Welcome back to the 190th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Stacey McKinnon. Stacey is the chief operating officer for Morton Capital, an independent RIA based in the suburbs of Los Angeles that oversees nearly $2 billion of assets under management for almost 1,000 client households. What’s unique about Stacey, though, is the firm’s non-traditional approach to hiring talent from outside the financial services industry to grow and scale, a path that Stacey herself has followed having previously been a wedding coordinator and operated a Pilates studio before career changing into the financial services industry and successfully climbing the ladder to become Morton Capital’s chief operating officer.
In this episode, we talk in-depth about how Stacey has developed hiring practices to spot talent from outside the industry. Why she’s pursued everyone from teachers, who have a demonstrated ability to educate and give of themselves, to someone who’s previously worked in a rehab center, with a demonstrated ability to show empathy for people in difficult situations, to the manager of a coffee house who had shown through his own work experience that he really knew how to care for his team. The in-depth interview process that Stacey’s firm uses to evaluate both prospective job skills and culture fit over a series of five to six meetings, and the career track that Morton has created to give everyone in the firm upward mobility to grow their careers over time.
We also talk about the growth and evolution of Morton itself as a multibillion-dollar RIA. The way the firm restructured its compensation away from traditional revenue-based approach to better align everyone on the team, the way Stacey helped the firm reduce the tendency to micromanage as the business grew by helping everyone across the firm build stronger relationships and what they dubbed a year-long culture of trust initiative, and how the Morton team now structures its weekly firm-wide education sessions every Thursday morning.
And be certain to listen to the end, where Stacey shares the challenge she faced in her own career journey when she had to decide whether to pursue an advisory or operations path, why the word “because” is so crucial in leadership conversations, and why Stacey believes the key to future success for advisors isn’t simply about finding a niche or specialization, but immersing yourself into a community of people that you can serve and with whom you have shared beliefs.
What You’ll Learn In This Podcast Episode
- Why The Financial Planning Industry May Not Be Casting the Recruiting Net wide Enough [4:56]
- Why Trust Is So Important When Fostering A Strong Company Culture [12:27]
- How Stacey Organized And Executed Morton’s Culture Of Trust Year [22:50]
- How Stacey Restructured Compensation At Morton [33:38]
- How Morton Helped Team Members Comfortable With A New Compensation Structure [46:57]
- How Morton Utilizes An Organizational Psychologist [1:03:30]
- How Stacey Figures Out If A New Hire From Outside The Industry Will Be A Good Cultural Fit [1:09:46]
- What Morton’s Interview Process Looks Like [1:20:24]
- What Surprised Stacey The Most About Scaling An Advisory Business And What She Wishes She Knew As She Was Entering The Industry [1:23:06]
Resources Featured In This Episode:
- Stacey McKinnon
- Morton Capital
- The New RIA Workplace
- G2 Leadership Institute
- Start With Why by Simon Sinek
- Angie Herbers
- Philip Palaveev on Ensemble Practice
- 15 Commitments Of Conscious Leadership
- The One Thing by Gary Keller
- Lifescale: How to Live a More Creative, Productive, and Happy Life
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Michael: Welcome, Stacey McKinnon, to the “Financial Advisor Success” podcast.
Stacey: Thank you. I’m happy to be here.
Michael: I’m really excited about today’s discussion and just some of the dynamics that come with trying to grow and build teams in advisory firms. I know you wear a hat as chief operating officer in a sizable advisory firm and have lived a lot of the reality of hiring and training and developing staff, but I know you come from a very, I guess, non-traditional, at least by industry standards, background. You came to the financial advisor world from being a wedding planner. And, as I’m sure you’ll point out, there are a lot of parallels to…like, if you can pull off and organize a wedding for a very stressed bride, like, nothing that we do in an advisory firm is as high stakes as that. So we should be easy to manage by comparison.
But I think your journey highlights to me what is maybe a harbinger for a broader trend change in the industry. That just we talk so much about the shortage of talent, of advisor talent in the industry, and that the CFP programs are only graduating, minting so many college students into the financial planning world, and what are we going to do about this shortage of talent, without, it seems like, having any acknowledgment of, there are like 300-plus million people in this country who do other jobs that might also like what we do if only we spend a little bit of time recruiting them and training them and developing them because there are more people who can be good financial planners than just the students we’re bringing out of financial planning programs in college, although I love what we’re doing with students in financial planning programs in college. I feel like your story, your journey kind of exemplifies the fact that maybe we’re just casting the net way too narrowly in the first place in thinking about what talent in the advisor industry is out there, where the opportunities are.
Why The Financial Planning Industry May Not Be Casting The Recruiting Net Wide Enough [4:56]
Stacey: That’s so interesting because as I think about talent and what we see get Morton Capital for good talent, I think about the actual word choices that I’m looking for, like compassionate people, thoughtful. Hardworking is definitely one of them, but above and beyond hardworking, we’re just thinking through like, “Who do we like to work with every day that we’re going to feel inspired as we’re, in a normal world, walking down the hallways next to and can brainstorm with? And I don’t think that that’s just isolated to those who have the best education or who have gone to the best Ivy League schools. In many ways, I know a lot of other firms do this as well, someone like a nurse could be one of the best team members that you have on your team because their entire world is compassion and caring and making sure that people have everything they need to be successful. And so when we think about sourcing talent or looking for new talent, we’re looking for those attributes that maybe are a little bit less obvious in the schools and anyone who’s traditionally in finance.
Michael: Yeah, I knew an advisory firm a few years ago that had been through a lot of growth, and they hired almost all of their operations and administrative team folks, they hired baristas. Like, they would actually go into like Starbucks and Peet’s Coffee kinds of places. They were in a metropolitan area. So there’s like one on every block to choose from. Like, they would go to coffee shops and find the baristas and the people behind the bar at the coffee shop that just had the strongest personalities to interact with. It’s like, if you’re that good at that, I just need to give you a few assessments to find out whether you have a little bit of an operational mindset to be able to create and stick to and follow processes, procedures. And they were literally like, they would order coffee to find talent, put them through some assessments to make sure that there was the complimentary combination of the skill sets I can see you have and a few, at least, general styles that I know you need for the firm. I can train you in how ACATS works, but I need to know that you’re pretty good at attention to detail of handling that kind of stuff in the first place.
And they ended out with this firm that had wonderful growth and what were truly like the most friendly, wonderfully personable client-facing staff up and down across the firm because that was what they hired for. And they’re like, “We don’t need to hire people who come from the financial services industry to do all the financial services paperwork, like, I can teach how to do paperwork and administration. What I can’t teach is for you to have a natural personality style to be very effervescent and engaging with people and compassionate, like, that’s the hard part to teach, and I can teach the rest.”
Stacey: Yeah. And baristas, they have to get up at 4:30 a.m. and talk to people before they’ve had their coffee, so especially talented at client service.
Michael: Client who’s not happy that the transfer didn’t go through? Like, “I got this, no problem.”
Stacey: Exactly. And that’s really our story too. Prior to being a wedding coordinator, I worked at Peet’s Coffee, and I…
Michael: Oh, there you go. There you go.
Stacey: …recruited five of my past co-workers from Peet’s Coffee to work for Morgan Capital. So I definitely know that story. And in fact, a few years ago, as we were growing as a firm, we have about 45 employees now, and when we were at 30, we realized that it was going to be really challenging for us to grow without really excellent leadership and management. And so in my role as COO, I was becoming a little overextended, and I needed a director of operations. And I went out and interviewed a bunch of people. And I think that the people that I interviewed were good, they were talented, they had the right qualifications, but I didn’t quite have the confidence that they were going to take care of the people in the way that I wanted.
And in hiring any leader or manager, there’s definitely an element of control that you give up where you’re not the one responsible for career paths anymore. And you’re not going to be in touch with what’s happening in your team members’ everyday lives, and you need somebody you trust to really do that. So I kind of thought back in my own history, and when I worked at Peet’s Coffee, I had one of the best managers I’ve ever had in my life. And so I called him up and I said…his name is Dan. I said, “Hey, Dan, I’m looking for a director of operations. Are you interested in joining an RIA?” And he said, “Are you crazy? I have no experience in finance.”
Michael: “No offense, but what’s an RIA? It’s not my industry.”
Stacey: And I said, “I understand you don’t have experience in this industry, but you have the experience that I need. You know how to care for people. I know that because I learned everything that I am as a leader from you. So will you come join the firm?” And he’s been here for three years, and he’s our director of operations. And it’s just been excellent to have somebody that I trust so much, but also just to like know that every day while I’m working on strategy or helping push the firm forward or growth, there’s somebody that’s caring for our people in such an authentic and like humble, caring way. That gives me incredible comfort as a leader in the business.
Michael: Yeah, it’s…I feel like, at least in my own personal journey of just growing businesses and growing teams and going through this, I feel like much of the past 10 years of my career, in particular, has basically been like, take all the business sayings and aphorisms that I heard in my 20s that I had no appreciation or respect for, and now that I’m living through it, I’m like, “Oh gosh, all that stuff was so true.” And one that has really hit home for me in the past few years, in particular, is just this idea of hiring for attitude, and hiring for personality and culture, and just worrying about teaching the skills later. Like, when you find someone that just has the right style, the right personality fit, approaches the role the right way, whatever it is, right? Like, whether it’s a director of operations who’s compassionate for people, or someone else’s ideal director of operations who is just the most fantastically meticulous detailed person, because that’s what you need in that role, that when you find the right person with the right attitude and the right style and the right culture fit, like, if they’re so good, you can teach how to do the details of the job.
