I still own the value in this relationship, and so why would you be getting paid like you get paid on the RIA side when I’m doing all this work on the accounting side and charging for the hours that I bill?” And I think that’s another piece of kind of the underlying…there are some disconnects in those two business models. And I wouldn’t say one is right and one is wrong. I actually think there’s a lot each industry can learn from one another in how they realize value in client relationships. But you try and meld those two things together.
And I’ll go back to my very initial theme of if you put the client and what the client needs at the center, I think you end up always moving in the right direction. But frequently, we look at, “Well, wait a minute, how are me and my people getting paid versus you and your people?” And I think firms, as they try and integrate those services, sometimes get all wrapped up in the internal accounting. And believe me, accountants can get wrapped up in internal accounting, so can financial advisors. And it doesn’t always make that integration seamless. So I think those were some of the challenges when I wrote that article all those years ago. And those are probably some of the challenges that Moss Adams was facing at the time. You know, how do we actually deliver this and, how do we actually get the right team in front of every client all of the time? And, you know, I’ve been working on that here for 10 years now and it’s something we continue to work on.
What Makes Accountants Hesitant To Make Referrals Inside And Outside Of Their Own Firm [18:59]
Michael: So I guess the irony for silos contend to form in any kind of business model. And just if I’m the existing accountant working with the client, doing, you know, taxes, small business accounting, and I’ve got the relationship, and I’m getting paid for it, and I’m the closest one to the client, that referring the clients to an external financial advisor really at the end of the day is just about as scary as referring it to an internal financial advisor in some other wealth management division of my own accounting firm because at the end of the day any…as soon as I have to share the relationship with anyone beyond me, it’s pretty much the same level of scary? Is that basically where it breaks down?
Rebecca: Yeah. I think that’s true. And if I refer them to someone inside my own organization, I might even feel more responsible because that person has the same company name on their business card that I do, and then I’m taking even more responsibility than if I refer them to someone outside where it might feel like, “You know, here are three names of people you might want to talk to,” then it’s up to the client to make the decision, where if I say, “I want you to be meet my partner Erica. She’s amazing. I work with her. I think you’re going to love her.” Boy, that’s a much stronger sense of responsibility that I have for that relationship.
Michael: You know, that’s an interesting point. That, you know, for some of us, like, we feel such a burden on making a referral, that it’s easier many times to say, “Here are three names to call on,” because at least if it doesn’t entirely work out, it’s not really my fault because the client chose which of the three. I just kind of served up the name. Like, you were supposed to vet them all and figure out which one was the best fit. Like, I was just getting you started on the journey. But the minute you make a focused single, “Here’s the one and only one name that I refer,” and it’s in my firm, you can’t even do the version where you sit on the client side of the table and say, like, “You know what? That advisor that you’ve been working with, like, he’s not a good fit. You and I should fire that advisor and find another one.” Like, you can’t do that because the advisor is at your firm, because that’s what happens when you do an internal referral. So it’s an interesting thought that just it hit all those dynamics about how referring other professionals into the picture, like, the stakes that are actually involved when you’re in a trusted advisor position in the first place even if that was the accountant advisor. To refer a financial advisor is actually a very risky thing for that person.
Rebecca: Well, and I think you’ve hit on what I see is one of the keys. And I’m very sensitive even within Moss Adams to this idea of referring work to one another within the firm. If that’s what we’re doing, I think we’re missing out on the opportunity. We’re really missing out on why we brought all these services together into one organization. Because like you said, we could make referrals to anybody and actually we could probably make referrals to people outside of our organization with the less of a feeling of personal responsibility. But if we say, “What do these clients really need? Do they really need to be served by us as an integrated team from day one?” Not, “I’ve been working with you for 10 years and now I’m going to refer you to someone that also happens to work in my firm.” It really has to be part of the team. The actual integration of the work needs to look different than if you were just referring to someone who worked outside of your organization. And I think that’s the missing opportunity for a lot of organizations that are trying to integrate those services.
If you’re looking at it as an internal referral, I still think we have ourselves at the center of that equation because then what we’re really saying is, “Huh, I could probably benefit more from this service if I owned it in my own firm than if I referred it to people outside.” Because if you’re really putting your client at the center of it, you wouldn’t implement it that way. You would say, “Welcome to Moss Adams. We’re so happy to have you as a new client of Moss Adams. You’re starting a new business, let me introduce you to your team. Now, you might only need to work with two people on that team for the next 10 years, but you have a financial advisor on your team, you have an investment banker on your team, you have someone who specializes in, you know, municipal fixed income. You have this broad team at your disposal because you’re a client of our organization, and my job as the person, you know, that is closest to you is to help you navigate all those resources. And they’re going to…your needs will ebb and flow as you evolve as a business and as a family, and it’s my job to make sure the right people from your team are at the table for the right discussions, but we’re all part of your team from day one.”
That’s very different than saying, “Oh, you need to talk to someone about your state and local tax, let me make a referral to my partner.” That’s very different in positioning. And I think it’s something that many of us are still trying to execute on in an optimal way. But it’s a different story and it’s a very different implementation.
Michael: So with that as a lead-in, what did it look like when you showed up at Moss Adams Wealth Advisors into the RIA and in 2008 you made this transition? So, like, what was the size of the firm at that point, how was it structured, and where do they stand on some of these issues of trying to facilitate, but I guess at the time probably it was still internal referrals to the wealth management division from the other CPAs in the firm?
Rebecca: Yeah. Well, it’s a funny question to look back at because I started in that role in July of 2008. And so my plan was, “I’m going to help them do…we were going to do some acquisitions, we’re going to hire some people in other markets where Moss Adams has offices, we’re going to spend some money on internal and external marketing.” I thought I will apply some of the practice management things I’ve learned working with other organizations, and I’ll help them from a practice management perspective. And then I actually thought, “I’ll do that for a couple of years and then I’ll go back to consulting.” That was my plan, was get in there, help it grow. They had just under $1 billion of assets at the time, maybe $800 million, good solid team in multiple locations but looked like a really great opportunity to expand on a really solid business. That was July. And I also thought, “You know, I’ll have used up my whole bag of tricks in a year or two and I’ll need to go back to doing consulting,” and I’d never implemented on anything as a consultant.
Michael: This is kind of the consultant’s ultimate I guess fear or opportunity, I guess depending which side you want to look at it. Like, “Oh my God, I have to actually do all this stuff now.”
Rebecca: Yeah, I just have to implement, and then if it goes wrong I have to fix it, not just fly out. But of course, what happened was three months after I started, the stock market completely fell apart. So my plan of, “I’ll just go in and spend money and acquire things and hire people” completely of course, reshuffled that plan and that priority and instead it turned in, like it did for everyone at that time, an imperative of, “How do we survive as a business while still taking great care of our clients who need us so much more now than they needed us 48 hours ago?” And honestly, as an incoming CEO, that was a very….that job felt much more vital at that point than I had pictured it being when I first started. And I pictured it being more of a growth role, it turned into a, “How do we reshape this business model to preserve our team and really to bring comfort to our clients, and to help them feel comfort that they’re on the right page?” And so it became a very different job than what I had originally envisioned. I cried a lot more in my first six months with that team. And I think you’re supposed to as an incoming CEO. It was for the whole industry, as you know, just a very traumatic time. And I was doing that as a new leader of that business.
But I also think…you know, I think very strong things are fused under intense heat and pressure. And some of the changes that we would have needed to make to that business over time, we were forced to make much more quickly. And we retained our people, we kept our team in place, our client retention during that time was very high, but there were some things that we would have wanted to change longer-term. Like the structure of some of our teams, the incentive plan we had in place for our team, those things we would have had to change, our investment philosophy. There were things we wanted to change that we would have changed very gradually, that we felt like we had the, you know, impetus to change much more quickly because of what was happening outside of the business. And I do think it fused a very strong bond among that team that has allowed them to try new things and endure other business challenges in a much more cohesive way because of that intense bonding experience back in 2008.
I wouldn’t say I want to do it again, but I actually think the result of that was pretty strong. You know, that group now has 52 people and about $2.1 billion of assets. So it didn’t only recover from the dip in 2008 but has gone on to build a really strong organization with great clients and a really exceptional team.
