Welcome back to the 323rd episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Yonhee Choi Gordon. Yonhee is a Principal and the Chief Operating Officer of JMG Financial Group, an independent RIA based in Chicago, Illinois, that oversees nearly $5 billion in assets under management for close to 1,500 client households.
What's unique about Yonhee, though, is how, through her nearly 4 decades with JMG Financial Group, Yonhee has been a part of not only the firm’s succession plan to its second generation of owners but now to its third generation of leaders… and along the way, has personally recruited, trained, and retained the majority of the firm’s employees, by implementing stringent assessments in her hiring process to ensure that new employees are in alignment with the firm’s expectations and values to be able to succeed and grow with the firm for the long run.
In this episode, we talk in-depth about how during Yonhee’s 36 years with JMG, she has not only seen the evolution of the firm and its three generations of ownership and leadership, but has been integral in building the hiring, training, and development systems that has allowed the firm to transition to its current generation of partners and owners (most of whom have been with the company for over 20 years, after first being hired and trained by Yonhee herself), why Yonhee creates and implements a unique kind of work sample assessment for all prospective employees based on the actual duties of the position she’s hiring for so that she can evaluate how the candidates think, process information, and approach problem-solving with the actual tasks of the job, and how JMG structures its leadership roles, where Yonhee not only oversees the training and development of newer advisors, but also coordinates and supervises the Accounting, Operations, Human Resources, and IT departments as well as working with the firm’s Chief Talent Officer.
We also talk about how JMG developed their own proprietary CRM internally more than 25 years ago because they realized they would need better capabilities to input tax preparation data than CRM systems had at the time, and in the years since have been able to further customize the software to their precise needs as the firm grew, why JMG implements strict criteria for who can own shares of the firm, including a limit on ownership size with a cap of 20% of shares, and a rule that requires owners over the age of 70 to sell back their shares to keep ownership fresh and more closely connected to the current state of the firm, and why JMG implements a client capacity of 50-80 clients per advisor and how it keeps detailed track of the time it takes for employees to complete clients tasks to both avoid burnout and continually develop better and more efficient processes.
And be certain to listen to the end, where Yonhee shares why she believes that a portion of the industry’s rising level of M&A deals is really a result of inconsistent definitions of advisor titles and insufficient career paths that are failing to nurture newer advisors into the next generation of owners, why Yonhee advises younger, newer advisors to first understand the culture and values they feel are most important to them personally, and then use those standards to find their ideal role at a firm (to ensure it’s a firm that will take the time to support them and help them grow), and why Yonhee’s own definition of success has changed over time, where at this stage it's less about her personal career growth and more about the impact and value she can provide in the lives of the employees that she leads and the pride she feels knowing she is developing the next generation of leaders in the financial services industry.
So, whether you’re interested in learning about how Yonhee and her firm have remained successful through 3 generations of leaders, the unique way Yonhee thinks about finding the right employees and training them for success, or how Yonhee navigated being a Korean women in a male-dominated field and rose into a partnership role, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Yonhee Choi Gordon.
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Michael: Welcome, Yonhee Choi Gordon, to the "Financial Advisor Success Podcast."
Yonhee: Hi, Michael, I'm so thrilled to be having this conversation with you. I'm really looking forward to it.
Michael: I'm excited about today's discussion and delving into, to me, just what advisory firms look like when they really evolve over multiple decades. I find for a lot of advisory firms, there's a lot of focus these days around succession planning, like what do we do to have an advisory firm sort of survive the departure of the original founders and the introduction of the next generation of ownership and figuring out how to navigate that. And to me, in some ways, it kind of mirrors what a lot of affluent clients go through with their families as well. Like, "We built this wealth, and then we want to make sure that we leave it to the children and hopefully, raised them to be good, financially responsible adults for this inheritance that we may be leaving them."
But as we know, on the family side in particular, right, the famous saying, "Shirtsleeves to shirtsleeves in 3 generations," that often it's not even the transition from the first second to second generation that's the hardest, it's actually the transition from the second to the third that's really difficult to navigate. And I know your firm has been through this. You are coming up on 40 years in the business, third generation of leadership, fifth generational cycle of owners that have rotated through. And so, for all the discussion the industry of, to me, kind of like the theories of how advisory firms will evolve as they go through multiple generations, I'm excited to have the conversation today of what it's actually looked like with a firm that's gone through this over the past 35 to 40 years that's actually done multiple rotations of leadership and multiple rotations of ownership and what you found actually really works to sustain a firm through all of that.
Yonhee: Well, I'll say it's not easy, as I'm sure you can imagine. And I think the important thing is to remember, really, the 3 components of our business and it's serving our clients, it's providing that superior service, and then it's managing the business, managing that strategy, and investing in your people. And I kind of look at the way our firm has evolved over time and I've just had the privilege to be a part of it at the early stages. And so, I look to all the iterations that we've gone through, pain and sacrifice, and also time, and trust. I think it really comes down to trust of your colleagues and your partners.