Frankly, at the end of the day, what we do is not rocket science. Like, this is teachable, trainable stuff, but finding the right people, the right kind of person in the first place, that’s actually the really hard part that I think we often don’t give enough time and credit to focusing on. And then when we don’t get there and we get people that aren’t really the right fit, as you put it so well, like just, it’s hard to have that level of trust to hand things off to them. And if you don’t trust them, you end out micromanaging them because that’s what you do. Like, micromanagement is a trust problem at the end of the day. I don’t trust you enough to do the things, so I’ve got to come over the top and look at micromanage what you’re doing. And most of those micromanagement issues, to me, are rarely training issues, then you just teach someone how to do the job, they’re personality issues, they’re fit issues, they’re culture issues that say, “I’m just fundamentally not confident that this person is going to do things in the style that I would do them. So I have to get in there.” And then I make everybody’s life miserable because all the efficiencies of hiring aren’t happening if you have to micromanage your people.
Why Trust Is So Important When Fostering A Strong Company Culture [12:27]
Stacey: Yeah. And would people know that you don’t trust them? That’s like the worst feeling in the world. If you think about people in your life that you really care about, if they don’t trust you, you’re like almost…you become a little bit more miserable, you become resentful. It probably compounds the issue when you micromanage, because then that person just feels like they’re not being valued in the way that they should be. And so that’s definitely one of the key components. We work on trust so much here to the point where in 2017, we took a year off of growth and we called it a culture of trust year, where we just looked in around our organization and we pointed out everywhere that trust was broken, and we opened it up to the team to say, “Hey, if you feel like you’re not being trusted, you’ve got to ask, ‘Why don’t you trust me?'” And that was probably one of the best things that we’ve ever done as a company, to be honest.
Trust is broken in very little ways. So just as an example, you have an advisor and a client service person. Let’s say an advisor has a client that they want to get paperwork to tomorrow to open three new accounts. And so they tell the client service person, “Hey, I need this paperwork in 24 hours.” That client service person is going to be frustrated that the advisor didn’t give them enough time to do their job well. And then when they do the paperwork, the advisor is going to be frustrated because there’s going to be errors on the paperwork because they only had 24 hours to turn around so many applications when they probably had 17 other things that they needed to accomplish that day, now they’re juggling. And so all of a sudden trust is broken, right? The client service person doesn’t trust the advisor because they think the advisor is not acting in their best interest. And the advisor doesn’t trust the client service person because they made mistakes on the paperwork, which is going to make them look bad to the client. And all of a sudden, that circle continues.
So when we took this time off and we did the culture of trust initiative that I’m referring to, it was so much about like, “Let’s just call it out. Let’s tackle this. Let’s address it. Let’s not be afraid of conflict, and let’s actually say like, ‘What are the underlying issues here that cause the problem?’ Okay, advisors, set a little bit more lengthy expectations with your clients and tell them why. So, ‘Hey, we’re going to get you that paperwork in three days because that’s how long it takes us, and we have a lot of other clients,'” or whatever the excuses that you want to say. And as soon as we started fixing that problem, as soon as advisors started communicating longer expectations with their clients, which by the way, the clients don’t mind at all. They really do not mind that. Unless there’s like some kind of once in a blue moon urgent wire, three days is not a bad thing for turnaround time. And then the client service team started making far fewer mistakes, and everyone got along so much better. But it’s amazing in any environment how trust can break the operation so easily.
Michael: I love just the story and the way that evolved, that, right, it starts with, we need the paperwork and our team keeps making mistake on the paperwork. Well, why? Well, because they really…they had to turn it around really tight. Okay, well, why do they have to turn around so tight? Well, the advisor said it was a 24-hour turnaround. Well, why did the advisor say it was a 24-hour turnaround? Like, well, because we felt like we needed to get the paperwork back to the client as soon as possible. Like, well, why do we need to get the paperwork back to the client as soon as possible? Like, well, oh, I guess actually, it wasn’t that urgent. We probably could have told them a few days and it would have been totally fine. But the advisor didn’t realize it. So they just said, “We’re going to get it to you quickly,” because that feels like good service. And then that turned into a 24-hour promise, which turned out to be a bunch of stress for the team, which turned into paperwork mistakes, which then rippled all the way up and down the line.
And that just to me, it’s an interesting example, like, problem, our advisors don’t trust the staff to do the paperwork properly, like, actual solution, well, it turns out, actually, it’s the advisors who need training on doing better expectation setting with clients around paperwork, which I don’t think is where that brain normally goes. You’ve got to do a couple of rounds of, “Well, why did we do it that way? Well, why did that happen? Well, why did that happen?” Until eventually we get down like, “Oh, now I actually see what the problem is. And it has nothing to do with our team members, their training on paperwork, their attention to detail or anything else. It’s like, no, we had another problem way upstream that was rippling down to the point that it was causing this issue.”
Stacey: Yeah. And I think that that happens a lot in every single firm. And it wasn’t until we… We did a few steps first in order to launch this culture of trust initiative. One thing that… I went to a Pershing conference, Mark Tibergien was speaking, and up on the screen, he put two people on the screen with a tight rope in between them. And he made this statement, “Who is more important, the employee or the client?” And I’m sitting in this conference, looking at this screen, thinking to myself, “Oh, man, where is this going? I’m not sure where this is going.” Because, of course, in our industry, the standard is that the client comes first. And I truly believe that, and that’s the way that we operate as a firm as well. But then you have to ask yourself the question, the client comes first in what regard? And I think that when it comes to being ethical, integrity, acting in their best interest, that is 100% true.
But in an organization, you might actually have to turn that on its head a little bit. And Mark Tibergien was making that statement. He was saying, “No, actually, when you’re a leader in an organization, the employee or the team member comes first, because if you put the employee first, they will put the client first. Because as soon as you don’t have that turmoil inside of your organization, then people are starting…will start to focus on how they can better benefit outside of the organization because they’re happy inside the organization.”
And I thought that that was so profound. And so we came back to our team and we put that tug of war picture up on the screen. And we asked everyone at the firm, there was probably 30 people at the time, to vote what they would vote. Does the employee come first or does the client come first? And it was a split vote, 50/50. It was a little bit age-based on the way that that got voted, but I think that the interesting part about that was that we realized that our people were approaching their work in two very different ways. And in order for us to be successful going forward, we needed everyone to be on the same page. And so we made a statement as a company that internally from a leadership standpoint, we have to put each other first. We can’t throw anyone under the bus. We can’t put anybody in a position to not be successful in their jobs, in their careers. And we started holding everyone in the organization accountable to acting in each other’s best interest when it comes to the work we’re doing, acting in the client’s best interest when it comes to like the actual thing that we’re doing for the client. And that was really transformative for us.
Michael: Very cool. And I am such a huge fan of Mark Tibergien. I had heard him once do a similar version of that story and that exercise. And the way he had painted it to us at the time was, so imagine for a moment like you’re in a meeting with a team member. It’s kind of a hard conversation, just that they’ve got a lot of stuff going on. You’re trying to mentor them and help them through a bit of a difficult situation. And while you’re having this relatively tough conversation with the key employee, your phone rings. And you look at the caller ID and it’s the biggest client of the firm. And you have to decide if you’re going to answer the phone on the spot. Like, do you take that call? And very apropos to the same point you’re making, like, I think some folks would be like, “Absolutely, clients come first, is my biggest client, I will answer that call. How can you not answer the call from your top client? Your employee is with you full-time. We can come back to this issue and work on it more later.”
Or there’s the set that say, “Look, if my employee is in a bad place and they ultimately leave, many of our clients aren’t going to be served as well when we go through turnover and replacement.” Right? There’s both the business cost as well as a human cost. That, look, at the end of the day, I can call my big client back as soon as this meeting is over, but I don’t need to stop the meeting that I’m having with my employee to take a call from the biggest client. And just sort of thinking about where you sit on that spectrum, and I think in a very real world, like, what does it communicate to your employee about how they’re valued if you will pause that conversation with them to take that client phone call in the middle of a tough conversation for them? That communicates a lot to your team, including some stuff that you may not have necessarily wanted to communicate.
Stacey: Yeah, and that trickle-down effect is going to be a little bit brutal. I think this also probably comes to the fact of like, do you have the right clients as a firm? Because if you have the right clients, I think clients will be understandable if you call them back in an hour. And for the most part, clients are. So much about leadership in any organization is just on communication. Even as our employees are working through their career paths, I think that there’s a tendency for someone to be like, “I got a CFP. I’m ready to be an advisor. Can I be an advisor tomorrow?” And my comment back is, if you can be an excellent communicator, you can be an advisor. But by excellent communication, I really mean excellent communication.
And I think it’s the same in leadership. You can be a really good…you can be a leader by having seniority in an organization, but if you’re not an excellent communicator, I think that that…any leadership skills you have, I think they’re going to get drowned out by the lack of clear expectation that your team is going to feel, or nonverbal communication in taking that call from that client, as opposed to finishing the conversation that you’re having with a team member about their personal life, their career, what’s going on with them, what success looks like. All of these things are so, so valuable. I just feel, and it’s what we talk to our team members about a lot, that communication trumps everything.
How Stacey Organized And Executed Morton’s Culture Of Trust Year [22:50]
Michael: So tell me a little bit more about this kind of culture of trust year. I’m fascinated by this. You said earlier you’d kind of anchored this around a question that team members were encouraged to ask, “If you feel like you’re not being trusted with something, just you have to ask, ‘Why don’t you trust me with this? Why don’t you trust me to do this?'” Was that literally, like, you trained that conversation?