Changes To Consider If You’re Worried About The Next Downturn [28:46]
Michel: So can you share a little bit more about some of the changes you actually had to make to keep the wheels on as 2008 unfolded? And I feel like there’s a lot of discussion out there about what really happens to advisory firms the next time the big bear market comes along. And will everyone be able to survive? Will that kind of drawdown blow up some firms? What will they have to do to be able to pull through? So, you know, you were already at the time a much larger firm than most others, and of course, the whole challenge around the AUM model as it grows, you know, the good and bad news is you get more operational leverage in the business. You know, your revenue is bigger but your overhead is bigger, that’s what lets you power for the growth. But that also means when you get pullbacks, like, it quickly magnifies much more quickly. And so what kinds of things did you have to put in place to make sure that just I guess the wheels stayed on and didn’t come off, or, you know, what should advisory firm owners be thinking about if they’re worrying about the next bear market coming along as well?
Rebecca: Yeah. As we look forward to the next time, I think…or not look forward to it in a positive way, but we recognize there will be another downturn at some point. And I do wish we had acted a little bit more quickly. I’m sure everyone has said that in the years that have followed. But you can look back and say, “Oh, if we had done those things six months earlier, we would have been even better off.” But I do think, you know, some of the changes that we made, you know, we did change our investment approach. And that’s something we’d already been talking about. We wanted to bring more consistency to the investment approach among the advisors on the team.
So I mentioned earlier that that organization had grown out of a broker-dealer affiliated organization, and as you know, a lot of those organizations sort of start with a team of advisors that are sharing overhead, but they’re making decisions very independently. This business had evolved well past that in a lot of ways, but there was still some latitude in how people implemented on the investment side. Not wild latitude, but I was coming in as a non-investment person and said, “Okay, I want to be able to describe our investment approach. What’s our investment approach?” And what I found was, well, it kind of depends on which advisor you’re working with. You know, this one’s a CPA by background so he really likes to use ETFs because they’re so tax efficient. This one has a different background. And, like, you know, they were sort of implementing based on their personal philosophies, all of which are very valid philosophies, but it was hard for me to describe what is our overall firm approach?
Michael: And then I’m imagining, like, “The market is falling, you see, we need to get some communication out to the clients about what’s going on.” And you go, “Well we are going to have to write 12 emails for 12 different advisors because the 12 different advisors all do different things and they don’t own the same stuff so you can’t message the clients quickly because you can’t just write 1 investment commentary, you need to write 12.”
Rebecca: Yep, absolutely. But of course, in good times, it’s hard to look at those 12 people and say, “Hey, let’s make a shift. Let’s all get on the same page.” Because they’re all saying, “No, thanks, things are good. I like this story I’m telling and my clients like it. It’s working well for them. And maybe all 12 approaches in your example, they’re all working. We just don’t have one common cohesive vision about what it is we’re trying to do.” So that’s the kind of change that was much easier to accelerate on the heels of a down market. When we could come together as a team and say, “Gosh, this isn’t efficient like you were saying. We can’t have a firm communication that goes to clients if we’re taking slightly different angles on these issues.”
And it’s important at that size of an organization to be able to have a cohesive compelling story, which does mean there are people whose preferences and desires and philosophies might not fit with that model. You know, if you’re someone who really wants to hear a stock tip on the radio and come in and implement that in your client portfolios, that’s not what we’re going to do. And if that’s the business you want to be in there isn’t a long-term fit between your philosophy and our philosophy. So those discussions are really hard, and those are the kinds of things that we got to accelerate, that we were forced to accelerate. And we needed to accelerate and had the excuse to do so in that market.
Changes Rebecca Had To Make As A Result Of The 2008 Financial Crisis [33:18]
Michael: So if the advisors often were kind of at least running their mini-silos around their investment process and what was comfortable for them, did you also have, I guess is often the other common challenge for firms that grow up that way, you know, advisors are all getting compensation tied to their revenue under management, and was that a comp structure in place that you were working with as well, and was that something that you had to change as the financial crisis came through?
Rebecca: It wasn’t, luckily. They were about two years from having made that transition already, so they had already gone through the transition of, “If you’re the primary advisor you get X percentage, if you’re the secondary advisor you get Y percentage.” That had been their comp model, but they had already changed that after I joined Moss Adams. So that might have…they might have made that transition in about 2006. So they were already…
Michael: So they were getting paid like salary plus bonus kinds of structures?
Rebecca: Yes, yep. And the partners in that group were being paid like business owners, like any other partner in the firm, but it’s interesting you mentioned that because even though they were a couple of years off the heels of that, as anybody out there that’s gone through that transition knows, it takes more than a couple of years to get that out of your mind, and out of your blood and to establish that trust of, “Well, are you sure we’re not going to go back to that model? Am I really safe if I transition clients to other people? Is this really going to work or am I going to regret putting trust in this system?” So two years sounds like a long time, but I still think we had remnants of that in our behavior pattern. And that was another thing we had the opportunity to address in that process.
Michael: Well, so then I’m imagining for the flip side, “Great news. We got away from a revenue-based compensation and into a salary structure.” And then the revenue goes down in a bear market and you’re thinking, “Well, if we were still tied to revenue then all of the advisor compensation would have gone down in the bear market and we could have saved some costs. Now we have to pay people salaries and the AUM revenue is declining.” So did that make the problem worse in a bear market, that you didn’t get the natural dampener of, “Hey, at least if we pay a percentage of revenue, when the market declines and the revenue goes down so does the advisor cash?”
Rebecca: Yeah, I do think it did make that one dial a little bit more challenging, but I still think the underlying advantages of having been on that system having already worked our way out of the percentage of AUM pay structure allowed us to more quickly rally around what we needed to do as a business and do for our clients, where I think if people had still been on a percentage of what they managed, I just think that by nature drives individualistic behavior. And what could I do to preserve something to preserve, my compensation, and instead we came out of that saying, “What do we do to take care of our clients and take care of our business?” And got people immediately focused on what we needed to do as a firm.
I think that there were missing pieces when we made that transition from a percentage of AUM payment to our advisors in that we didn’t have a lot of incentives in place or bonuses in place that were related to our business performance, especially for non-partners. I mean, the partners in the practice at that time and still today, you know, their compensation is directly impacted by the profitability of the business, of course, but for everyone…
Michael: Because they literally share in the profits…
Rebecca: Yes, exactly.
Michael: …so they care a lot about profit margin?
Rebecca: Exactly. But for the rest of our team, there weren’t a lot of triggers for them to understand how that year was going to impact their opportunity for their compensation to grow or their opportunity to earn bonuses. We didn’t have a strong business development incentive plan in place at the time nor did we have really defined expectations around how we wanted people to contribute to ongoing growth. So I think having those things in place before the market downturn would have helped us recover more quickly because it would have been very clear what people needed to do to help the business grow, and we hadn’t gotten that stuff in place yet. We hadn’t done as much as we needed to to educate people around, you know, how…I mean non-partners. To educate our non-partners around how the economics of the business work and how that impacts our profitability, and how that impacts our ability to compensate and hire new people.
Michael: So can you share a little of what you took it to then? It sounds like you had a lot of rewriting of comp plans and bonus structures coming out of the 2008-2009 transition. So what did that structure look like by the end? Like, how do you do this salary plus bonus structure right?
Rebecca: Well, one of the things…one thing that had happened as we had moved people to salaries, non-partners in particular, there wasn’t a lot of discipline around what those pay ranges looked like. So as opposed to saying a financial advisor gets paid in this particular range, we sort of picked numbers, not randomly, but picked numbers, and then some people would come back after a year and say, “I’d like more,” and we’d say, “Okay.” And they’d say, “I want this title,” and we’d say, “Okay.” You know, the accounting firm titles didn’t particularly mean anything to us, or the levels didn’t really mean anything. So we had put people into titles and roles and levels and pay ranges that probably weren’t appropriate for the roles that they were playing.
Now, there were some people that probably weren’t making what they should. They were making less than they should and then there were some people that were making quite a bit more than they should. And the COO at the time, he had also come over from the consulting group with me and we had both grown up in the midst of all those studies we did for the industry, so we had a pretty good sense of, you know, what a pay range looks like for different roles, and we were just getting our arms around what do the people on this team do? So, you know, you’d look at someone’s pay and say, “Well, based on their pay, I assume they’re going to be able to handle this level of work,” and then you’d learn, “Oh no, they’re not meeting independently with clients, they’re not in a place to give advice,” and you’d say, “Well, then their pay is probably, you know, about double what it should be.” And in a good market, we would have had to say, “So we’re going to hold their pay in place for the next five years. They’re not going to get any increases while we wait for the range to catch up with them.”