Michael: I like the way that you frame that, sort of like the 3 components that you ultimately have to figure out in making an advisory firm sustain. Obviously, it's serving clients, right? If we're not serving clients well, they tend not to pay fees and there's no business. But even if you got that, you still have to figure out how to actually manage the business, right? There's systems and tech and processes and strategy and just effectively managing the profit and loss statement to be an economically viable business that still has to be done well. And then there's this people component, right?
Where you have to...if you're going to be around that long, you have to really figure out how do you attract talent, how do you develop talent, how do you retain talent so they stick around in the long run for the investments that you've made. If you want to be around for decades, not just like another decade but decades, as your firm has been, you have to really figure out sustaining systems of attracting and developing people as well.
Yonhee: Yeah, absolutely. And it's not really decades of our firm, but it's decades together. I've been at the firm now for over 36 years. That's a long time, that's pretty much my whole adult life, but also growing up with my partners. And that's just been a really special experience and really, what a special cycle.
The State Of JMG As It Exists Today [08:05]
Michael: So, I think to start, I'd love to just get an understanding of the advisory firm as it exists today. Just how big is the firm if you measure by assets or revenue, how many staff, how many clients? Just help us visualize the business as it exists today.
Yonhee: Today, we're over 90 employees and still continuing to grow, and plans to add on to that. We're at just under [$]5 billion in AUM. The other part of it is we also prepare tax returns. So, we prepare over 1,400 returns today. And when I mean we prepare them, we prepare them. The advisors are all very competent in tax, they all know how to prepare a return, they all know how to review a return, and they'll sign the returns. That's the way I learned growing up at the firm myself and I think that's been a real value add to our clients. And it's also about the relationship with our clients.
I've known my clients for as long as I've been at the firm and to see them at every stage of their financial life, planning for their retirement, and then becoming their advisor during their life of retirement. And then now as they're at the end of their life, working with their families on their estate. And just that in itself is such a rewarding career and such a privilege, from my standpoint, to be a part of somebody's life like that. And when you hear the kids who are older than me, but when you hear them say, "What would my mom and dad have done without you?" And then typically, we usually get the next generation in the family as clients. That's really, I think, what our firm has been built on is that value add service and it's really the relationship that we are establishing with the clients for a long period of time.
Michael: And how many clients is that across the firm of $5 billion under management?
Yonhee: So, I think if we look at households, the last count, I believe we're at about...I'd say at about under 1,500 to kind of give you a range.
Michael: Okay. So, I guess, typical client sizes or household sizes, if I just do my rough math there, 1,500 households in the $5 billion, average client household is a couple of million dollars. Is that fair in terms of who you guys serve as a typical client? And I know you've got some smaller and some bigger.
Yonhee: Yeah, I would say it's higher only because we also charge a retainer fee. We have a retainer fee. And let me go back to kind of the beginning because when the firm was founded in 1984, we were founded by accountants. And so, at that time, limited partnerships were really big. So, we were actually part of a broker-dealer, I had to have my Series 7 at the time. I wasn't selling anything, but at the time, they were...the original founders were selling limited partnerships. What happened was the clients loved that idea. They were all corporate executives at publicly traded companies, and they said, "Yeah, I'll do the limited partnerships, but you are still going to do my tax return, aren't you?" So, that's what happened.
And so, that was kind of the genesis of comprehensive planning. And so, really, I think we're probably the firm that maybe could say we're the pioneers of the comprehensive approach because what happened was they said, "Well, we're doing their investments, we're doing their taxes, we're doing their planning, we're meeting with them throughout the year, why don't we charge a fee for this planning?" And so, that's what we've done. Then 10 years later is when we said, "This securities license is really getting in our way and it's really not a big part of our business. Let's give up our licenses, and this way, we can say we’re fee-only." And at that time too, a couple of the founders really wanted to focus on real estate, so they decided to break off and they created a very successful REIT. And so, that was great. And then the other founders wanted to stay on the planning side and focus on the planning. So, that's really when we added the AUM piece. And so, today, we have that, we have the retainer fee for comprehensive planning and then the investment management piece on AUM. So, that's why it's hard when we do surveys and things, it's not always apples to apples when people are looking at our firm.
Michael: All right, so I have a couple of questions just about the fee evolution. So, the original model back in, I guess, the early-mid 1980s when you got started, was a combination of an ongoing planning fee and I guess you were getting commissions for the limited partnerships that were getting sold through the broker-dealer. But there was no investment management fee, that wasn't a thing yet. It was a planning fee, and then the limited partnership sales.
Michael: And so, was it an annual planning fee back then? Like an annual retainer kind of structure?
Yonhee: It was, it was an annual retainer and paid on a quarterly basis.
Michael: So, I'm just curious, what was the fee...if you recall, what were fees like in the mid-1980s? You were working with executives of publicly traded firms, so like some fairly affluent high-income folks.