Stacey: Literally. Yeah.
Michael: Like, people would just say in the moment like, “Hey, Stacey, I appreciate working with you, but I kind of feel like you’re micromanaging me, why don’t you trust me to do this?” Like, “Okay, let’s have this conversation?”
Stacey: It ended up being a little bit softer in practice than that, but the concept is there, right? That is the baseline of it. In order to do this, we had to do a few different things. So first, we had to set the stage that our intention is that our employees come first. In doing that, we put together a presentation with our team that… Basically, if you’re familiar with Simon Sinek “Start With Why,” talked to the company why, but then also the leadership why. So we have two different whys in our company. Our kind of outward why is that we want to help our clients get the most life out of their wealth. So everything we do as a company is kind of centered around this concept of helping clients get more life out of their wealth. But then when it comes to our internal focus and what our why is as leaders, is to help our team members get the most life out of their career. So we had to set the stage, and we had to communicate to our people that, “From a leadership team standpoint and all of your management, our goal as management was to help you get the most out of your career.” And that was our number one intention. So once we set the stage for that intention, I think it made everything a little bit easier going forward.
Then what we did is we took all of our different departments, and we have about eight different departments in the organization, and we basically assigned team leads to each department. This wasn’t necessarily managers. And I know that it’s really hard, especially in small firms, that managers don’t really come by very easily, and/or they’re wearing so many hats. They’re not truly dedicated to just people development. But we had enough people that we could call team leads. Maybe they were like leads of an advisory team or leads of the client service team. So we brought them together and we started having monthly meetings. And that’s the place that we started addressing the trust issues first. So we’d come together in these meetings, there was about 10 team leads, and we basically say, “Where’s it breaking? What issues are coming into play?” Every discussion we had is like, “Where do you feel like one team is opposed to another team or not operating as well with their team member?” And we just started talking about it. And I think that from there, those team leads started talking about it with the people that worked on their teams and said, “Where do you feel like trust is being broken? Where do you feel like it’s not working? Let me bring it back to the team leads table.” And the team leads were able to communicate and work through those issues together.”
So I think it didn’t happen broad-based across the entire organization. It really started at that team leads table. But then from there, what we started seeing is that people did…people started becoming more confident and not needing to play telephone to their lead anymore. And they just started communicating directly to the other teams, “Hey, it feels like this is broken. Can we talk about how to fix it? Because I want to make sure we have a really great working relationship going forward. And my intentions are good, your intentions are good. So let’s work on this together.” And I think that’s really how we kind of tackled some of these trust issues.
Michael: Interesting. And I guess I’m curious from the flip side, I’m assuming…I don’t mean this in a negative way, that like, that there were a bunch of problems like this cropping up that you felt the need to say like, “We’re putting a stake in the ground,” taking a pause from growth efforts and calling this the year to work on the culture of trust? Like, you were feeling these challenges bubbling up, I presume?
Stacey: Yeah. And I think it’s a cultural shift. Our firm has been around for almost 40 years. So there’s been a lot of different iterations of what we’ve done. And our founder passed away in mid-2017 from cancer. And I think that that happening made all of us sit back and just say two things, A, what’s the legacy that we want to continue and what he started? Just as a side note on that, his name’s Lon Morton, he had 800 people at his memorial service.
Stacey: I don’t even know celebrities that have 800 people at their memorial service. He was an amazing, amazing man. So inspirational. Everything that he did to found this company and who he was to the community is like, needs to be replicated tenfold. And so we were all very passionate about replicating that.
But I think that we were also really passionate about making this a company that was going to be resilient, infinite if you will. Because I think that the way that businesses historically grew was not going to be the same way that it was going to grow going forward. I think there’s a saying of like, what got you here won’t get you there. And we recognize that the world is changing and culture is changing, and people’s happiness in the workplace is the most important thing. And so how do we actually create an environment where people are truly happy? So then you have to ask yourself the question of like, “Why are people unhappy?” And I think that a lot of people were unhappy because of the hierarchical nature of this industry. And I think that that would be the case in many firms, if you were to ask them, that there just is a line in the sand, especially between operations and advisory. It’s a little bit of a us versus them mentality, and it’s a little bit of a seniority and hierarchical mentality. And we just decided that wasn’t what we were going to do anymore. That wasn’t the firm that we were going to be, and that’s not what we envisioned, and we didn’t think that we could build an everlasting practice if that type of energy still existed.
It’s kind of similar to like…this happens a lot in the restaurant industry, right? You have like the back of the house and the front of the house and the chefs and the servers. And there’s a lot of issues that happen there, too. And so we just said that we don’t really want that line in the sand anymore. And we’re going to figure out whatever we can do to equalize the playing field and have mutual respect across the board.
Michael: And so the goal for and the way that you tackled it was to say I think fundamentally like, “This structure and this relationship between the advisors and the operations team is driving heavily from a lack of trust between the two. So we’re going to try to repair the trust so that they work more constructively in the first place.”
Stacey: Exactly. And I think that was the core of the issue. Although I will tell you, trust is such a hard thing to solve. I was listening to a podcast with Adam Grant a few weeks ago, and he had a psychologist on the podcast and she was sharing that she did a bunch of research on trust. And trust is like more of a feeling. So it was really challenging for her to actually define what trust is. So she went out to philosophers and poets and said, “Well, how do they talk about trust?” And one had made a statement that trust is a risk masquerading as a promise. And I found that statement to be so fascinating. Trust is a risk masquerading as a promise. And fundamentally, her point in saying that is that we have to recognize that by asking people to trust us, you’re asking them to take a risk. And it’s a little chicken and the egg, do you take the risk and you learn to trust, or do you trust, which makes you comfortable with taking the risk?
But I think that it’s really important for us to recognize that like, embedded in trust is risk. We deal with that with our clients every day, right? When we’re recommending investments to them, we’re asking them to trust us to take a risk that this investment is going to work out in their best interest. And I think the same needs to apply for our teams. We need to understand that we’re asking people to take a risk. And so we need to figure out, what do we need to do to help that, I guess help really make that risk not as intense or scary for our people?
Michael: And so that was what in practice brought together this structure of, “We’re going to have a team lead in each of the functional department areas of the company. We’re going to bring them together on a monthly basis, and we’re just going to try to have these conversations. They may be a little messy, but you can’t create the trust if you don’t have the conversations and then problem-solve your way through the conversation. So we’re going to do it this year. This is our year.”
Stacey: We’re going to do it. And we really did do it. And we really did pause growth for that. And it’s not that growth would have been a terrible thing during that period of time, but we needed the focus and attention to be on our organization and what we were going to do in the long term. And I think that in most organizations, the concept of growth or the topic of growth is like…is on the minds of most business owners and many advisors, especially when their compensation depends on it at all times. That’s something else that we did as well, where we’ve changed our comp model drastically to kind of support a little bit more of a culture of equality amongst most of our team members versus it just being an “eat what you kill” type environment, which I think that that sometimes, not all the time, but sometimes that can actually cause a lot of the trust issues that exist in an organization. Because if someone is kind of going crazy because their livelihood depends on it, that energy and attitude can easily fold over into the rest of the team.
Michael: So can you talk to us a little bit more about that, these shifting comp models? Because I feel like it’s a conversation that is increasingly out there in the industry of, what does compensation for advisors look like going forward, particularly in larger kind of enterprise ensemble-style firms, where there is less revenue-based sort of “eat what you kill” or get paid on what you manage approaches? And at least, I guess, more of a separation of, “Here’s the salary or salary and bonus that you get paid to service clients. If you want to go get clients and do business development, we’ll compensate that maybe differently, but you have to want to hunt and get something if you want that. Otherwise, here’s the base compensation for servicing the clients.” Is that the kind of shift that you put forth as well or did you go about this a different way? How did you actually restructure compensation?
How Stacey Restructured Compensation At Morton [33:38]
Stacey: So it came in a few different phases, which I think is…I probably would recommend for anyone to take these types of compensation changes in phases. Going from 20% or 30% trailer model to a like salary only with company metric bonuses, that’s a big, big change. So I think we tried to take it in baby steps where we went from, of course, the historical trailer model. The firm founded in the 1980s, I think that that was the model of the day. And then in 2015-ish, maybe 5 years ago, we switched to basically a base salary that was like loosely based on the trailer, and then a 50% production bonus for bringing in new business. But then in 2016, 2017, we started working in teams more. And so the question became, advisor would go out and get a client, and then they would come and meet with that advisor and their associate, then they would close the business. And so who closed the business? And I’m not in the meeting. I don’t know who closed the business. Did the client like the associate more than the advisor? I can’t even tell you the answer to that.
And so then it became this question of like, who closed the business and who gets the bonus? And I’m very grateful that we had the culture of trust initiative because what actually happened is people started giving their bonuses away to each other to not break trust. And so it was this really interesting thing where like, typically, you would think people would start fighting over the bonuses. And that is not what happened. They actually started kind of unfairly giving it away, where I had to try to navigate really, “Where did this come from? How did it happen? Who closed it?” And I had to say like, “You don’t need to give this away. You earned it. You deserved it.” And it was just so conflicting.