Michael: Eventually they’ll grow into their position or inflation adjustments will grow the benchmarking data to their current comp.
Rebecca: Exactly. And that’s a slow way to fix your salary structure, very, very slow.
Rebecca: We were able to do that much more quickly. And we said, “Everyone in three of the job levels is going to be taking a pay cut.” And we didn’t define…it wasn’t a consistent percentage across because for some people, that was a 2% adjustment and for some people that was a 15% adjustment to get them into the right place in the range.
Michael: So just the crisis of the market kind of gave you an excuse to do the comp cuts that needed to be done anyways because you can say, “Hey, like, it’s not just us, it’s the market. Everybody needs to take a cut, parenthesis, but yours happens to be larger because you were overpaid.”
Rebecca: Yep. And as a comp consultant, I never would have recommended. You never recommend pay cuts to clean up a comp system. But what we did say at the time was our priority is keeping our team in place so that we can take care of our clients. And we can’t keep our whole team in place and take care of our clients at the pay levels that we’re currently at. And some of these are out of whack, to begin with. So this has something to do with the market. The timing has to do with the market, but these were problems we were going to need to fix over time anyway. So I am, as you know, very straightforward and honest, and tried to really help people understand what was happening in the business. And that we weren’t doing this to be vicious nor were we doing it to accelerate the business changes we needed to make.
At the core of it, we were doing it because we believed we had a very high-touch business model. And while some organizations that aren’t as planning-oriented or aren’t as high-touch, they could cut their staff in half and it wouldn’t have a direct impact on their clients. It might have a direct impact on how many people they have to do investment research, but our people were all client-facing and we said, “We can’t meet our clients’ needs with a smaller team at this point. We really need these people in place, and we want to keep all of you and therefore we need to make some adjustments, but at the same time we’re going to put a bonus plan in place so that when we are profitable, you will all share in that in a way that you would not have shared in it before. And we’re going to educate you on the drivers of that profitability so that we could all have an impact on taking care of our clients and regrowing the profitability for our business so that our whole team can participate in the upside as well.”
Because they certainly participated in the downside and made huge personal sacrifices to take care of our clients, not just on the side of their pay but in the, you know, in the level of emotional commitment that they were making to their clients and the hours that they worked. And, you know, as you know, it was a tough time for the industry. And I would say their pay is one of the smallest sacrifices that they made at the time.
How To Structure Bonuses Tied To Both Business Development And Profitability [43:05]
Michael: And so what did that bonus structure look like going forward? You know, if you’re trying to give them some upside potential, particularly since they just bore some of the downside on their salary, but you’re salary-based, you’re trying not necessarily to go straight back to percentage of revenue, what did you end out with as a comp structure?
Rebecca: Yeah, we had two components to that bonus plan. They still do. So the first one is related to the profitability of the firm, and that everyone in the firm participates except for the partner since the partners are already participating in the profitability. This is a pool that’s just for the non-partners in the organization. So at this point, that’s about 45, 46 people that participate in that component of the plan. And that includes administrative assistants all the way up to senior managers, which is the level here just below partner. So everybody participates in that plan. And what we do at the beginning of the year is say, “We need to hit a certain profit hurdle to really be profitable as a business.” So to cover our overhead, because we’re part of an accounting firm, there are some expenses that we have to cover associated with that. So we calculate as a dollar amount. We kind of have to clear this hurdle before there is excess profitability to share. And then of every dollar over that hurdle, a percentage of that goes into a pool, and everyone participates in that pool.
So how much of that pool you’re eligible for, what percentage of that pool you’re eligible for is based on your job level. So if you’re a senior financial advisor, you’re going to be eligible for a larger percentage of that pool than if you are a six-month administrative assistant. But, you know, everyone knows going in not what dollar amount they’re eligible for, because that’s defined by the size of the pool, but they know going in, “I’m eligible for 4% of this pool, or 1% of this pool, or 6% of this pool, and that’s defined by my level.” Now, how much of that they get is dependent on their job performance and their achievement of their big goals for the year. So there’s a firm profitability component that creates the pool, then there’s a job level component that defines how much of the pool you’re eligible for, then there’s an individual performance component that defines how much of that amount you’re eligible for you get based on your achievement of your goals, which helps us tie in the financial performance with the individual performance management process.
Michael: Okay. And what would this typically add up to, like, as a fraction of their overall compensation? Like, can you give me some context? Like, can this give like a 10% bonus or a 5%, or like, “Hey, you could have a 30% bonus if we have a great year?”
Rebecca: Well, there is no…it has unlimited upside. So in a profitable year, it could…I mean, there really isn’t an upside. The fixed percentage goes into the pool. I would say that once the market turned back around, like if we look at a year like last year or the 2 prior years to that, people’s bonuses from that component were probably in the 5% to 15%. That’s probably how it equated to their base. That wasn’t a calculation we looked at very much, what percentage that ended up being of their base, but that’s what I would guess that piece came out to be. If we had a profitable year and someone had hit all of their individual performance metrics and they were, you know, at a senior level. But those metrics, those individual goals that they needed to hit to maximize their bonus potential weren’t related to how much revenue they managed or how much business they developed. That was purely related to other job goals that they had to accomplish in that given year.
Michael: Well, I know one of the criticisms around that kind of model is that, you know, the people who get the bonuses don’t control the profitability. Like, I can maybe impact revenue development, I can maybe impact client retention, but I’m an employee I don’t make cost decisions. Like, managers make those decisions, partners make those decisions. And I at least know some advisory firms that have had concern around this, that it’s a system that’s just too prone to getting gamed by owners who say like, “Haha, you know, we’re going to make a bunch of reinvestments because I already got my profit share. It’s just going to come out of the employee surplus share and…” Right, and I mean, you know, human beings respond to incentives. Like, you’ve got to, you know, worry about that at least a little. Is it just that your firm is at a sigh? It’s like once you’re north of $1 billion the systems and structure are in place enough that that’s not really a concern anymore the way it may be is if I’m a solo advisor with three staff members where really I control all this decision.
Rebecca: No. I think it’s still a concern. It’s still something you have to have the right culture to implement. And I think, especially as a large organization, people could say, “Well, the partners are going to do whatever they can to spend that money so they don’t have to pay me.” I can tell you there was no one here that would have thought that of that particular ownership group. You know, there was a high level of trust and a high level of belief that the owners of the business really wanted to do the right thing by the employees. And we tried to do a lot to educate the firm on, “This is a funding mechanism. You know, the percentage of profit going into a pool, that’s what allows us to fund it. I don’t believe in borrowing to fund a bonus plan so you have to be profitable to fund it.” And I wanted people to understand that. That I think that’s a good business philosophy and a good business decision. And I wanted it to be a bigger pool if we were more profitable. But I wanted them to understand the underlying business mechanics and business intelligence behind a bonus plan.
So I think to say, “You know, at the end of the year, if you meet your personal financial goals you’re going to get a 5% bonus regardless of how the firm does,” disconnects them from understanding how the business really works. And I don’t really buy the argument that not everyone in the business can impact profitability. So I do believe owners get to make decisions that have a big impact on profitability.
And I did feel after we put this plan in place sometimes I felt like I needed to explain to people why we were making investments in technology, or why we were making investments in new people, because they’re looking at that saying, “Well, gosh, Rebecca just spent $100,000 and a piece of that is mine.” Well, they’re right, and I want them to understand not that I felt like I had to justify it, but I wanted them to understand why we were doing those things. And everyone in the organization does have a hand on client satisfaction and client retention, and maybe their role is to minimize trade errors. Maybe their role is to have a big smile on their face when the clients walk in the door, but I actually do want everyone connected to that.
And our people did put a lot more thought into, “Do we need to hire another portfolio administrator?” As an example. Where two years prior we would have heard people say, “You know, we need to hire another one of these people. We need to hire another paraplanner.” Now that they started not wanting to hire but they were much more thoughtful about, “Were there things that we could do to improve the proficiency of our team before we hire? Or, are there roles that could be filled in a different way to kind of maximize how we’re using the people that we have?” And once I heard a couple conversations like that I thought, “We’re on the right track.” And I did. I’d say probably twice a year, within my own organization, so aside from having to defend it to other advisors or defend it when I was a consultant, I would have to explain to people in the organization why I do think they have an impact on profitability. Because the argument you made, I’ve heard from advisors over the years, but I did hear it from people inside. “You know, how much of an impact can I really have on this?”