Yonhee: Yeah, I remember because I was only a staff person, so I think that I recall in the range of maybe $4,000, $4,000 or $5,000. And in some cases, we became a benefit for the C-suite for the company. And so, the companies love that too because then their CEO, executives could focus on the company and they could have a preferred provider, if you will, come in and handle everything else for them.
Michael: Interesting. Because I'm just thinking, $4,000 nearly 40 years ago, that was a good-sized fee for doing the work. This was a full-fledged financial planning fee, not a, "We'll do your plan for $250," which I know some advisors were doing back then.
Yonhee: Yeah, exactly, but that's because we did their tax return. Think about it too, they're the highest-earning executives of the companies. So, their income level could handle it. It made sense.
Michael: So then, in this evolution for your firm, so when did the...I guess the partners that were doing the real estate investing spin-off to the REIT, and then when did AUM fees actually show up as part of your model?
Yonhee: I think the AUM fees started showing up in about 1995. And I don't want to pinpoint the year for the break-off, but it was before then.
Michael: Okay. And I'm guessing you already were an RIA, a registered investment advisor entity because of the fees you were charging, you just weren't doing an AUM fee? Or do you recall that you actually had to spin up an RIA?
Yonhee: With registration, I think we were always registered. I think it's just a matter of disclosure and the ADV, and we broke off, giving up all of our licenses, and then being able to say we're fee-only.
Michael: Okay. And was that actually a driver even at the time? You wanted to let go of the brokerage licenses so you could start marketing under the fee-only label? Because that was very early in 1990s.
Yonhee: It was, and I think probably because of the focus on tax and really wanting to be able to provide objective advice to our clients. So, really, we could say, we get paid no matter what, "So, here's our recommendations, here's how we would manage your portfolio, but here's on the planning side too." So, always everything kind of focused around the tax planning.
Michael: And so, that's why still today tax planning is just at the center of all the relationships because you'd said client household count is almost 1,500 and you prepare more than 1,400 returns last year. So, it sounds like just almost every client is getting tax returns done in-house.
Yonhee: Almost, but of that, we have a few entity returns and trusts.
Michael: Multi-client households and trusts.
Yonhee: Yes, correct. Correct.
How JMG Structures Fees And Includes Tax Preparation [17:12]
Michael: So, what does the fee structure look like today? Is it still an AUM fee plus a planning fee and 2 services, 2 fees kind of approach?
Yonhee: I would say a majority of our clients, it's fee and AUM, because again, I'd say our specialty is the corporate executive client who has a lot of complexity on the tax side and estate planning and so on. But a lot of their assets might be tied up in the company, company's stock, stock options, other benefits, retirement plans, and things like that. So, that's where we really, I feel, add that value of the comprehensive planning and having so much knowledge in the area of tax.
Michael: And likewise, makes it problematic to do a classic AUM fee because they can't give you the A to M yet. It's not liquid, it's still the options and restricted stock and other executive compensation components.
Yonhee: Correct, correct. And I'll say too, just like all the other firms out there, not every client is the right fit for us and we're not the right fit for some of the other clients either. So, it's really somebody who needs that planning. We're very white glove service, we know everything about our clients. And so, that's why they look to us almost as their personal CFO, if you will.
Michael: And what are typical fees today? What's the fee structure now?
Yonhee: Yeah, it's the same. I think the fee obviously is higher in the range of $10,000 planning fee and higher in addition to AUM. Maybe we're managing right away, maybe it's going to be coming, we kind of look at the whole engagement and making sure that we can add value to that client relationship. I think that's what's key.
Michael: And what does the AUM fee side look like? Just I know some firms take the mentality of, "If we're getting a little bit more on the planning side, we dial the investment management side back a little from the proverbial 1%." Others like, "Nope, full AUM fee for AUM services, full planning fee for planning services." So, what does the AUM fee look like for you?
Yonhee: Well, I'd say there's probably a little bit more wiggle room on the planning fee, depending upon the client's situation. The AUM is...it is what it stated. It's just like everybody else probably has a tiered system, 1% on the first so many millions, and then tier it down after a certain level.
Michael: And that's still your neighborhood as well, you start at 1% on the first million and tier it down from there?
Yonhee: Well, we're first 1% the first $2 million and then we tier down after that.
Michael: Okay. Interesting. So, I guess I'm just trying to visualize, nominally, it's [$10,000-plus for a planning fee and then 1% on the first $2 million of AUM. And I guess just the asterisk of, as with a lot of firms, if it's going to be a really sizable investment account and we know it's coming soon, you may give some flexibility on the planning fee side knowing there's large AUM fees coming anyways.
Yonhee: Yeah, it could be. It could be the opposite too, maybe there's more on the planning side. And so, we'll have to take that into account as well. Again, for us...
Michael: This means the planning fee gets bigger because there's a lot of stuff going on.