And then I had my people come to me and be like, “I don’t want to have these conversations anymore. I want to be a part of a company where like, we’re all growing together. We’re all rowing in the boat together. And we want to win together, but we also want to recognize that if one of us isn’t winning, the rest of us want to help that person to win.” And I think that…I honestly do think that all of this stemmed from that trust thing that we did. But I was just faced with the kind of question of like, “Well, how do you fix it?” And so myself and our leadership kind of got together. And at the time, we were working with Angie Herbers, and she kind of opened up our eyes to this idea of a revenue-sharing model. And I think that took us…it probably was about a year and a half of research. I had phone calls with probably 15, 20 other different firms to talk about what they were doing, and just better understand like, how do you actually transition to this model where you’re revenue sharing? How do people not get lazy on you in a revenue-sharing model? Because if they get a piece of the pie, then why should they work? But then also, how do you still reward excellence within your organization? And so it took us a long time to get to that point. We’ve been doing the revenue-sharing model for about a year and a half now, just to give you some context.
Michael: Can you describe further just what this…what the revenue-sharing model is?
Stacey: Yeah. So every single person in the organization is paid a salary, and then they get a percentage of the bonus pool based on their level in the organization. So client service team member level one, two, three. Associate advisor level one and two. Lead advisor one, two, three. Senior advisor one, two, three. Everybody has a title and a level. That level is dependent upon quite a few different things. It can be dependent upon specialty, certifications, years of experience, your ability to actually be representation of our core values. Our core values are one of the most important things in our organization. I can definitely share a little bit more about that. But in order to move up in a level, you have very clear timelines, and you have metrics that you need to hit. Moving up a level gets you a little bit bigger piece of that bonus pool. So at the senior advisor level, just as an example, our senior advisor level 1 needs to bring in $100,000 in new revenue, senior two $150,000, and senior three 200,000. If they don’t hit those metrics, after two years, you can actually go backwards in a level. So there is this underlying personal goal embedded in it. But at the end of the day, the bonus pool is all revenue from the firm, and it’s shared with everybody.
So I think that what’s happened in our organization and I’m still a fan of it, although I’ll tell you it’s been a year and a half, so I can’t promise it will always work, what’s happened is that…and we pay quarterly, by the way. So when we have our quarterly meetings where we’re all looking at the metrics together, we’re very transparent with everyone in the firm. They can see where our revenue is for the quarter. And they know for the year what our goals are. You’re looking around the room and you’re saying, “Thank you so much for getting those new account documents out faster because that was really important to this client. And this was a case where the client actually needed it because they were going on vacation. And we closed this business, and that added whatever it is, $10,000 to the revenue bonus, and we’re all winning together for that.” And so I think that changing to that model has really kind of given us this rowing in the same boat feeling, and people…I personally feel that it’s also decreased any like bitterness or resentfulness, where in some organizations, operations team members can feel like they do all the work and the advisors are out golfing. And now I think that they feel like, “Can you please go out golfing and get more business so we can all bonus?”
Michael: Go get some more business. We want this revenue up.
Stacey: Yeah, exactly. So I think that that’s one of the changes that has happened with the revenue-sharing model. But I know that that’s not typical in most advisory firms. And it did take us a long time to get there.
Michael: So in your context, revenue sharing is not down to the advisor level, like, “Oh, you manage $400,000 of revenue, therefore, here’s your revenue sharing.” This is, at the firm level, we as a firm did $1 million of revenue or $3 million or 5 million or $10 million or whatever it is, and you just set aside a percentage pool of the revenue?
Stacey: Yeah. And if we grow faster, the pool’s bigger.
Michael: Can you give us a sense as to what this is? Like just, is this like 2% of the firm’s revenue that’s in a pool? Is this like 20% of the firm’s revenue that’s in a pool? Like just, how big of, I guess, a compensation component for the employees or a cost component of the firm is this revenue set aside bonus pool?
Stacey: Well, so there was a lot of modeling that we did with it. We try to make our base salaries and our bonuses together range between 45% and 60% of our revenue. So kind of 45% to 60% all-in kind of for cost of goods sold. So that means base salary, bonuses, including benefits packages. All of that kind of is in that anywhere between 45% and 60%. Sixty is kind of the cap, and it doesn’t ever really get up there of what we want to have for compensation.
Michael: For the advisor relative to their client base, or for your entire staff payroll relative…
Michael: …to revenue?
Stacey: Yeah, exactly.
Stacey: So we kind of had a range that we needed to work with to make sure that we were not going to be putting the company at risk in any way by putting this revenue-sharing pool in place. So we did a lot of modeling, really good scenarios, really bad scenarios, and where are we going to kind of hit that mark? Ideally, it hits around 50%, but somewhere in that like…we kind of stress tested. It’s like, what’s the maximum we’d be able to pay out if we could, and then what really is like the minimum that we felt like we were still supporting people’s lives? So ended up being in that range. So that was one of the first steps that we took.
But just to kind of give you a real-life example, if you’re making, let’s call it $10 million in revenue, we pay out 5% of the revenue pool up to a negative 10. So we pay out bonuses, if we go down to $9 million in revenue because we had a market correction or something happens, we still have a 5% pool. And then of that 5% pool, every different position has a different percentage they get at that pool. So that’s the downside. And then on the upside, we’ll pay out…if we grow by 3%, we’ll pay out 7% of the pool. If we grow by 6%, we’ll pay out 10% of the pool. If we grow by 9%, it actually starts escalating a little bit more where the pool gets bigger if we have like substantial growth so that we can really reward excellence. And if we grow beyond expectations, the pool gets a little bit bigger. So there’s a little bit of a J curve effect at the end there. But essentially…
Michael: But ultimately, like, if the firm’s up 9%, our pool has gone from 5% to 10%, which still means like the firm does net a positive from its own growth, like, you’re not going backwards or anything, like, the firm grows 9%, the total pool grows by net 5%. So team is winning a lot with growth, but the firm is winning as well.
Michael: And everybody is participating in that pool of money relative to their individual compensation, or I guess, relative to their tier and structure.
Stacey: Yep. We’re also winning even if we go down. So I think that it’s still important.
Michael: You’ve got to keep the clients or you go down a whole lot further.
Stacey: Yeah, exactly.
Michael: Interesting. And so, as I think about this from the total firm level then, so your…this 5%, at least baseline number, that essentially goes into your, “I want total staff cost to be in the 45% to 60% range?” Like, you had to…
Michael: …make enough room for there? And I’m presuming like, 15% to 25% of other overhead expenses of the firm, technology, rents, all the other things that go with it that get you to an end profit margin for the business itself?
Stacey: Yeah. I think trying to target somewhere in the 30% range, which is actually a little bit more challenging. So I think that’s our end goal, is to be in the 25% to 35%, let’s say, range when it comes to operating profit. But I know that in different environments, of course, that’s going to fluctuate a little bit. But our goal…historically speaking, our operating costs are not overly expensive. And by operating costs, I’m not including operations expenses, which I know a lot of people do, include that in the number. But let’s call it 15%. So if we can kind of keep the payroll cost in that 45% to 60% and we can keep operating cost in the 15% range, then I think that we can kind of hit some of those target numbers.
Michael: And so I guess relative to the individual team member, I’m just roughly napkin mathing here, if staff comp is in the order of 50% of revenue and a bonus pool is a 5% kind of attached to that, does that really mean in practice like the typical team member is looking at bonus opportunities that are on the order of 10% of their compensation? Is that about how it lines up?
Stacey: So it scales depending on what your position is.
Stacey: If you’re in a position that’s more like a client service role, trading role, maybe even like behind the scenes financial planning, when you don’t work with clients, it’s going to be in that 10% range. If you’re in like a leadership role and doing those activities, it’s probably closer to 15% of your salary range. And then once you get into the advisor level, our associate advisors are kind of…are definitely a little bit more in that standard range, but then lead and senior advisors, your variable versus fixed are astronomically different. So a lead advisor will have a much more significant piece of the bonus pool, a little bit lower on the base, and then a senior advisor is closer to like 60% salary, 40% pool.
Michael: Okay. With the idea just being, in essence, the more directly you are tied to either bringing in the revenue or being the face of the firm that retains the revenue, the more upside you have with the variable and the more risk you will retain with the variable.
Stacey: Exactly. Yep.
Michael: Okay. And I’m just wondering, you said like you made this as a transition from a history of the team being paid mostly around trailers, I guess around like percentages of revenue that tied more directly to their client base. So how do you make that transition? Because I know for some firms, a lot of people are on revenue-based compensation, right? The good and bad of this, you figure out pretty quickly like, “Hey, if I just do a good job of holding on to my clients, the market alone tends to grow my revenue base, and therefore, it grows revenue with the clients, and therefore, it also grows my compensation.” And so a lot of advisors already on revenue-based compensation don’t necessarily want to get off that wagon once they’re on it and convert to a more fixed salary structure. Like, how did you do that or communicate that or get through that transition in the firm and get people comfortable with that shift?
How Morton Helped Team Members Comfortable With A New Compensation Structure [46:57]
Stacey: Over a long period of time. Well, I guess just one comment on that. I don’t think it’s a bad thing to have a trailer model. I don’t want to frame it in that way. I feel like the reason that we decided to do what we did is because we wanted to have an environment where it truly felt like everybody was rowing in the boat together. And that was our most important thing. And that was a goal for our firm. And I don’t think that’s the goal for every firm and nor do I feel like it should be the goal for every firm. So I don’t want…whatever I say in terms of the compensation model, I think that it’s very specific to firms that their desire is to make it extremely team-focused environment. And that they recognize that for them to have a legacy, for them to have succession planning, for them to have a place where people are happy to come to work, to even think about growth long term, they’re taking the position that we can only grow long term if we have excellent people and if we have excellent people that are working together. And that means…not to bring like a preschool term into it, it just means sharing is caring. So I think that that’s really what the focus of it is there. And I’ll tell you that that’s really what we had to communicate.