It also wasn’t…this bonus wasn’t the difference between them making market-rate compensation and not making market rate compensation. So I wasn’t saying, “I’m going to give you a really cheap salary and you can make it up on this profit-based bonus.” That wasn’t the message. The message was, “I’m going to pay you as good or better salary than anyone else is going to pay you, and if we do well as a business, you’re going to participate in that too. And let me tell you what it means for us to do well as a business and how you can impact that.” And for me, if you disconnect that from profitability, you’re not educating your team about how businesses operate. And I think that piece is pretty important.
Michael: Well, and you make a really interesting point that, you know, again, like, the rank and file employees don’t necessarily make hiring decisions, they don’t necessarily control cost decisions, but it does often boil down to every employee in the firm to say, “Do I have the resources I need to do my job well? And, you know, basically, I need more help. I need more coworkers, I need more people working in this area.” And, you know, when they’ve got even just the smallest bit of skin in the game, because they know, “You know, if I pound the table that we need another hire, my bonus is going to be a little bit smaller at the end of the year because I’m going to scoop up dollars out of the bonus pool for this hire that I’m advocating,” it makes you think a little bit more about, “Do I really want to make the case to my boss that we need another person here or can we all kind of buck in together and figure out how to work through this tough spot and not need to hire so we all get to maintain our maximal bonuses?”
Rebecca: Yep. And, you know, I have had people make the argument on the flip side of that, “Well, you know, your people are going to not tell you when they need to hire more people because they’re going to want to maximize their bonus.” And I thought, well, you know, you can’t rely on your bonus plan to manage your team. You still have to manage your team. Your bonus plan is just a method to communicate and share in the results. But, you know, we weren’t leaving it up to our people to make those hiring decisions. I do think it helped them think through the implications. And that’s what I wanted them to feel empowered and excited to do. And, like, they can have an impact on the business because they can have an impact on the business.
Michael: So the bonus based on profitability of the firm was one piece, did you say there was an additional component to the bonuses as well?
Rebecca: There was. There is a business development component of the bonus just for people who were in a role where they were expected to bring in new clients. So while some organizations pay a growth incentive to anyone who refers in a new client, whether they’re a receptionist or a staff, in our organization, that bonus was only paid to people for whom that was a defined part of their role, and that was also not paid to partners. So that was just paid to our two levels of advisors that are not yet partners but are expected to or asked to bring in new clients.
The reason that we did that, and I am sometimes a fan of those kinds of bonuses and sometimes not, it really depends where an organization is in their priorities and the things that they need to work on, but I felt like we weren’t super clear around our expectations of who needed to grow the business and by how much and how that was going to work. And I do think an important part of creating a growth culture and a sales culture is to help people understand what the expectations are. And when our partner group sat down and talked about our philosophy around our incentive plans and our bonus plans, we talked about, “Well, do we think a financial advisor, so let’s say a five or six-year person who’s independently working with clients and they’re a CFP but they’re still kind of early in their career, do we think one who is bringing in a lot of new clients, creating new relationships, should they get paid more than someone who’s playing the same role but isn’t bringing in new relationships?” I think that question is the first question firms need to ask before they put in a business development incentive.
And we said they should. We do think that a non-partner who’s creating new growth for the firm should make more than someone who isn’t but they shouldn’t make vastly more. You know, we don’t want the person with strong technical skills who’s supporting client relationships to make $50,000 a year, while someone with similar technical skills who’s bringing in new clients to make 10 times that. You know, we didn’t…we value that role but we don’t value it vastly more than we value taking care of clients. So we had to have a lot of conversations as a partner group because when we rolled out that incentive plan to the team we had to make it really clear that we didn’t value that responsibility above and beyond taking care of our clients. And honestly, if someone was a great business developer but wasn’t taking good care of their clients, not only were they not going to earn an incentive, they weren’t going to work here. That is a fundamental. Everyone here has to be really committed to taking care of our clients at a really high level. And they can’t do anything that would dilute that, whether that’s develop business or anything else.
So we had to be really clear with ourselves and with our team before putting in that business development incentive because we didn’t want to reshape ourselves as a business development sales organization. We just wanted to tweak people’s sense of responsibility to grow the business and the rewards that they received for doing so. So that, again, and we didn’t want to pay our people a low base and a high incentive for growth. We said again, we want to pay the market rates salary and a kicker if they can help grow the business. So that wasn’t going to be the majority of their compensation like it has been for some people that grew up in other parts of our profession So we wanted to remain consistent with that primarily salary and then a firm-based bonus, and then a growth-based bonus if you’re creating new opportunities for the firm.
Michael: And so again, that makes me wonder, like, do you have a sense as to what that comp would typically add up to relative to…I mean, would you bonus it relative to base, would you bonus it relative to revenue that they brought in? Like, how do you set this number?
Rebecca: Yeah, it was relative to revenue that they brought in. And again, we had a hurdle in place. So we said, “You know, if you’re a senior financial advisor and you’re getting paid a salary of $150,000, we expect you to be bringing in some new business as part of your baseline role.” So they weren’t paid a business development incentive from dollar one. We said, “We expect you to hit a certain target every year, but if you exceed that expectation, then you earn a bonus on top of that.”
And there were some people that didn’t meet their…you know, let’s say they were expected to bring in $100,000 of new revenue in a year or $50,000, I’d say half the team met or exceeded that goal in the initial years and half the team did not meet or exceed that goal. So that business development incentive was zero for some people. And there was one person I can think of maybe two years after we put that plan in place, one of our best, best, best at working with clients also had a really great year in bringing in new clients, and his business development incentive was probably…it was probably over $100,000, maybe $110,000 or $120,000 on top of his $150,000 salary. Now, that’s unusual, but he had a great year and brought in some great clients. And that was a one-time payment, and the next year he started out on those goals again.
Michael: So I feel like there’s a segment of the industry that is accustomed to getting compensated for the business they bring in and that they grow, right, because a revenue sales-based compensation I think is still the dominant model overall, who are probably listening to something like this and saying, “How on earth do you attract good advisors when they don’t have the upside of all the business they’re bringing in?”
Rebecca: Yeah. Well, they do have upside, they just have a baseline expectation we expect them to meet first. So, you know, if someone brought in $1 million of new business in a year, they’re earning a business development incentive on, you know, the $900,000 of that that were over their hurdle. So there is upside. But the pay systems that have a ton of upside, as you know, they tend to have a lower salary. So they might be getting a salary of $45,000, an upside, their payout on that new business is a much higher percentage. But for me, at least, you know, when our partner group talked about that underlying philosophy, to us, that sent the message that we only value the care you’re taking of your existing clients a little bit, and we value your bringing in new business a lot. That isn’t the role of our advisors here. Their primary role is to take great care of their clients.
And in addition to that, we’d like them to find some opportunities to do that for even more clients, but we didn’t want that…you know, I believe that people…I believe incentive plans work, and I believe if your incentive plan say, “What I really want you to do is develop new business,” that’s what people will do, especially good business developers. And we don’t, in that group, have a role that is just business development. We do elsewhere in our firm. We haven’t done that in the wealth management group because we haven’t found that to be as effective in a true wealth management environment, but we could do that, but that isn’t the role of our advisors. So, you know, it probably does limit the upside a little bit for someone who wants to be a full-time salesperson, who wants to primarily be a salesperson, but that isn’t the primary role of our advisors.
Michael: Right. And I guess notwithstanding all that concern, the firm was $800 million in 2008, I would imagine it probably dipped down to $700 million or 6-something in the financial crisis just from the market decline pulling the asset base down, and 8 years later it tripled to $2.1 billion, so apparently, new business was still coming in from somewhere.
Rebecca: Well, and I also think, you know, I would say that pay philosophy, there are other pay philosophies that would allow us to recruit more advisors, but I don’t think they would necessarily allow us to recruit better advisors or better advisors for our clients and our business model. But, you know, when I was running the RIA, and I’m sure Erica who runs it now has a similar experience, we get calls a lot from advisors that are interested in roles at Moss Adams, and when someone’s first question is, “Well, tell me about your payout grid,” and I say, “Well, that isn’t how we pay,” and they say, “I don’t understand, why would I move if you don’t have a better payout grid,” it’s a really quick conversation. “Thanks so much for calling, appreciate your interest in the firm.”