Yonhee: Yeah, it could be. And that's something we will review with the client. We all know that you put a lot of time in upfront in establishing a client relationship, we know that. But again, for us, it's really that long-term relationship that we're trying to establish with our client. Plus, we don't want 100% of our revenue based on AUM, I think that's dangerous. And so, looking at the history of the firm with all of the different market corrections. And I remember, the first one I experienced was in 1987 when the market was down over 22% in one day, and everyone was running around, I didn't know what was going on.
But also, if you go fast forward even back to the 2008 crisis and all of the other mini corrections and crashes that we've experienced, at our firm, we didn't have to lay off anybody and we didn't lose any clients. So, I think that says a lot about our model and it says a lot about the way that we nurture that relationship. With the employees, yeah, maybe we had to free salaries for maybe a year and a half and no bonuses for a year and a half. I had to cut back on our holiday party. We did a potluck in the office. But you know what? I think everyone really had a great time. It's kind of like when the electricity goes out, you figure out what to do. But nobody was complaining because nobody lost their job.
Michael: Yep. And in the grand scheme of things, not pleasant to tighten your belt, but a lot better to tighten your belt with a job than without.
Yonhee: Exactly, exactly. So, I think from the beginning, I think having that solid business model has served us well.
Michael: And then the tax preparation is also bundled in with the planning fee, or do you still charge something separately because I know the complexity of a tax return also can vary wildly from one client to another?
Yonhee: Yeah, I would say it's more than likely going to be included in the planning if we're going to be doing the tax return.
Michael: And did I hear correctly that you said for actually getting the tax returns done, literally each advisor does their own tax returns for their clients as opposed to a central department of tax folks that just grind on tax returns during tax season? Each of the advisors is handling their own?
Yonhee: Yes. Today, the advisors are not inputting but they've learned how to as a planning associate and then a support advisor. And so, that's part of our career path development is our entry-level new graduates coming out of college with their degree in financial planning now, which is obviously great that that's happening, it's a great advantage for us now that we can hire people who already know what a CFP is and what that curriculum looks like. But they learn how to input returns. And so, we are not sending it to a separate group of accountants to do it. And I think that's where...that's been the core of our business where the advisor knows how to review a tax return, and ultimately, they signed the tax return. I think a lot of firms today are realizing that they need to maybe add that service. But a lot of times when I'm talking to professionals, they don't know the tax part. And so, they may not even be qualified to work at our firm as an advisor if they don't know the tax.
Michael: So, the only reason that advisors may not be doing the inputting now is simply because you've got other team members in the firm that at least cover that part as part of their own training and development as younger and newer advisors?
Yonhee: Yes, I mean, every advisor has a support team. And so, they're involved in reviewing the return at a high level. They know what the return is supposed to look like, there's no surprises for our clients because we're doing the projections throughout the year. So, it's really more of compliance and getting the returns filed. But they've learned that way, they've learned that throughout their progression in the career path at our firm.
How JMG Has Evolved Through Three Generations Of Leadership [24:41]
Michael: Okay. So, help us understand a little bit more how this has evolved just organizationally, I guess. You went from, "We just do the planning fees, we do the planning fees and limited partnerships, and then the limited partnerships are gone, then the real estate investors spin-off, and then we're doing investment management and AUM." I'm going to guess at some point, you had to build up more of this team's structure because you said you're operating in teams now, so you didn't have to do that initially when there weren't enough people to have a team. So, I guess I'm just wondering, how do you think about the milestone inflection points of where just the firm in its structure and its offering had to change and evolve?
Yonhee: Yeah, I remember it well, it was in 2006. So, about a little over 20 years after the firm was founded and another 10 years after that other change that we made at the firm. The leaders at the time decided to restructure the whole compensation structure and ownership back then, and that was a pivotal moment. I think that was the time when we really, the leaders, had to decide, "We really need to make sure there's value in this company." So, I really credit them for thinking that way, longer term, because they could have just left it the way it is, made a ton of money, retire, and then the firm goes away eventually.
But they really wanted to have meaningful ownership and they wanted to have value in the firm. So, that's when our firm went from silos to an ensemble. And so, there was a lot of angst, a lot of discussions, I remember a lot of meetings, they did bring a consultant in to kind of help us go through this process. I know that it was painful for the leaders, but they really unselfishly put the firm first. And so, they really thought about if they want to make this firm grow into something in perpetuity, they had to do this now. And so, they were the first ones that were impacted by this plan years later when they retired.
Michael: So, was this essentially the original founders at this point? Like they're 20 years in and starting to look at this because...
Yonhee: Yeah, I would say they're probably the second generation of leaders.
Michael: So, we’re already on the second. So, who was the first generation? Where do they go?
Yonhee: Yeah, the first generation was still here. Right about this pivotal time, the first generation went with the whole real estate side and broke off and wanted to focus on that part of their business. So, this was probably a combination of now the second generation and there was one of the originating founders. And so, that's where there was a lot of discussion.