And we had to make sure that we had the team members here on board to facilitate that. And there’s one or two advisors that are retiring in the next few years, and we didn’t mess with their compensation. We just said, “It’s fine. Leave it as is. We’ll make this work.” But anybody that wanted to be at this firm for more than the next five years, we’d made a change.
And I think that we had to have those individual one-on-one conversations, especially with some of our senior advisors that were bringing in the most business, and basically say, “Look, I’m sorry to be the bearer of reality here, but you can’t bring in business if people aren’t doing paperwork for you. And you can’t bring in business if somebody isn’t managing the portfolio for you. And you can’t bring in business if you don’t have a financial planning team working behind the scenes, executing your financial plans. And you’re the one that gets to be in front of the client, presenting the plan to the client, and you kind of get all the glory for it. But remember that you’re not going to grow your practice without all of these people, and recognize that. And if it is a situation where you feel like you want to just be a jack of all trades and wear all these hats and do all this work, you are welcome to find another organization that you want to do that work in. But that’s not the organization that we’re growing here. And that’s not the energy or the vibe that we’re looking for. We’re looking for people who truly can look around and say to everybody sitting next to them, ‘I can’t do this without you.'” That’s a hard conversation and a hard place to be, but it wasn’t…
Michael: I was going to say, how do you just process the risk of them saying like, “Okay, fine, then I won’t stay. Me and my clients and my revenue are going to go find somewhere else then?” So yeah.
Stacey: I think that it depends on what your business model is. Fortunately for us, unfortunately for them, we do a significant amount of alternatives, and those cannot leave. So I don’t think they have that choice either. And I don’t think that’s the case for a lot of…they could leave, but most of our clients work with us because of our…historically speaking, a lot of our clients had worked with us because of our investment philosophy. And we do a lot of work on that end. And they’re things that you can’t access anywhere else. And so I think that for the majority of clients, and even for the majority of our advisors, there’s a belief system in the overarching philosophy of our company that’s not really…not very transferable to very many other firms. So I think that’s one of the other reasons I say that moving to this type of model might not be for everyone, because I don’t think that all firms have the luxury of being so differentiated that it’s not like you can just pick up 50 clients and plop somewhere else. What they came to you for is going to look very different at another firm.
Michael: Oh, so I think it’s an interesting point just the way that you frame that. And this is one of the reasons why it’s important if you are wearing the hat of firm owner and growing a firm that has multiple advisors, the importance of creating something that is, in essence, unique and proprietary at the firm level, that you as a firm do uniquely because it means advisors can’t necessarily just take clients and leave because the value isn’t solely the advisor, it’s this combination of the advisor and what the firm brings to the table, right? On the one hand, ideally, that creates a more rewarding and successful opportunity for the advisor to have a platform that gives them something unique, but it also provides a level of safety for the firm of, this doesn’t just come down to, “We have advisors who give great advice and do great relationship management with our clients,” because they could do that anywhere. It’s, “Our value is this combination of great advisors and this unique thing that we do and have built as a firm that you can’t necessarily replicate outside of the firm. That’s part of what binds us together.”
Stacey: Exactly. Yeah. In speaking with clients or speaking internally, we have an analogy for ourselves, which is that we liken ourselves to a farm-to-table restaurant versus a traditional steakhouse. At a traditional steakhouse, you can go to any of them, and you can get meat and potatoes, and you’re always going to get it, and it’s probably going to be pretty consistent. And that’s kind of like more traditional asset managers. So they can…you can go there, and it’s going to be consistent, and you know what you’re going to get, and the value can be amazing and excellent.
But then when we think about ourselves as like a farm-to-table restaurant, we’re going out to the farmers’ market and we’re seeing what’s in season, and that’s our alternative strategy. We’re constantly looking for how we can add value to client portfolios in a very different way. And that means that our menu is going to look different depending on when you come to see us and what the season is. And that menu is going to change over time. And so I think that when we think about ourselves as like a farm-to-table restaurant, or you think about any farm-to-table restaurant, there’s still other farm-to-table restaurants that exist and they do something unique, but whatever the thing is that you do is probably going to be unique to you. And so that’s kind of how we’re structured.
Michael: So talk to us a little bit more about this phenomenon of having themes for a year. You had said 2017 became this company-wide theme of, “This is the year of the culture of trust, we’re going to take a pause in growth and just focus on and tackle this.” So is this an annual thing? Is there always an annual theme for the company or was this like a particular point in time focus because you wanted to tackle this issue?
How Morton’s Leadership Team Sets A Theme For Each Year [54:31]
Stacey: That was a point in time, but then it turned into having a mindset as a leadership team that we wanted to have some themes. So last year, one of the themes was a culture of curiosity. So we had hired a lot of people, a lot of people from outside the industry last year, nine to be exact, and one of the things that’s really challenging when you hire someone from outside the industry, while I think that…what we talked about earlier, the attributes being a very important key factor, they’re basically learning Italian for six months. Really, like, while it’s not a hard job, it’s not like this is the language that’s commonly spoken. I even think about my upbringing, I didn’t learn about budgeting or finance or anything that had to do with stocks and bonds and financial planning, even when I came from like being a wedding coordinator, and I was a Pilates instructor. Our CIO was my client at the Pilates studio, and I was running a studio, and she came up to me after…
Michael: That was the entry? That was the pathway?
Stacey: Yep. She came up to me after work one day and said, “I really like the way that you run the studio. Will you come work at my company?” And at the time, we had 18 employees, and I said, “No, that sounds boring. I’m not going to go from teaching fitness to sitting behind a desk all day.” And then she’s like, “No, it’s not actually sitting behind a desk all day.” And she explained to me the value that we bring to the table and helping people, and that she would teach me along the way. And so she eventually convinced me to come over. And I had a degree in business economics, but that didn’t really help me that much in starting in this career. I really felt like I spent six months learning Italian. And I think that that is an important factor in how you bring on people.
So when I talk about the culture of curiosity that we worked on last year, that we implemented, it was all about taking these people from outside the industry and accepting that, “For the first six months, I just want you to be curious. I just want you to have like a lifelong learner attitude.” We spent some time going through the book “The 15 Commitments of Conscious Leadership” as a firm. We actually did a few sessions on that. We can talk a little bit about our education sessions, which are very important to us. And in “The 15 Commitments of Conscious Leadership,” it has an entire section on just the importance of curiosity. And so recognizing that we have a young firm and a firm that needed to develop and wasn’t going to be perfect or excellent, or have their CFPs right away, we said, “Okay, instead of evaluating you on a typical thing, typical factors, we’d evaluate you on, we’re going to evaluate you on your ability to be curious, and your ability to learn, and your ability to desire to better yourself. And that’s going to be the goal of this year.” And that was actually just a really cool time. And I valued so much just hearing all of the different ways that our team members were passionate and wanted to grow themselves.
Michael: And so you mentioned these like firm-wide education sessions that you’re doing. Can you talk a little bit more about what those are?
Stacey: Yeah. We’ve been doing it for three years now. Every Thursday at 10 a.m., we do an hour education session that ranges from a million different topics, but generally speaking, we try to make one every six weeks focused on some type of soft skills training. So we’ll read a book together. I recently bought everyone the book “The ONE Thing.” And it talks a lot about how in a world where multitasking is rampant, how do you actually focus on the things that are the most important and that are going to progress you towards the ultimate thing that you want to accomplish? And so we either extract sections out of the book and send it to everybody in advance to read, or we’ll buy everyone a copy of the book, and we’ll just do an entire session on, “How do you actually de-stress your life by reducing multitasking?”
One really simple example, we surveyed our team members and we basically asked, “What’s the thing that stresses you out the most?” And by far email was number one on the list. People have so much email anxiety. And so we proposed, “Well, what if your email wasn’t on all day? What if? Like, tell me the worst-case scenario if your email didn’t need to be on the entire day. That doesn’t mean that you’re not going to turn it on during the day, but what happens if we actually like take a step back and look at a lifestyle where you check your email from 8 to 8:30, from 12 to 12:30, and from 4:30 to 5? What is the worst that’s going to happen if you just dedicate time to that so that when you’re doing your work, you can feel more fulfilled and not distracted by always these incoming emails and multitasking and those types of things?” And that was a really, I think, important thing for us to go through, especially in the world of remote work, where you feel the need to be on all the time, and just giving people permission to not be on all the time.
So that’s an example of an education session that’s more focused on the soft skills. But for the other weeks, we have CPAs, when we were in the office would come into the office, but we’ve been having them on Zoom, insurance professionals, estate attorneys, education planners come in and they do an hour education session for our people. We get CE credits for all of these as well. So we submit them to the CFP Board. It’s a nice way to get all of our team members pretty much all of their CEs that they need. We also do internal case studies where if there was an interesting client scenario that happened in the last few weeks, our planners rotate through presenting a case study on a client and prompt questions for the team of like, “What would you do in this scenario? What would you do in that scenario?” So that we can learn more from each other.
And then we also bring our investment fund managers in. So they’ll do a presentation on the fund. What the most current update is. The session is mandatory for all advisors and optional for all operations team members, but I’ll tell you that pretty much everyone in the firm goes, and it’s probably everybody’s favorite session of the week because it’s part of that like the culture of curiosity, lifelong learner theme. And maybe not every week does everybody love it because some people are more interested in some things than others, but I think it’s really nice to kind of have that dedicated time just to learning for an hour a week.