But if someone says, “You know, I’m looking for a model where I can offer really comprehensive integrated services to my clients with an independent high-quality investment approach as part of a really strong team,” they don’t ask about a payout grid. Or at least if they do ask, they’re really interested to know how we’ve overcome that business model. But it does mean I would have extended conversations with 1 out of 20 people, not 19 out of 20 people that are really looking for that business model.
Michael: So where did all the growth come from then? I mean, was this just you found the right combination of people that were business development-oriented but not too business development-oriented, that the balancing act worked, or was this just driven by internal referrals from the sheer size and scale of Moss Adams that once you worked through the rest of it business just started flowing?
Rebecca: Yeah. You know, about half of that growth comes from referrals from existing clients or new assets from existing clients who might have not had all their assets with us to begin with or they go through a transaction and add assets. The other half of that growth on, you know, an annual basis comes from brand-new clients. And of those brand-new clients, some of those are coming in, you know, just from off the street, but most of them are coming from other Moss Adams relationships. Either we’re going to market with Moss Adams, with a comprehensive offering, or a client is working with Moss Adams and the Moss Adams person says, “Hey, I want you to meet this other person who’s on your team,” and then we’ll usually obviously we start with the planning process, take them through that process, and then if we’re the right team to implement on the investment side we do that as well.
Michael: Okay, interesting. And that much business drives it. It’s a big number.
Rebecca: Well, it is. Although, you know, in my role, I would tell you it’s a fraction of what it should be. I mean, we’re a…Moss Adams $600 million in accounting revenue, the opportunity, the number of business owners that we serve, and the number of those right now, you know, over the last 5 years the number of those that are going through transactions, meaningful transactions, it’s a huge, huge number. So $1 billion of growth is a lot, but, you know, I’d like to see that continue at an increasing pace. Because I see that as a metric of, are we really delivering that comprehensive integrated solution that I talked to you about earlier? If we are involved in those client relationships early in their business life, then we’re naturally working with them throughout that lifecycle. I’d still say we’re at about…we’re at a fraction of where I think we should be in delivering on that.
Michael: Interesting, interesting. Even as big as the number has become now.
Michael: Well. So before all of this, you were in a world of consulting with Moss Adams, so can you take us all the way back to the beginning? Like, how did you come to Moss Adams and the world of consulting in the first place?
Rebecca: Well, I actually started with Moss Adams at 22. So out of school with a finance degree and I worked as a controller at a root beer company for about six months and then joined Moss Adams in the consulting group. And I started in the group that was doing benchmark studies and industry research. So that’s really where I started. We had a financial management software and we helped people do benchmarking and did research studies across a broad range of industries. That was back in 1997 when I started with Moss Adams. And it was probably about a year later that I started working with Mark Tibergien on the first Financial Planning Association benchmark study. He was on the board when the IAFP and ICFP came together and really felt like those kinds of business benchmarks…he had been involved in business benchmarking with banks and bankers that were trying to understand the underlying economics of businesses when they were making loan decisions. So he had a background in that as well, and I started working with him on that study when it was brand-new back in ’97 or ’98.
And that very quickly, as you know when you have data in hand, it very quickly led people to ask, “Okay, if that’s what my ratio should look like, how do I get there?” Or, “If that’s what profitability means and that’s what I want mine to look like, how do I get there?” So that very quickly led…and Mark had been a management consultant for a long time. That’s always what he had used that data for, but that really kind of started that foundation of how we were applying that data to the financial planning industry to help people understand the business structure and underlying business economics of running a business. And I say business very deliberately because a lot of people got into financial planning or even investment advice and didn’t have a strong foundation in place for what does it mean to run a business. So while we were never advising people on investments or financial planning, we were really trying to help on the, how do you run a business side?
Michael: Yeah. And we had Mark on the podcast in the past as well, episode 5. So for those who want to go back and listen, just kitces.com/5 for episode 5. I mean, it was fascinating to me because, as you mentioned, earlier, I guess no disrespect to sort of smaller advisory practices but I mean, truly back then most of them were practices. The median firm was I think less than $20 million when the business was getting started, which is actually still a pretty decent income for a solo advisory firm. But, you know, now the median is almost 10X that size in the independent RIA community. And it’s just amazing to me how those benchmarking studies just documented the growth and the evolution of the entire RIA model. And I kind of feel like really the entire fee-based model, because while it started in RIA, it’s now the BD community is adopting that as well. And I think we’re going to see the same evolution in the broker-dealer environment as more and more firms grow larger fee-based practices.
Rebecca: Yeah, it is fascinating to look back at some of those early studies and see how far the profession has come and how much more dedication is given to the business side of the business. It’s been a really incredible evolution.
How Rebecca Established Her Credibility As A Young Female Consultant [1:09:22]
Michael: So it’s the late-1990s, you’re 23 and doing benchmarking studies. So like, what was your role? Were you immediately into supporting and some of the consulting work? Were you actually like a roll up your sleeves and get into the data, like, on that side of it? What were you doing when you got…
Rebecca: Actually, a funny story. My very first job, I told you we ran a financial management software package that related to the benchmark studies, my very first job when I was hired here was to do technical support for that software package. And that was 1997. I hadn’t had a computer class in college. I’d had, like, an Apple IIe or something. I really knew very…nothing about computers, but managed to get that job anyway. So I was the technical support. People would call and say, “You know, I can’t get my balance sheet to balance or I can’t get my…you know, I’m inputting this thing on my income statement but it’s not coming out on the cash flow.” And I understood the finance, I have a finance background, so I understood the underlying financial questions, but I knew nothing about software. So I would frequently ask them to reboot.
Michael: Oh, and you were not an accountant, right?
Michael: I mean, you came to an accounting firm doing financial management software and then benchmarking and you didn’t actually come to the table with an accounting degree, correct?
Rebecca: No. And they were clearly desperate to hire or I would not be here. I think I charmed my way into a job that I didn’t deserve and then I did it pretty poorly, and I told people to reboot their computers if I didn’t know how the software worked. And about six months into that I said, “You know, I’m learning a lot about this data as people are calling with questions on this software, and I think there are some things that we could do with this data.” And so then I started really supporting, and I was brand-new in my career, supporting the analysis around, you know, people would send in their data for these studies and we would crunch the numbers and compile the numbers.
And so I spent a year in Excel working through the numbers and analyzing what it meant if the ratios were going up or down in a given industry or up and down in a given firm, so. But it does…you know, it did teach me a lot about not just financial planning, because initially I was doing that for Goodyear Tire dealerships and paint companies and all sorts of industries but got very interested right off the bat in this particular industry, both because of the kind of fresh entrepreneurial spirit and newness of that kind of financial statement management to the industry, and then also of course, the opportunity to work with Mark really drew me to that work as well. His willingness to throw me in way over my head from day one created opportunities for me to grow and do work that my peers who were working with other people never would have had the opportunity to do. Mark was very willing to involve me and others in work once we demonstrated we knew what we were doing. So that was just a great, great opportunity.
Michael: So when did he actually throw you into the consulting pool? Because if you started off with kind of the tech support for the software and then doing some of the analysis on the benchmarking study, when did it actually move into consulting as, you know, the consultant’s version of client-facing? When did you become client-facing?
Rebecca: It honestly probably wasn’t more than two or three years. I think the first speaking engagement I gave in front of a large group, I was probably 25, maybe 26, and I think I was speaking about business valuation in a financial advisory firm. And Mark was always a believer that if you defined your scope of expertise narrowly enough, you could talk about something. And so I went out there with a narrow scope of what I was going to talk about and ended up in front of a large audience that I’m sure when they asked me to do it had no idea how young I was. But it went well and…
Michael: I love that framing though of you define your scope of expertise narrowly enough, you can be in anything. I mean, there’s sort of to me, an interesting point around just why, like….you know, I’m one of those people that pounds the table that advisors coming into the industry in the future need to focus on niches, and including even advisors that are coming in when they’re relatively new. And I sort of had these words for it before, but this whole framing that one of the reasons why it worked so well is when you focus into a group narrowly enough, you really can become, like, the world’s leading expert in blank in relatively short order with not a lot of experience because you’ll still know more than anybody else in that narrowly defined scope of expertise….
Rebecca: Absolutely. Yep.
Michael: …and experts.