Michael: Oh, interesting. So, at the point, some of the original founders broke off to do their real estate or REIT thing, you had to go through, I guess, rebuilding leadership at that point because a bunch of the original founder-owners exited themselves from running the business, so you needed new leaders even then.
Yonhee: Yes, but those new leaders joined our firm in the late 1980s. So, they were also part of this evolution, just not already in the leadership roles. So, they stepped into that leadership role as a second generation of leadership at the firm.
Michael: So, I guess I'm even just wondering what that was like, or I guess what seats they took, how that was structured? I mean, very few advisory firms have owners or founders who are not the leaders and have made that transition much less multiple times as your firm has. I know you maybe weren't quite as deeply involved in leadership yourself at that point but what was that transition like? And I guess what seats did they fill?
Yonhee: Yeah, I think that, at that time, everybody who was also the leaders were also client service providers, so they're also the financial advisors. So, they're doing both, they're managing the business and also managing their clients. At the time, obviously, more manageable because we weren't that big. But I think as time went on...I think what's been great in my observation of the history and evolution of our firm is the teamwork and coming up with an executive team. Also, realizing that it is important for our leaders to have that experience as client service providers.
I was fortunate to be given that opportunity also to enter as an entry-level...really, I don't even know what my title was at the time, a clerk, if you will, just learning, and then be given the opportunity to become a client-facing advisor. What happened to me personally is the person who hired me who was actually the president at the time, he left, he decided to leave our firm after I was at the firm for about 5 years, mainly because he got hired by one of our clients, totally different business. And I thought I'd be going with him automatically because we were very siloed at the time.
And he said, "No, I need you to stay because," he said, "I need the clients to stay here and you're the only one that knows the client, so you need to help with the transition," to the next advisor who's going to take over for his clients. And I'm like, "Oh, okay." Back then, I really had no idea what that meant for me, but it really opened up doors for me to work with other people at the firm. And I'm very organized, I'm a very detailed person, so I started having staff meetings, I started sharing in the training, then I started to have the responsibility to start hiring people. And so, that's kind of when that started. And then I had to give up the client-facing role at the time, mainly for personal reasons. Back then, my kids were very young, we didn't have the internet, we didn't have these fancy cell phones that I could work remotely. That was out of the question.
And so, I also didn't want to give up working because that's just the way I'm wired, so I had to figure out a way. And at the time, our vice president of administration decided to retire, and so they asked me if I would be interested in moving into a management role because I'd pretty much done every position. And so, I made that switch, that transition, really, for personal reasons so that I could have more control over my schedule but also be the mom, and because I had to be in the office. Hindsight, probably the best decision because I was able to be that person to help with the day-to-day so that our leaders could focus on a higher-level company, but also focusing on their clients. And so, that's kind of how that started with the executive team.
Michael: So, I'm intrigued by this, I guess at what point, at what size was the firm when it decided that it needed executive leadership that was separate from the client service folks? So, I guess, to me, it's like when they were fully dedicated to that role and not multi-hating.
Yonhee: Yeah. That's a good question. I kind of go back to...maybe that was probably in the late 1990s, early 2000s, in that timeframe this kind of went on.
Michael: And how big was the firm at that point? Either by assets or just by people, how many teammates were there by then?
Yonhee: By that time, maybe we were...gosh, this is really a guess, Michael. Back then, maybe we were 30, 20 to 30 people.
Michael: Okay. So, what does the executive leadership team look like now? What are those actual seats?
Yonhee: Yeah, so we have 5 members of our executive team. We have our CEO, who is also a client-facing advisor. He has a very large practice of clients and he's also been with the firm for 26 years, started out at an entry-level position. Our president has been with the firm for almost 24 years. The same thing grew up with the firm. I actually hired him out of college. And he also has client-facing responsibilities but then he has carved out, I would say, project-type things for the business. And then we have our chief investment officer who's also been with the firm for 27 years. I also hired him out of college and now he leads our investment committee but also has a very full practice as well.
And then we have me, who as COO and CMO, giving up my client-facing role because understanding that it was pretty much impossible, that everybody with their responsibilities for the company, it'd be very difficult, and they recognize that. So, I guess I kind of morphed into just kind of being that person to manage the operational side, the day-to-day, the HR, working with our technology team. We have our own internal technology team who has been with us 26 and 20 years with the firm too. We have a lot of proprietary things, our proprietary CRM that was created over 26 years ago by one of my mentors who had that vision back then. And then, recently we added chief talent officer to...because of our size, understanding that we need to have people dedicated to our people. And so, she joined us a couple of years ago, and she and I worked very closely on our talent. So, that's kind of our executive team and we all work together.
Michael: So, it sounds like there's actually, at this point, a mixture of some of the leadership is still client-facing but a lot of, I guess, the systems and people side, right? So, you in a COO role and the chief talent officer, those are fully dedicated leadership positions without having a big client base on top of it.