Michael: And so it’s literally like just, every Thursday at 10 a.m., like clockwork, that’s the deal.
Stacey: Yep, exactly. And we have like a weekly kickoff meeting on Mondays that it’s usually just 15 minutes of any quick updates people need to have, then that’s not really…it doesn’t really go into depth. The education sessions are truly about us supporting a learning environment.
Michael: Very cool. I’m just curious, who’s responsible for actually handling and managing that? Oh, and I just think about like, I love the sound of it, but then I’m thinking like, well, someone’s actually got to make sure like there has to be a person or a theme or a book or excerpts or whatever it is lined up every single week on an ongoing basis. There’s 52 of these coming up. Like, how do you actually handle responsibility for that in the firm, because that’s not a small lift?
Stacey: Yeah. My financial planning lead and one of our research analysts work together to create the calendar. They set a meeting once a month for 15 minutes that myself and my CEO and CIO attend as well. And we go through and we plan for two months. And so the financial planning lead will go ahead and coordinate case studies that need to be brought in, or like financial planning experts, meaning like CPAs, insurance professionals. And they’ll coordinate with all of those people to come in, and then the research analysts will coordinate with our fund managers for the days that those are assigned. We generally try to switch off. Every other week is an investment or financial planning with some type of either compliance topic or a practice management topic, like “The 15 Commitments of Conscious Leadership,” “Lifescale,” “The ONE Thing,” all of these other books coming into play about every six weeks.
For those practice management sessions, either myself or generally our CEO, Jeff Sarti, does those. So we’re talking about…I probably do three of those sessions a year. We also have an organizational psychologist, or life coach I guess is maybe a better term for her. Her name is Talia. She works with all of us. She works with me once a week and all of our executives once a week, but works with a lot of our team members on our own personal goals and personal development. And so we’ll actually leverage Talia sometimes to teach on some of those topics as well.
Michael: So can you talk more about that? So like, there’s an organizational psychologist that’s in weekly meetings with executives?
How Morton Utilizes An Organizational Psychologist [1:03:30]
Stacey: Yeah. So once a week I meet with Talia, and then she meets with us as an executive team once a month as well. And we’ve opened her up to most of the other people at the firm. So she’s on a retainer with us. And she does sessions. It started off as doing sessions with all of our advisors, and helping them to kind of build business plans for themselves and how they actually can kind of get past maybe fears that they have about asking for client referrals. Or maybe they want to go into a specialty and they just need much more guidance in how to actually stay on track to do that. So she started working with them in that capacity. And it’s really interesting, you think to yourself, “Oh, I need a specialist that knows how to tackle women and wealth issues,” but actually, you might just need somebody to hold your advisor accountable to tackling women and wealth issues. Because I think that what she does really well is she kind of helps people set goals and make sure that it’s achievable, and what’s the one thing that you need to tackle this week? And even when we presented on “The ONE Thing” book a few weeks ago, her and I co-led that session together.
She’s been absolutely wonderful for our team and our people. And even in the middle of coronavirus and in the middle of some of the riots that were happening and protests, we offered her up to everybody in the organization to have a phone call with her to just talk about how they were feeling and what they kind of…how they wanted to actually act or not act based on what was happening. And she’s been, in many ways, in my opinion, a godsend for us. And we really, really love having her as a part of the team. Everything she talks about with our team members is private. So she does not come back and share any information with us. She’ll say things like, “Hey, you guys, I think everybody really needs to hear about the vision again.” Some kind of like general statement like that, but nothing ever specific or about any individual. And we’re very grateful to have her. It’s almost like the…I don’t know if you watch the TV show “Billions,” she feels like Wendy Rhoades, the character on “Billions.”
Michael: And so, does Talia do this for a lot of advisory firms? Is this her thing?
Stacey: She does it for a lot of professional service practices, but we basically have, I think, taken most of her available hours at this point. I think she has a handful of other clients. She had a lot of clients before working with us. But then as we started working with her, it started with the eight of us that were working with her every other week, and then it just has transformed into, the leadership team works with her weekly, which we all value so much just having someone to talk to, having someone to like throw ideas out without any fear or repercussion that you’re going to create a bad rap for yourself by saying that thing that you need to really say. And I think that having that open dialogue and ability to be honest with somebody and then work through those challenges has been absolutely transformative for our business. I honestly don’t really imagine a world that she’s not with us. I value her so much.
Michael: So I guess a few follow-up questions that I have. So one, kind of ask like just what do you spend or what do you budget around this? And how do you think about budgeting for this? Like, this is not a typical expense line item I have on my P&L. I’m just like, I’m not even sure I put it. Like, do I put this as like professional development of the people that she supports? Do I put this as like a general overhead thing for operational efficiency? Like…
Stacey: It’s a consultant line item.
Michael: …what do you budget for this and how do you think about it? Okay.
Stacey: It’s a consultant line item. So we worked…I’m so grateful for the time we worked with Angie Herbers. I’m so grateful for the time we worked with Philip Palaveev. We’ve loved both of those interactions, and they’ve helped us so much transform as a business. I would tell you that I’m not…I can’t promise you this is absolutely necessary to have as like…besides for maybe the leadership team as a line item budget until you get to a firm that’s maybe, call it like north of 35, 40 people. But as soon as we got to the size that we are today, it just became a reality check that if we’re going to grow the way that we want to grow, we need more support in supporting the people. And it’s not necessarily support in terms of like the way to do the job, because a lot of our people are self-sufficient, to be honest, but it’s more support in like how to continue being inspired in the job, how to work through personal and emotional challenges.
Even, I think, a lot of our…some of our people have even opted to ask Talia to work with them personally in their family dynamics. And I’ve even done that, where Talia was working with my husband for a few months on some of his career goals. Having that person that can help beyond what’s actually happening in the business, it just seems like once you get to a certain size, that’s a cost well worth it. So she is as expensive as a manager. And so I think that you’re almost budgeting that in your line item. And it’s not a manager necessarily to do the work, but maybe it’s like a manager to like tackle all the things that happen below the surface as well.
Michael: So talk to us a little bit more about hiring practices. You said you hired nine people last year from outside the industry, which is nine more than what the average advisory firm hires from outside the industry if they hire at all. I think we have a very strong tendency to hire from within the industry, where we want people, as you said, who know the language, who are familiar with the tasks and the responsibilities, maybe have literal job experience in the role. When you’re hiring that many outside the industry, clearly, you just…you’re approaching this from a whole different philosophy and approach. So can you talk to us a little bit more about just how do you figure out who to hire? And how do you figure out who to hire that’s actually going to be a fit from outside the industry?
How Stacey Figures Out If A New Hire From Outside The Industry Will Be A Good Cultural Fit [1:09:46]
Stacey: Well, I think the first thing that I did is I put together a two-year timeline for all employees in the organization, where they wanted to grow, where I thought they could grow, and what holes needed to be filled if they grew, right? If you have a client service person that gets promoted to an associate advisor, you’ve got to have a new client service person, right, for that. It’s not like you just do that promotion and then that position doesn’t have anyone in it anymore, is unnecessary. So the first thing that…kind of just tried to plan out for at least a year in advance in terms of where were our holes, and where could we help with capacity or other challenges?
The different people came…people came to us from different worlds. So we had somebody who was an ex-professional basketball player from Austria, and he had moved to the U.S. and gotten married and started taking courses towards his CFA. And employee of the organization knew him and knew about him. He didn’t have…doesn’t have tons of work experience in this industry. But we met him, and his work ethic is unreal. So that’s an example of somebody that’s outside the industry. We had two different educators. One was an English teacher in a high school, and then another one worked for a private organization. Both of those attributes of being an educator, being so giving. Honestly, navigating difficult conversations with parents I think is actually a really interesting trait, similar to serving someone coffee at 4:30 a.m. I think that you’ve got to navigate a lot of different personalities in that circumstance. We had somebody who worked for a rehabilitation center for people who were experiencing mental challenges in their life and knew how to have empathy for that.
You’re kind of just thinking through these professions that exist outside of your normal day-to-day, and how can that translate into somebody that either has like the work ethic that you’re looking for or is truly capable of learning and learning quickly? So in kind of hiring through all of these different positions, the question became, “What positions are we hiring for?” And the most typical position we hire someone outside the industry for is definitely going to be in a client service associate role. Or, I mentioned we do a lot of private investments, so we have a lot of private investment administration. So those two roles are the most common outside the industry roles that we’ll hire for, mostly because I think that they’re also…you can have some space and breathing room. You’re like completing paperwork, and you’re definitely able to learn a lot of these things, but you’re not like talking about advanced financial planning concepts with a client. So that’s really nice that they can kind of start in, let’s call it like a safe space.
And then we have a pretty robust career path timeline and process that we go through. So someone might stay in that client service role for a year or two, but then as part of our financial planning program, and just to give context to that, our financial planning team works behind the scenes. So an advisory team will work with a client together, gather the data. The financial planning team puts together the plan and then shoots it back to the advisor to present the plan.
So as part of our financial planning program, we have a paraplanner training program where for nine months, someone can transition from the client service team to the paraplanner training program, and they just spend nine months learning. So that might be in the middle of them doing their CFP. They’re not really a role that we need as an organization, but they’re a role that we’re willing to invest in. They have an entire training program, they run through case studies. They have a week by week, essentially regimen that they have to complete. And that’s something that’s really important to us, that they go through that entire piece of the kind of advisory puzzle before they’re ever client-facing. So I think that if you’re going to hire outside the industry, there has to be these processes and procedures around training and development, and admitting that that timeline might be a little bit longer than you might want it to be.