Rebecca: Yeah, it was absolutely the key to my opportunity to grow and participate in very interesting opportunities very early in my career was one, the fact that I was defining that area of expertise pretty narrowly. And B, Mark was…he never put me in positions to give advice on things I wasn’t qualified to do. So he also cared a lot about our clients and wouldn’t have put me out there if I wasn’t prepared. But he also lent me a lot of his credibility early in my career and said…you know, never introduced me as, “This is Rebecca, she’s the peon that crunches numbers behind the scenes.” He said, “This is Rebecca, she’s my colleague and she’s specialized in these areas.” Or, “You know, if you need advice on compensation planning, that’s really more her area of expertise than mine.” He did that very early in my career, including when I didn’t know any more about that topic than he did or not even half as much as he did. He lent me a lot of his credibility, and that forced me to figure out that topic pretty fast because I wanted to do right by him and do right by the clients and I wanted to know what I needed to know to be able to give the clients good advice. So that was a great partnership from the beginning.
Michael: Well, and it resonates for me as well. I had a similar opportunity just a few years into my career where I was working in an advisory firm and, you know, since I was the guy that liked doing all the nerdy analysis stuff and I would actually read prospectuses, I became the office’s annuity expert because I was the one that actually read all the prospectuses. And it led to a point where any of the advisors in the firm, when they were dealing with something on annuity-related issue, I got called in and I was the one that would talk to the clients, and I would talk through all of the weird complexities of the annuity contracts of the day. And this was kind of the early days of guaranteed minimum income riders, guaranteed minimum withdrawal riders, when they were very new and no one understood how they worked.
And it was that very specific domain of expertise that let me get some of my first experience facing clients and actually trying to be a competent advisor albeit with a narrowly defined scope of expertise, but I was an expert in that area and it was what gave me some of the confidence to be able to do it. And ultimately what, you know, helped me drive forward to expand and build on my career further was just having a focused area and having advisors who were very much my senior bring me into the room as, “He’s the expert on this.”
Rebecca: And you worked your tail off to be the expert at that. You know, it was…I think that’s the other key to it is it’s someone lending you their credibility and then you work your butt off to earn that and be the expert.
Michael: Yeah. And then I read like 5,000 pages of prospectuses to make sure I actually had that impetus.
Rebecca: Better you than me.
Michael: So I have to ask, though, you know, this is a very male-dominated industry, you’re coming in as not just a 25-year-old telling advisors how to run their businesses, who might have been doing it since before you were born, but you’re a female in a male-dominated industry, in that position. I mean, I just have to ask, like, what it that like? Was gender an issue in this as well? Was it not really problematic because Mark was there as well and so advisors behaved themselves? Like, what happened when you were in those positions?
Rebecca: You know, I definitely would say that gender was a factor. And in some cases, it helped me. You know, there were times when, you know, an organization needed a new board member and they said, “Uh, well, we need to find a woman? Who’s a woman we could add?” Or when my firm…you know, we want more women on the executive committee. I know that created opportunities for me earlier in my career. I got a scholarship to college that was only available to women. It has helped me along the way in multiple instances, including when I was building my client base, or if I was speaking at conferences, which was a big part of building our practice. A client like Schwab would look at their roster of speakers and say, “Well, we really need a woman on stage, who could we ask? Well, let’s ask Rebecca, she’s up for anything.” So, you know, there are times when I really…I think it created opportunities for me. There were absolutely times. And I would have clients say, “You know, you remind me of my granddaughter.” And I knew they weren’t saying…
Michael: Not even my daughter, my granddaughter.
Rebecca: Well, when I was in my 20s. Yeah. I don’t hear that anymore, but I did hear that when I was younger. And they didn’t mean, “I have so much confidence in the advice that you’re giving me because you remind me of your granddaughter.” Now, they didn’t mean it meanly, but it certainly puts that edge on, “I need to be more professional and I need to be more…maybe even less friendly than I normally am. I need to smile less. I need to lower my tone of voice. I need to act very grown up.” And I feel like as I’ve matured in my career, I get to be more my authentic self, where when I was younger, I tried to act like a grown-up for 10 or 12 years until I actually felt like a grown-up. And now I get to be more who I am.
But I also think, all of that being said, I also think that this is a profession where people valued our advice. Yes, maybe I had to prove myself early in the conversation but then they were really…people were eager for insight and they were eager for conversation. And data makes you credible. We had good data and I understood it very well, as opposed to just coming in with, you know, my child psychologist upbringing and my ability to connect with people. I felt like I needed to have a really good handle on the economics and the financial drivers and the data because that speaks to people in our industry and helped me overcome some of my gender problem, I guess.
Michael: And you make a good point there as well that, you know, again, like when you talk about how do you establish your credibility and expertise? I think particularly just when you’re younger in the industry in general, right? A, you narrow your scope of expertise, and B, you bring the data, right? Because it’s hard for people to argue with your credibility when like, “Oh no, here’s the actual data and facts to substantiate what I’m saying.” It’s harder to question it when you actually have the data to back it up.
Rebecca: Yeah, absolutely.
Michael: So you went through this cycle. Now, I know you ultimately became a partner at Moss Adams?
Rebecca: Yeah. I actually became a partner when I was in the consulting group. So I was here for 7 or 8 years when I made partner in the consulting group in 2004.
Michael: So you made partner, like, coming right up on your 30th birthday or so?
Rebecca: Yeah, the year I turned 30. Yeah.
Michael: So that’s quite an achievement unto itself. Like, what does making partner look like in that context? Like, what do you have to do? I know in our advisory business, what does it look like in an accounting firm?
Rebecca: You know, it’s probably not dissimilar. The metrics have changed since way back then. I’ve been a partner a long time now. But back at the time, I think you obviously had to be able to…you had to be the lead person on your client engagements and you had to be managing $1 million or a little more of revenue a year. And because we were in consulting, that meant selling that much. You know, we didn’t have a lot of annuity work, so, you know, if you had $1 million practice, you were probably selling $800,000 of new work every year or so. You know, it’s tough right now when young people ask me about that quick path to partner. People can be as smart and work as hard and it really is impacted also by what else is going on in the business environment. And we were in such a great business environment to grow that practice quickly, and we didn’t have a lot of competition. No one else was really doing what we were trying to do. So I do think the outside opportunity, the outside market created that opportunity for me, and then I worked really hard. But that’s probably…you know, that’s probably what those metrics looked like at that point that I made partner.
Michael: Well, and it’s an interesting, you know, point of context when you think for a lot of us in the business today. We get hit with these benchmarking studies from all different directions now. Like, broker-dealers do their own, and custodians do their own, and InvestmentNews runs one with Ensemble Group, and FA Insight ran their own for a while, now that’s under TD Ameritrade, that gives all these different benchmarking studies that are out there, but back in the late 1990s and 2000s, early 2000s, like, what you all were doing at Moss Adams, that was it. That was the benchmarking study. You know, you put it on the map and then everybody did it later. And I know quite literally most of the people who run industry benchmarking studies today were all of your colleagues at Moss Adams 10 years ago, who have simply continued to do in other places.
You know, it’s really kind of a testament to what was built there over that cycle. But, you know, it was…I mean, to me that was the time of kind of the professionalization of the business when we started actually recognizing, “No, no, these aren’t just practices and books of business or client books, this is like a real business. This is business business where you hire employees and you generate revenue, and there’s a profit margin, and you get paid for owning and operating this business, not just for your time as a financial advisor, where everybody needed to figure out how to do it, and here you were doing consulting and practice management benchmarking when no one else was.
Rebecca: Yes, it’s good to be in a business when nobody else is doing it. It allowed us to grow quickly at a time when advisors were really, you know, eager to professionalize. And we worked with some great outside organizations. The FPA and SEI stepped in as a very early sponsor of that study. That really helped to gain some traction. And, you know, we had a lot of good partners that helped us get that content in front of advisors. And it was a group effort, for sure, but it did create a lot of work for us at Moss Adams, which was great for those of us that were growing in our careers and were willing to work hard and get out there.
Michael: So fast-forward us to today. You had about eight or nine years in the consulting division, you had eight years as the CEO of the Moss Adams RIA Wealth Advisors, and now you’re in this new role called chief practice officer. So what is a chief practice officer?
Rebecca: I like it because it’s sort of a made-up title. I can make it be whatever I want it to be.
Michael: It’s fantastic, isn’t it?