Yonhee: Yes, correct. But for me, I'm in a unique position that, because of my experience in the client-facing role and because of my role on the marketing side just in our industry, I'm also still bringing in clients too. I should also mention, we have 19 partners, we have 19 owners of the firm. And so, all the owners have additional responsibilities if their primary role is client-facing.
Michael: So, when you go one level further down from this executive team, who or what reports into where? Like, what's the next layer down of management because there's so many people? You can't have 85 other people reporting to 5 members of the executive team, you have to have layers of management. So, what are the next layers of management down? How is that handled in a firm like yours?
Yonhee: So, with the number of partners we have, and everybody has a responsible role for the business too, many of them, the majority of our partners are also client-facing, but we also have partners who are not. And I think that says a lot about our firm too, understanding that it's not just about the revenue-producing roles but it's also about those people who helped you manage the business. That's important as well. So, in the executive team, we have different areas. Like for my area, I work with the accounting department, I work with our operations department, I work with our HR department, I work with IT, and I work with our chief talent officer.
But then with these different managers at these different departments, they also have direct reports to them. We also have client practice managers who are responsible for training our staff. And so, we have 2 different types of staff positions that are in the client support side, and so we have 2 different types of managers who, also, by the way, they overlap too. They're also supporting an advisor by working...and also working with clients, but then they're also training other individuals. And so, I think just that overlap has been really critical for the development of our people and it's so important. It's so important to know what it's like to serve as a client, but then how are you going to...what better way to teach that to somebody else? And then it goes down from there.
Michael: What are the 2...I think you said there are 2 different types of positions in client support. What are the different positions?
Yonhee: So, we have a client service coordinator person, and a lot of them are what used to be the registered paraplanner designation, I believe it's an FPQP now.
Michael: Yeah, now FPQP.
Yonhee: Yep. And so, that's one role, where they are coordinating, actually, maybe 2 to 3 practices for the advisors and direct report to their advisor. In addition, each advisor has either a support advisor who has a few years of experience and working towards their CFP. And then we have more of an entry-level planning associate position where they're learning the tools, they're learning our business, they're learning what we do for our clients, and then their progression is to that support advisor role. After the support advisor role, then we have a position internally for more of...we'll call it an associate advisor role that's kind of now learning how to manage a practice and learning now...they're on the path to becoming a full client-facing advisor. And so, they'll get the opportunity to work with our senior advisors, a lot of partners of the firm, and actually get assigned to some clients before they get to that next level of being a full advisor.
Michael: And so, on the advisor end, it's kind of those 3 layers. There's like the entry-level, you're learning your initial stuff. There's the support advisor, we're seeing more client interactions and starting to have some client relationships. And then there's the full advisor role where you've got your own client base you're responsible for and I guess some people then move up to becoming a partner from there.
Yonhee: Yes, yes. And as an advisor, now they have...in every step, there's always overlap. We have our support advisors training our planning associates, we have our younger advisors training our support advisors, and then we have our senior advisors or partners also working in mentoring and coaching our advisors. Because now as an advisor, you have a different responsibility and some business development responsibilities as well because that is then the road to potentially being offered a partnership position.
Michael: And so, help me understand again just what the ultimate advisor team structure is. Like if I'm a lead advisor, who and how many people are supporting me directly or shared with other advisors?
Yonhee: Yeah, so as an advisor, a full advisor, you're going to have a support advisor. You might even have an associate advisor dedicated to you to start working with your clients, ultimately. And then you're going to have a client service coordinator as well. So, it's really the two people who are supporting an advisor. But beyond that, the practice managers can step in at any time and help any advisor out. They're managing our staff too in their training and development and so on. And then we have our internal infrastructure support. We have our own investment operations who does the administrative side for our client's accounts and is the liaison with Schwab right now. We use Schwab to custody our client's assets, and so we have that operational side of it. And then internally, we have our own IT department, we have our own accounting department, and we have our own HR department.
Michael: So, I guess 2 follow-up questions. How many different advisor teams are there then just across the sheer breadth of the organization with so many people? I don't know if that's even an easy number to count but...
Yonhee: Well, you would think that we'd have 30 but we don't, because every advisor is at different stages of their career and size of practice. So, an advisor might have very different support in what they need if they're just starting and they have 15 to 20 clients versus a more seasoned senior advisor who has a full client base in the 70 to 80 range, very different needs of support. So, that's why there's overlap with groups.
Michael: And the follow-on I was going to ask is just what the capacity is? What do you think of as a full advisor team in your practice?
Yonhee: Well, I think I'll just address that with advisors. We monitor internally the number of clients every advisor is working on because we don't want them to get burned out. They work very hard, full service, doing planning and investment management. That's a lot, that's a lot of time for our clients. So, we kind of look at maximum capacity level for advisors as anywhere between 50 to 80 max of clients per advisor.