Michael: And so how do you think about I guess the cost and the dynamics of doing that? You’ve sort of accentuated more than once like, this is going to take them six months to learn the language. This is going to take longer. It takes them longer to get up to speed. So why are you inflicting this upon yourself to go out of your way to get people without industry experience where you’re going to have these longer timelines for ramp-up in the first place? What’s leading you there then?
Stacey: I’m in this for the long game. I’m not in this for the short game. In my life historically, when I’ve made decisions for quick fixes, those haven’t been the best decisions I’ve made. They’ve worked out every once in a while, but I would say that thinking through what’s the long game here is so valuable in terms of how are we going to make this company excellent in a year or two years or three years from now? And who are the people that we want rowing in the boat with us? And I think that has to be the starting point of any question you ask. I’m not opposed to hiring people with experience. I had somebody start on Monday that had two years’ experience as a client service person. So I think that I’m definitely open-minded to that possibility as well, but at the end of the day, I think those positive attributes being a representative arm of our core values. We call our core values our five E’s: excellence, empowerment, empathy, ethical, and enjoyment. So those five core values lead all of our decision-making. And I think that that has to be the primary focus of how we bring people on.
Michael: So wait, what were the five again? Excellence, empowerment, empathy, ethical…
Michael: …and enjoyment. Okay. That’s very memorable as five E’s. And so, I guess sounds like that’s part of your drive in who you’re looking at and the kinds of folks that you’re hiring and seeking out in the first place? You’re drawing on people that have communication skills and ability to learn quickly and a work ethic and saying, “If you have that and you’re aligned to our core values, we’ll figure out the teaching training stuff? Because in the long run, you’re going to be a great fit here. And so in the short run, we’ll just bear the cost of training. So that’s what we do to get there.”
Stacey: Exactly. Yeah. And I think our core values are everywhere and in everything we do. It’s something that gets talked about a lot in the industry. And we really struggled with building them. But I think that having that baseline is extremely important to us. And then the other thing that we communicate in terms of the core values is that they are not isolated values. It’s not like you can be excellent and I’m going to give an A+ grade. I think that you really have to have all of those things together. And when we redefined them kind of in the middle of that culture of trust initiative was when we brought our five E’s to life. And in the process of doing that, our intentions really were to make it so that these things were compounded on top of each other. And we have some wonderful stories around them. And I think that they are alive in our culture and in everything we do.
Michael: I guess I’m still just wondering like, how do you figure out who’s the right person to hire from outside the industry that they’ll be able to learn and get up to speed and come on board? Is there a screening process or an assessment or something that you have developed? Most firms I feel like it’s hard enough to find people with industry experience who turn out to be a good fit, never mind people outside the industry experience where you have less to rely on to be able to figure that out.
Stacey: Yeah. So, most of our people from outside the industry are employee referrals. So I think just the starting point of, “Hey, I trust you, you trust them, we can kind of start talking about whether or not this is going to work” I think is a really important factor in it.
And again, I think because everything that we have as a company is aligned towards rowing in the boat together, our team members are really passionate about making employee referrals too. So they think about the people in their life. The English teacher was…I mentioned Dan earlier on the call, who was my manager at Peet’s Coffee and now our director of operations, the English teacher was Dan’s best friend and had basically just expressed that he had this person who he’d been talking to for a few years about the organization, and they were looking for a career change, and, “Can I please…I’d love to just have him come meet with you.” And so I just went and I had I think lunch with this individual, and we talked about life and what he wanted out of life. And I think that that starting point of being able to have lunch with somebody and understand who they are as a human, even from like a non-professional context, was the right thing to do. That’s even how I got hired, right? I was a Pilates instructor for our CIO. And so this kind of personal context first, professional context second I think is one of the first steps that we take.
But then our interview process is fairly long. Most people are going to go through, I would call it five to six interviews with different individuals, because we not only want to make sure that they are capable from an aptitude standpoint, but then we also want to make sure that they’re going to be a great cultural fit. And the people that are working side by side with them are going to enjoy doing that. So if somebody is interviewing in the client service position, the client service team is in those interviews, and they’re definitely a part of the decision-making process.
Michael: And so what does that interview process look like overall? Like, is there sort of a standard structure of just, what steps do you go through? What are you assessing along the way in trying to figure out this, who’s a good fit or not when hiring externally? I suppose some of it are matters when you’re hiring within the industry as well. I feel like there’s a layer of additional complexity when you don’t have some of the industry experience cues to pick up on.
What Morton’s Interview Process Looks Like [1:20:24]
Stacey: Yeah. So the first step is a phone call with one of our team leads, and they just kind of find out a little bit about where you are in life, why you want to make a change? Honestly, it’s kind of like a first date. It’s like, do I like you while I’m on the phone with you? And am I enjoying this conversation? So that’s kind of what gets people past the first round. Then the second round of interviews usually goes to a higher manager. And that manager and the team lead will together meet with people, and then they’ll start evaluating skill sets, like your ability to communicate, how do you prioritize? How do you think about your team if you’re thrown all of these different things at the same time? What’s your first step in tackling any issue in life?
And we try to pull upon wherever they’re coming from. So if it’s a…the English teacher again as an example, if you have homework to grade and parents are calling you and you need to go like help your kids with their homework and you have all of these things happening, what’s your first step in tackling that issue? And so we’re basically evaluating their ability to do critical thinking and actually break up all of those different tasks, communicate to the different people who are dependent upon them to complete those tasks, and then learn how to prioritize those tasks in a way that’s achievable. So I think that you just have to be very specific in your questions and really think about, “What’s the transferable skill here that I’m evaluating?”
And then after that, it will go into usually two or three rounds of interviews with peers so that they can actually learn a little bit more about the organization as well. It’s very important to me that people want to work for us. I know that kind of sounds like a funny thing. I don’t really want to be in a power position that much in interviews. I want to be in a little bit more equalized position. Like, if somebody meets all of their potential client service peers and it’s like, “You know what? I don’t really think that I like working with these people,” then I would really rather they not work with those people. I’d rather just call the interview process a learning lesson and walk away at that point. So I think that when we interview people, it’s very important to us to communicate to them that they are in fact interviewing us as well and that that’s an important part of the process. And that’s even how we’re going to operate long-term with them.
Michael: So as you look at this journey overall, and in particular I know for the rapid growth that you guys have had in the firm and all the changes that come with the hiring, what surprised you the most about trying to build and scale an advisory business?
What Surprised Stacey The Most About Scaling An Advisory Business And What She Wishes She Knew As She Was Entering The Industry [1:23:06]
Stacey: I think what surprised me the most is the importance on time with your people and your team. And not only time with them, but explaining yourself. I have a co-worker who he likes to say that no sentence should ever be had without the word “because” in the middle of it. So can you please go pick up something at the store because I am trying to make dinner for our family tonight? That might be something you say to your spouse. But he has this, like, the word “because.” I think that in growing a business, I haven’t… I didn’t quite anticipate how much I would need to use the word “because” and how important it was going to be to scale. And that kind of sounds like a small thing. And I guess a lot of people would answer this question in a very grandiose or big way, but the little time that you spend with people, the time you spend on culture, you don’t just set up your core values and say, “Hey, they’re on the wall.” They have to be alive in everything that you do. You don’t just give somebody an annual career path meeting and then say, “Talk to you again next year. I’ll let you know if you make any mistakes along the way.” You have to meet with them every two weeks and intentionally ask questions around their happiness and their ability to succeed, and make sure they have the tools they need.
And you have to have enough people in your organization that you trust so that when you get bigger, they can be that person that has those one-on-one check-ins and builds out career path timelines, and really cares about the growth of your people. And I think that I didn’t quite anticipate that, right? When I was a wedding coordinator, my job was like coordinating the caterer and the photographer. And I just entered this organization and I’m like, “Okay, I guess I’m just going to coordinate the portfolio management team and the financial planning team and the advisory team, and they’re all going to work together, and it’s going to be great, and it’s going to be all about coordination.” And it’s just not about coordination so much. It’s about inspiration. And I think that that is probably the biggest learning lesson that I’ve had over the last six years.
Michael: I like that framing that just, it becomes less about coordination and more about inspiration.
Stacey: Yeah, exactly.
Michael: So what was the low point on the journey for you?
Stacey: Yeah. I’ve been thinking about this a little bit. There’s definitely low points. There’s definitely points where I had to sit there and say, “Do I want to be an advisor?” I do have my CFP, and I work with about 30 clients, “Or do I want to be the COO of the organization and run the operations and not have that client interaction?” And I think that that decision-making process, I don’t want to call it a low point because it wasn’t like it was something that was negative in the end run, in the end, but I just…I think that that was a point in my career where I had to truly evaluate like, “How do I want to get the most life out of my career? And what does it look like for me to make an impact and feel like I can truly make a difference in people’s lives?”
And I chatted with Angie Herbers, actually, about this. And she had asked me the question, “Do you want to be an advisor and impact 100 people or do you want to be the COO and indirectly impact thousands?” And I thought that that was such a profound way to put that. And so I think that some of the low points in my career have just been in my own self-evaluation and just being honest with myself in terms of what do I want to be? And how do I want to make an impact? And who do I want as the people around us as we grow? And I think that that process has been a lot of honesty and a lot of self-reflection in the way. So I don’t want to call that a low point, but I think that at that point was where I felt the most uncertainty. But now I feel really great about the decision that I made. But I think it’s because I went through that kind of painful process of truly thinking through how I add value to the organization and what I want to do.