Rebecca: So this is the first role I’ve been in at Moss Adams that’s really…that broadly applies across the entire organization, including the accounting side of the firm. So we have four executives that run Moss Adams, a CEO, a chief operating officer who’s in charge of IT, finance and HR, and then we have a chief risk officer who’s in charge of legal and sort of assurance and tax technical, and then the chief practice officer is really in charge of the other stuff. So how we grow, how we go to market. Moss Adams really niches, as you were talking about earlier, by industry specialty, so that industry specialty approach, sales and marketing branding. What services do we deliver to our clients? How do we deliver on that experience? How do we brand? How do we grow? That’s what this role is about. And I started in this role 13 months ago, so I’m just coming up on the point where not everything I do is the first time I’ve done it. It’s nice to be going into the second business cycle where I’ve now done everything at least once and getting to, you know, move into my second year on this role.
But it’s really…it’s an interesting role. It’s the first time we’ve had someone in our C-suite who isn’t an accountant by background. And I think it speaks a lot to the value that Moss Adams sees in consulting and sees that as the part of our future growth as an organization. So that’s been really interesting. But the whole focus of my role around what we deliver and how and how we differentiate ourselves, that goes all the way back to what I was talking about at the very beginning of this discussion. About, how can we really bring something new to the market that’s different and more integrated? And that’s been my focus in my whole career at Moss Adams. So this is just a different angle on that same question of how do we really bring incremental value in an industry that, you know, is subject, like many, to commoditization? How do we really make our client experience here something that is valuable and differentiated? So that’s kind of the core of this new role. And so I still get to interact with our consultants and I still get to interact with our wealth management group, but now I’m also responsible for tying all that together with the assurance and tax part of our practice.
Michael: I feel like you’re very modest about the significance of this role. I just need to take everyone back once more to the beginning of this conversation, 2,800 professionals, $600 million of revenue, 4 people that sit at the executive level across this whole thing, and there you are right there next to a chief risk officer, a CEO and a COO. Like, my mind is kind of blown by the level of responsibility and complexity that comes with…like, we’re just trying to figure out how to handle 50-something employees at Pinnacle, I don’t know how to wrap my head around 2,800 people and professional services that you’re somehow trying to figure out how to synergize and march to a common drumbeat. That just kind of blows my mind.
Rebecca: I do try not to think about how big it is. I like to think of it being the little thing I used to do, but it’s just more people. You know, the strategy is similar, and people, whether it’s 2,800 people or 50 people, they’re looking for the same thing, which is, you know, they’re looking for authentic leadership and they’re looking for a vision that they can rally behind, and they’re looking for a strong team. You know, it is more people, but the objective isn’t really different. The role is just a little bit different.
How The Advisory Industry Is Likely To Evolve [1:29:04]
Michael: But I do think there’s an interesting effect here. That, you know, to the extent there’s all this discussion that the future of advisory firms is basically to grow to look more like other professional services industries, including law and accounting that have been through this kind of cycle and we can see where they ended out. And, you know, I know a lot of even the consulting that Moss Adams did in the early days was applying the lessons of how professional services accounting evolved into professional services advisory, which frankly I feel like ended out mapping quite well into how a lot of the industry evolved. So if you look forward in the accounting world, you end out with a handful of huge, large mega national firms, or like, half a dozen to a dozen of them, you end out with 50 to 100 or so very large regional firms that still do, you know, tens of millions of dollars of revenue, and then zillions of small solo practices that kind of fly under the radar. And so I’m wondering if you can just talk to us a little bit more, as you look in at what you’re doing in Moss Adams, like what lessons can we learn about how this is likely to evolve and play out in the advisory industry?
Rebecca: You know, I think if I told you what we see ahead as an accounting firm but I didn’t say I was talking about an accounting firm, it would sound very familiar to anyone that’s in the financial advisory business as well. I think they’re very similar drivers. We look at, you know, what does consolidation mean in our ability to compete and to have the resources that we need to grow, and we look at how is technology changing the face of what we deliver and changing the value of what we deliver. And I don’t think that’s really different between the accounting profession and the financial advisory profession. I’ll go back to my very initial comment about if we put our clients at the center of it and say, “What do our clients really need, and how is that changing? What are they going to need in 3 years or in 5 years or in 10 years? And are we really developing the business to serve those clients and what they need?”
And let’s not build a business that’s going to deliver what they could get from a robot. Let’s build a business and invest in a business that’s going to deliver the part they can’t get from a robot. That’s the same thing for these multiple professions, whether it’s consulting or wealth management or the accounting profession is all focused on how do we develop something that solves the problems that our clients are going to have down the road? Because the business we want to be in 10 years, we have to be building that now. We can’t just be responsive to what’s happening in the market. And I think it can be easy to say, “Well, our peer firm just sold to a big firm, or our peer firms are consolidating and we can be driven by what our competitors or peers are doing.” I’d rather be driven by what our clients are doing and what our clients need and are going to need. And I try and spend time in my new role with our clients understanding what’s ahead in their industries and what’s ahead in their businesses, because I do believe that we can position ourselves to serve them long-term.
Now, we might not be serving them with the same things that we’ve been serving them with for the last 100 years. And that’s scary, especially, like you said when you have thousands of people whose mindsets you need to shift about how they deliver value and what skills they need to have and how they’re going to develop their next generation very differently than how they were developed. That isn’t a unique challenge in the accounting profession either. I think it’s one that both the wealth management and accounting professions are going to face. But I think if we’re really thoughtful and put our clients at the center of that, I think it gives us a lot of clear direction in how we need to invest and where the value is going to be.
Michael: Well, and I’m struck that even as…well, so on the one hand, for as large as the firm is, I feel like your complexity about how to figure out…in the advisory world, we’re just trying to figure out what’s the value of a financial advisor on top of what the robo technology will do, and, you know, we’re figuring that out. Moss Adams has something like 25 to 30 different industries I know that you’re in, of which, you know, the RIA business and financial services is just one. So are you going through this kind of effect just one industry after another? You just have to take a look in each one of these and say, “Okay, what’s the value that the accountant adds on top in this industry? What’s the value that the accountant adds on top in this industry?” And just you have the same challenge we do, you just do it 28 times, we’re just trying to do it once.
Rebecca: Yes. Exactly. That’s why we need all these people. Because, you know, we are working with hospitals and construction companies and banks, and they all have very different…maybe the same economic environment or the same business environment, but they’re all facing very different factors. And what they need and what they’re going to need from us is different across those different verticals. And we have teams of experts in place who yes, part of their job is to deliver audit and tax and consulting services to those industries, but their real role is to understand the drivers of those businesses and what those businesses are going to need in the future. That’s really the role of our people that serve those industries. Not that the audit and tax isn’t important but really having our thumb on what’s happening in our clients’ industries and how can we serve them, and be increasingly relevant, not defensively relevant in the future but increasingly relevant? Because that’s what we valued all along are those relationships we have with our clients, and that’s still going to be at the core. Just the service offering, I believe, is going to evolve as our industries evolve.
And, like, you were looking at robo-advisors, boy, there are pieces of audit and tax work that are also going to be computerized in technology-ised and robo-ised over the coming years. We’re in the exact same situation of having to really look at what is the value on top of those things and how do we reshape what we’re delivering based on how the client needs are going to change?
Why Rebecca Believes It Is Important To Develop A Niche [1:35:07]
Michael: It does strike me, though, that, you know, Moss Adams, I mean, just well, when I literally look at, like, the homepage for the company, I just see this giant list of niches that the company is in, and I feel like there’s still this big ongoing debate in our advisory space about whether the future of the business is really focused around niches or not. And I feel like if we look at Moss Adams, if you want to take that as the cue, like, there you are, you know, you’re a giant firm of 2,800 professionals, but it’s 2,800 professionals that basically have 28 different niches that your business is in, all of which roll up under this one umbrella of Moss Adams. Do you actually think that’s where the whole industry ends out or am I drawing a bad parallel?
Rebecca: Oh, absolutely. And I actually think, you know, when we started that niching strategy at Moss Adams, gosh, probably more than 20 years ago, that was a differentiator. Now, what’s almost a requirement to be an accounting firm of this size is, you know, if we’re proposing on work to an aerospace company, they want to be served by a team of aerospace experts who only work in the aerospace industry. And that’s what they’re going to get with us. But our like-sized peers, they also have aerospace experts. You know, it’s not as much…that niching piece alone isn’t as much of a differentiator as it was 20 years ago, we have to continue to evolve that. What do we know about aerospace that no one else knows? Or what value can we deliver? Or what kind of relationship can we deliver? What kind of connections can we create for them in that industry? What do we know about transactions or PE firms? Or what are the connections that we have in that industry that are even greater for them? The niching alone, it’s almost a requirement to play at this point for most of our clients.