Michael: And is that tied to just how much time it takes? Is that like a revenue goal target, "We want advisors to be X dollars of revenue per advisor?" How do you figure out or set the thresholds of when they're full?
Yonhee: Yeah, we can break it down into a lot of metrics. The one thing I'll mention, because our firm was founded by accountants, we keep timesheets. So, we keep track of our time, so we know how much time every person puts into an actual client engagement. And so, we look at that. We look at the number of clients, what's the mix between full planning and looking at that revenue and also if there are clients who are investment management. So, we look at all of those things, but it's also talking to the advisor and looking at...and helping them manage their client base. And so, it's all of those things that we look at. But you have to have some kind of a target and some type of a range, and so that's kind of where we look at as pretty full practice for one advisor is anywhere between 50 to 70 to 80 clients.
Michael: So, is it ultimately a time target? I'm thinking a lot of accounting firms literally have it like, "You need X billable hours or productive hours or client-facing hours." Is that a metric you track in the advisory firm as well?
Yonhee: No, I would say years ago, it was something that leadership looked at just to see how much time are we spending or...obviously, you have to look at the profitability of a particular engagement. But here we are today, it's really a training tool just to see where we're spending our time and a management tool, "Why are we spending so much time on this particular task?" "How much time are we spending on tax preparation? We have codes for that." And so, because of that, we've been able to look at productivity and efficiency and able to improve on those things and always looking at, "Okay, how can we improve time spent in this particular area?" And really, that's how we've adapted and changed and improved as a business.
Michael: So, are there particular time metrics that you do look at as measurables or KPIs or things you track? It's just so many people, so much time tracking, I'm wondering what you look at to make sense of all that data.
Yonhee: Well, I think that things like staff meetings, things like tax preparation. I'll give you an example. Years ago, we were looking at our tax preparation and the amount of time it took to actually input all the data into the tax return, knowing we have all this data. And so, we were able to...or I should say our IT department was able to write an interface that was able to download all the transactions from a client's Schwab account and upload it directly into our tax preparation software. That saved thousands of hours of input time, and so now we just had to review. So, again, that was just a result of looking at how much time we're spending. How much time are we spending or our staff spending on preparing for a client meeting? And so, is it consistent across the board, or why are there some people who are spending more time? What are they doing that is causing them to spend more time? So, it's a way for us to kind of look at that as a management tool, and also for training and development.
Michael: Interesting. And so, then it's not even just the advisors that are expected to time track, everyone time tracks, because some of the things you're describing are sort of staff or support roles that you might be optimizing?
Yonhee: They do. Advisors also used to keep track of their time, but I think as time goes on, you kind of have to look at things and reevaluate, "Is that the best use of their time?" They know what they're spending their time on, and that's client meetings and client conversations and so on. So, recently, we did cut...we did have certain positions not have to fill out these timesheets, which, by the way, we also built internally, it's a proprietary system, so it's all tied into management tools. And also, being ready for a client who might say, "Hey, how much time do you guys...you're charging me this, so how much time do you guys spend on this?" And so, we're able to pull up that report and pull up all the number of employees spent on a particular client account.
Michael: Because it feeds through the CRM system that you use?
Yonhee: Correct, yes.
Michael: That's interesting. So, the evolution of your time tracking has actually been less focused on the advisors and more focused on the other non-advisory staff as a way to find where's the time-consuming stuff that's chewing up a lot of hours that we need to improve on.
Yonhee: Yes, that is how it has evolved.
Michael: And I guess I am wondering, just hearing all this and all the tech that you're building internally, you'd said your firm originally built its own CRM, you built time tracking and integrations and other layers on top of it. So, just how big is your technology team? As a firm, what do you spend on the technology staff just to do this in-house?
Yonhee: Yeah, it's two people. The person who had this vision, he was a great mentor of mine, he was with the firm for 30 years before he retired. And he was the one that really had...back then, as you remember, Juncture was really the only CRM system that was available over 26 years ago. And so, we looked at that. And he also realized, because of the tax preparation component...and also intra-security, making sure that we were able to have that intra-security internally. I'm talking about permissions and access with employees, restricting access internally and things. And so...
Michael: You're segmenting permissions so only certain team members have access to certain client information or private information or can't see other clients they're not supposed to be able to see. That's more common in CRM systems today but no one built those permissioning layers 20-plus years ago.
Yonhee: Exactly, so that's why we decided then to build our own. And so, it started over 26 years ago. Actually, it was a part-time person. He started with us working with the partner who was in charge of this project, who had this vision. And here he is today, he's one of my partners, he's our chief technology officer today. And our CRM has also evolved over time. We've had to update it and I guess, there's disadvantages and advantages. Today, would we create our own app? Probably not because now look at all the technology companies that are out there and all the different projects and products that are available to us.