Michael: Yeah, I think it’s an interesting crossroads to so many. This is sort of the epitome of Michael Gerber’s E-Myth as well, that for so many advisors, we build a career as advisors with clients, in relationships with clients, and you reach a certain point of growth where it’s not going to grow anymore unless other advisors start doing this with more clients than what you can personally handle, and you hit this crossroads moment of like, do you want to be an advisor or do you want to be the leader of an advisory firm? And it’s hard to do both, or at least to do both well at full capacity, and kind of forces this crossroads decision that I think some people either don’t want to make or uncomfortable making or aren’t sure how to make and have to try to figure that out.
Stacey: Yeah, it’s definitely a time of self-reflection. I will say, though, not a low point necessarily in our end, my career, but I would say the most challenging time has been the last three months. I don’t think that I’ve ever been in a place where it’s been so hard to make the right decision before in my entire life. And so I think that this period of time has caused a lot of self-reflection as well. And I was listening on my drive into work this morning a different podcast, again, with Adam Grant, and he made a statement in the podcast that said that people…there’s a new phrase in psychology called post-traumatic growth versus post-traumatic stress. And I’ve just been even sitting on that as I was driving in this morning and thinking through like, what does it look like to come out of this time period that we are in our careers, in our society, in our organizations? And what does post-traumatic growth even mean? And I think that that’s something that I’m looking forward to exploring in terms of what that looks like going forward.
But I think that most organizations, I hope that they would probably also say that this has been really, really tough. It’s been tough to go to a work from home environment. It’s been really tough to make sure that you’re helping people get through it. I think that it’s one of the first times in our careers, in my advice, when I wear my advisor hat, which is not that often, where like, I have financial health and physical health both being attacked at the same exact time. And those are, generally speaking, two of the most important things to most people. And so you’re constantly in this wave of fear-driven conversations. And I will tell you that I don’t think that there’s been very many easy days over the last few months.
Michael: It’s one of those environments where just nothing really teaches you and prepares you for environments like these. There often aren’t really any ideal, right, optimal decisions. Sometimes there seems to be a decision, and some people will be okay with it and some people won’t. A lot of stuff that didn’t use to be political has become political, which just makes it even harder in a leadership position with either a range of clients, a range of employees, or both, trying to figure out how to navigate that. But that’s reality. That is life.
Stacey: Well, and I think it’s what prompted me to write a white paper that I recently wrote on the RIA workplace of the future, because I think that the truth is there are no right answers. And now is actually a time more than ever that we have to start individualizing how we’re going to move forward. And what I mean by that is truly looking at, how do people work the best? How do they thrive? What environment is going to set individuals up for success? And can that be catered to the team as well? So how do you take those two different dynamics? And previously speaking, it was like, this is our office, you come to our office and you work at our office. It’s not going to be like that I think ever again. So back to kind of post-traumatic growth, how do we actually come out of this in a way that I think will satisfy all of our people and our teams but then hopefully our firm will be even better coming out of it?
Michael: So what do you know now about running and building an advisory business that you wish you could go back and tell you from six years ago as you were being persuaded to come into this industry?
Stacey: I think there’s some beautiful things about it that I didn’t know then, which is just what can really come from helping people? I think that if more individuals or potential candidates for the advisory practice knew how much you can transform and change people’s lives for the better through being in this business, I think that you would have full CFP enrollment. I also think, on the side note, that I like for the CFP to incorporate in financial therapy because I think that we do so much of that in this business. And I feel like I did not learn that. I did not understand that I would be actually utilizing psychology and financial therapy probably, honestly, more than anything else.
I joke sometimes that I have two bachelors, one in religious studies and one in business economics, and I’m fairly certain I use the religious studies one more because that taught me about like people coming from different places and their history adding to the decision-making that they have. And the importance and value that some people place on certain items that other people disregard. And how to actually approach anyone else that you’re interacting with from a place of, “I know nothing about you, I don’t know where you’ve come from, I don’t know where you’ve been, and I don’t know what matters to you.” So the first step in any interaction is, “Can you tell me those things?” And can I start to learn and actually develop some perspective that’s not just my own? It’s not, “I have the best strategy. Let me show it to you.” It’s, “What strategy is the best for you?” And I think that I would have loved to have learned that much earlier on in my time here, of really kind of flipping that on its head and recognizing that the only way to grow an advisory practice is to really like approach people and meet people where they’re at, whether that’s your clients or it’s your team members.
Michael: So what advice would you give to younger, just newer advisors looking to come into the industry and build their careers?
Stacey: So I think that there was I guess a standard by which people grew in their careers previously that was all focused around like specializations. If you can be very specialized in retirement planning for people who are executives at airlines, that’s how you kind of move forward. And I still think that there’s a lot of businesses that are very successful in that. I think that it’s important, though, to continue that process of thinking, potentially what got you here won’t get you there. So how is the world around us changing, and how can I maybe change with it? And I think that the way the world around us is changing is we’re becoming much more community-driven versus specialization-driven. I think that we’re starting to desire and crave to be around a group of people that are like-minded to us or care in the same way we care or have the same interests we have. And I think that’s reflected in some of the most…the recent movements in women and wealth, and kind of catering to a group of people who truly have a similar set of belief systems or a similar why as you.
But I feel like as we grow, we’re going to need to continue down that path. So I have an advisor who is incredibly community and charitable-focused. So he’s just basically creating networking groups of other people who are professionals growing in their careers, or maybe do have some type of a net worth that are also community and charitably-inclined, and just figuring out like, “How do we as a group of 10 individuals make an impact across the board in our local community?” And that’s his network. And so I think that the more we can find networks that have more meaning behind them, that feel more personally inspiring to us… There’s a lot of professionals and there’s a lot of technology that kind of can satisfy the specializations that used to exist. I think finding more community specializations will be the way of the future.
Michael: Interesting. So what comes next for you and for the firm?
Stacey: How we’re progressing as a firm and what our vision is going forward?
Michael: Yeah, or just, where is your focus?
Stacey: So I think right now our focus is continually on people growth. Like I mentioned, hiring nine new people last year, that’s not a six-month commitment. That’s a one-year, two-year commitment. So we’re really trying to set ourselves up to have the capacity and the ability to grow moving forward. But we also are very focused on some of these community initiatives. One of the firms that does something similar the best is SignatureFD in Atlanta, where they have a group for lawyers, and they have a group for doctors, and they have a group for women, and they have a group for kids. So not exactly like they do it but in a similar fashion.
I think that we’re trying to progress forward where we can make more of an impact on our community, including, how do we think about education in our community? And helping people learn more about finance at a younger age. And not just finance from a technical standpoint, like what’s a stock and a bond, but why would you invest? What’s the purpose of investing? Even as a 20-year-old, you can dream a little bit about what it means to get the most life out of your wealth. So what does that look like to you? So if we can make a community impact, and then we can continue developing our people so we’re truly set up from an infrastructure standpoint to succeed, I think those are our two biggest goals. Our CEO had once said that it wasn’t as important to him to have like the world’s best advisory firm from an ego standpoint, but it was extremely important for him to have a place where people love to come to work. And so that’s just continually the focus of our organization.
Michael: So as we wrap up, this is a podcast about success, and one of the themes that always comes up is even just the word “success” means different things to different people. So you’re driving the growth of this objectively very successful firm that’s nearly 3Xed in just the few years that you’ve been there, but I’m wondering, how do you define success for yourself at this point?
Stacey: I spend so much time thinking about this. And also, I grew up in a small town in Northern California called Lake Tahoe. And so I’ve been spending a lot of time in Tahoe, in quarantine. My family still lives there. And it’s been a nice place to go because you can be outside, and I can paddleboard on the lake and I’m very socially distanced in that environment.
Michael: Yep, middle of the lake is very safe for that. Yeah.
Stacey: Yeah. And so I think that success for me has to have personal and professional combined. It has to be some type of a balance where work and the role we play in our clients’ lives and the organization we have, it has to also lead to a better life for myself and for my people, or a more flexible life or a more adaptable life, or the ability to just enjoy life. I think enjoyment, the last core value of the five that I listed, I take that core value extremely seriously. It kind of feels like, why are we doing all of this if we’re not going to enjoy our life along the way as well? So being very intentional about enjoying life I think is what success looks like for me. And if I can have that and I can have those things be balanced, that’s amazing.
I think that a lot of times success is defined in a financial aspect, but I think that that will come. I think if you start with intellectual curiosity and lifelong learning and care for one another, and treating people with respect and kindness, and having organizations where people are truly happy so that when they go home and they sit at that dinner table with their friends or spouse, or their cat or their dog, or whatever their circumstance is, they can take a deep breath and say, “I have a good life.” I think that’s the best way to make an impact on our world. And so that is success to me, is that I can have a good life, and the people around me can as well.
Michael: I love it. And just I love the way that, I think in the truest intention of what core values are meant to be, that you’ve literally embodied that into the core values of the firm, and that’s part of what you do, how you manage, how you lead, how you hire, to find people that also embody that and want to be part of that and live that journey as well.
Michael: Well, thank you so much, Stacey, for joining us here on the “Financial Advisor Success” podcast.
Stacey: Thank you for having me. This is wonderful.
Michael: Absolutely. Thank you.