Michael: And that’s a fascinating thing, right? When most firms are still debating about whether to niche, your biggest problem is you have 28 niches…
Rebecca: Yeah, what’s next?
Michael: …and you’re worried whether they’re deep enough.
How Rebecca’s Priorities Changed Transitioning From Consulting To Implementation [1:37:17]
Michael: Because you’re trying to go deeper on the niches. So as we as we come to the end, you’ve had this fascinating arc and career trajectory, and so, as you’ve gone through these stages, you know, the consulting realm and then running the RIA, and now, you know, rolling all the way up to chief practice officer for all of Moss Adams, I’m curious, what’s become more important to you about how you look at and run the business now compared to when you were back in the consulting days? Like, is there anything that changed about what you prioritize and focus on leading on the implementation end versus when you were on the consulting end?
Rebecca: You know, I think that in the consulting practice, and maybe it’s just the phase where I was in my career when I was on the consulting side, I spent a lot of my time learning the business, learning the data, analyzing what was really going on under the scenes. And I still get to do some of that, but it has become so much…and this I think has to do both with the evolution of the industry and the evolution of my role, but I spend 80% of my time now focused on people. And how do we motivate our people around how we want to grow as an organization? And how do we motivate our people and help them see the role that they’re playing with clients? And I do think that the technical aspects of what we do are still so important. But even as a consultant, I did a lot of technical work probably because of, you know, the data that underlied a lot of our early consulting work. But now it’s so much about the communication and alignment of people around common objectives.
And even the alignment of people on understanding that the value that they’re creating is in other people. It’s not in the financial statement that they create or the income that they create, it’s really in the future leaders and future people that they create. And that’s the motivation here in our own organization. I think it’s a motivation in our profession. Even in our clients’ businesses, in the end, that’s what they’re all trying to do to be sustainable. So that kind of shift from, it’s all about the data to it’s all about the people. That was probably true all along, but my role has really evolved in that direction. Even though I’m not in charge of the people function here, still everything that we do on the industry side and on the partner development side, on the client side, it’s very much focused less on the…even I think how we differentiate is less about the technical side and more about the relationships and helping people develop those skills.
Why It’s A Good Idea To Share Your Firm’s Income Statement With Your Entire Team [1:39:59]
Michael: So from the flip side then, as an experienced consultant, as an experienced executive, is there any advice that you continue to hear in the industry that from your perspective is just bad advice? Because there are things that you just hear and are like, “I wish people would stop saying blank. It’s just so not true.” You must have a couple that crop up for you from time to time.
Rebecca: Well, you actually mentioned one of them earlier. I think there are still advisors that are reluctant to educate their teams about their business. And I think that’s a mistake. I think we need to grow future business owners in this industry and we need to make their path faster and smoother than it’s been for some of our current business owners in this industry. And I think every opportunity we have to share how our businesses run. You know I’m a big proponent of share your income statement with your team. It doesn’t need to be down to the individual compensation level but share the data. Help people understand how these businesses run. And don’t be ashamed that you’re making so much money. And if they ask, “Where’s all that profit going?” Explain it. Explain that that’s your return for the risk that you took.
I think we’re too slow to transition client relationships. I think we’re too slow to transition our knowledge about what it takes to run a business. And in some cases, that’s relatively new knowledge in this industry, and I wish we were teaching our young people that faster. So when I hear, you know, people talk about kind of protecting their people from the information or protecting themselves from the questions their people are going to ask if they expose them to information, I regret that we’re still doing some of that. Because I think we can accelerate how our people are developing. We have a lot of hungry young people that want to work with clients and they want to get to know this business, and I would put them in just a little too deep of water. You know, make sure they’re taking good care of our clients and that they’re giving the right advice, but I would let people swim a little bit faster.
Rebecca’s Advice For Young Advisors [1:42:01]
Michael: So what about for younger advisors then who are coming into the industry, or perhaps young women in particular? You know, it sounds like you had the good fortune of working for a boss who is very supportive of your development, unfortunately, that’s not always the experience for some younger advisors coming into the industry. And so, you know, I feel like, for those who maybe have fallen into that realm, they’re probably going to figure things out okay because they’ve got to support a boss that’s cultivating them. For the rest, is there any advice you would give to young advisors or perhaps young women, in particular, trying to go through this and struggling a little?
Rebecca: Yeah. You know, I think it’s really important to learn business. I think it’s a place where people can distinguish themselves even in the financial advisory world. And I see young advisors that are asking their bosses or senior people outside of their firm questions about the industry and about business, or about the business issues facing the clients that they’re working with. Now, they’re not giving business advice to those clients but really trying to understand the situations that their clients are in if their clients own businesses, or really trying to understand the family dynamics even if that’s not a big part of what they do in their jobs. So I think really trying, really striving to understand how our industry works and asking good business questions, not just technical questions.
I even think that’s advice for women in particular. I think women, earlier in their careers, this is true both in accounting and in financial advisory, they get very focused on the technical disciplines and sometimes they miss out on the opportunity to learn about the business or to learn how to sell or say, “Hey, you’re going to meet with a new pursuit, could I come along and see how you do that?” I think the ability to articulate what you do and the value that you bring or the value that your organization brings, sometimes I think we hide behind our desire to focus on our technical skills early because that’s less foreign. To those of us that we’re good at school, that’s just more school, that’s just learning more technical skills. We know we can do that well.
And I think where we really need to take risks and learn new things and cultivate skills that we didn’t get into being a financial advisor because we wanted to learn how to sell, those are the skills that are going to help us not just grow our business but also help us deliver value to more people. We have to be able to tell our story. And I think the ability to do that, those two things, learn about business and learn how to tell the story, which if it weren’t such a crude concept I would say learn how to sell. I think it’s really important. It’s the same thing. Learn how to tell a story, learn how to articulate the value of what you do. I do believe even today that’s why we have fewer women advancing to the more senior ranks in these organizations is a lot of them have built really good technical skills, but they don’t think they are good salespeople or they don’t think they want to sell. But they do want to solve problems and they do want to take great care of clients. You know, I want people to sell because I want them to be able to do that more, take care of more good clients.
Michael: Well, and I think it’s worth noting for those that want to learn how our business works as well, you actually wrote a wonderful book on this a number of years ago with Mark called…well, I guess you did “Practice Made Perfect,” and then, “Practice Made (More) Perfect,” just the extension to it or the update to it. So we’ll make sure we put a link out to that in the show notes as well for people who are interested. So this is episode 45, so if you go to kitces.com/45, we’ll make sure we have a link in the show notes out to Rebecca’s book as well.
Rebecca: Thanks, Michael.
Michael: So as we wrap up here, this is a show about success and people who have followed successful paths, and one of the things that’s become very clear through all the episodes is that different people define success very differently. We even define it differently at different stages of our lives, right? Like, as you noted, early on success was kind of mastering the data and the technical stuff, now success is mastering the people, and so as you look forward from here, I’m curious how you define success from here.
Rebecca: Well, I love to look around and see other people being successful and think I had something to do with that, or I met that person 20 years ago and we had this great conversation, or someone lent me their credibility, I then went on and lent my credibility to someone else. And I think that that definition of…well, that legacy definition, not just of the business I leave behind or the, you know, estate I leave behind for my kids, more than anything, I’m excited to see the people developing in this industry that learned something from what we created, or who…you made a joke earlier about the number of people that are out there in the industry doing stuff that used to work at Moss Adams. I’m super proud of that and to see the impact that those people are having on the businesses that they’re serving, or the advisors, the impact that they’re having on the individuals and clients that they’re serving. So I think that’s how I define success.
It’s funny because, you know, my kids are 7 and 11, and my about 11-year-old ask those questions a lot. About, like, you know, “Why are you gone? What is it you’re trying to do here?” And I think that’s what I’m most not just proud of now, but when I look forward to when I retire in 20 years, what I want to look back and see, and I want to see more people that built successful businesses or successful careers because of one little thing that I helped them with along the way. So I know that sounds cheesy, but I can’t think of a measure of success that’s more important to me than that one.
Michael: It’s fantastic. I love it. I hope what we share in the podcast here maybe helps you extend that a little bit further and impact a couple more people who hear this.
Rebecca: I’m happy to have had the opportunity.
Michael: Thank you so much for joining us, Rebecca.
Rebecca: You bet. Thanks again.