But now, we're kind of spoiled by the customization. If we wanted to see a certain type of metric or support or something, we'd go to our IT department and say, "Hey, can you guys write something like this?" And they would do it. So, that's the advantage. The disadvantage, of course, is as we're growing and just adding on and just making sure that we can keep up. So, who knows? In the future, we always have to explore whether or not we can continue and we have to always keep our options open. And I think that's always been the philosophy of our firm is just looking ahead to make sure we're being very mindful of the future and what it's going to look like.
How JMG Structures And Funds Its Ownership Opportunities [52:48]
Michael: So, you've mentioned a couple of times all the different folks that are partners in the firm, right? There's advisors, there's IT folks, there's other people and staff and leadership positions 19 out of the nearly 90 in total, so almost 20% of the firm has become a partner. So, help us understand just how does partnership work in your firm calling on 40-odd years now since it started? Just how does it work?
Yonhee: Yeah, so that first pivotal moment of going from...transitioning from silo to ensemble. That was tough because then we had to go from basically a compensation structure of going to a salary and bonus versus a percentage of revenue. If you pay out everything that you receive as a company, there's really no value to the firm. So, that was kind of that original thought. So, then it's buying in to be an owner of the firm if you're given that opportunity but also, there was a decision to cap ownership too. And so, today, no one person can own more than 20% of the company. And so, I think that was part of it.
I can't remember what year it was, but it was after the restructuring, and then now you have all the owners who own...besides the second-generation and founders who had already had quite a bit of ownership, now you're kind of like, "How do you offer ownership that's fair to everybody else?" So, then you have to come into, "Okay, how do we make it fair for continued ownership opportunities?" And so, we look at different metrics, we look at different contributions that individuals make to the firm. And so, part of that is being responsible for a certain number of revenue to the firm, but it's also business development for the firm, and it's also contributing to the firm as well. And so, all those things are taken into account as far as ownership goes.
Michael: All right, so I've got a couple of, I guess, just follow-on questions, understanding...I guess, even just the initial how this shift to sort of ensemble and multi-owner went, I guess this was sort of like the mid-2000s shift.
But you said you wanted to...the firm wanted to go from paying everyone percentages of revenue to a salary and bonus structure because if all the advisors get sort of the maximal percentage of revenue, it can be profitable if you're an advisor but there's literally no money left because you're paying it all out. So, the goal is they become owners, they get a salary and bonus structure, but then they participate in the profits of the firm. And ideally, your salary plus bonus plus profits should come in somewhere in the neighborhood of what the original percentage of revenue was but now you're actually participating as an owner because you're getting profits, you're not just drawing it out as direct advisor compensation. It sounds like that was the original transition.
Yonhee: Yes. And so, if you think about it, the advisors, pretty much it was a pay cut, really. And so, that's a sacrifice that a lot of them had to make.
Michael: Well, that's what I'm wondering, did they get equity in exchange for their lower comp? Did their comp come down and then they also had to buy in to get shares and then get their profits back? Were they given credit for the dollars they had, or they still had to buy in fresh?
Yonhee: You had to buy in, and I was included in that too. And so, that was all managing expectations, understanding the plan, understanding why, and then revisiting and making sure that it continues to be fair.
Michael: So, was there a transition period? Just how does that...what was the compromise to get there so you didn't have like an advisor revolution and people saying, "You're cutting my comp this much, I'm out of here?"
Yonhee: Yeah, that's part of the communication part. That's why it was so critical. Yeah, there's many...some of my partners today, they could have left. They could have left, but they saw the future, they saw the possibilities, and they were all in, they were willing to make that bet.
Michael: Because they wanted the opportunity for equity appreciation and the sale value? That was a carrot for them?
Yonhee: Yes. Yes.
Michael: And then how does the valuation work? How do you decide what the value is that they're buying?
Yonhee: Well, you have to remember, we were founded by accountants, so it's always been a part of our fabric.
Michael: It will be precise.
Yonhee: Yeah, very precise. And so, that's always been something that we've always addressed internally and always addressing and discussing.
Michael: So, is it a valuation formula internally? Is it formulaic? Because it sounds like you're not using a third party coming in, analyze our numbers, and give us a valuation.
Yonhee: Yeah, we're not using a third party. It's internal. It's a formula, but we're always addressing it and making sure that we feel that it's in alignment.
Michael: Okay. So, for those who are becoming partners, just how do they finance it and afford it? Because that's a challenge for a lot of advisors unto itself, particularly when the firm is as large as yours is. Do they have to come up with cash? Do you help them get a bank loan? Do you finance internally? How does the partnership buy-ins work?
Yonhee: Yeah, so we've financed that internally. And so, it's usually spread out over a number of years and that's something that we always have to evaluate too because today, we have a lot of advisors at a younger age becoming eligible to become partners. And so, coming up with a big chunk of change might be a little bit of a shock. So, we have to address that too and make sure that we can...make sure that it's affordable for the newer younger advisors who are given this opportunity.
Michael: And is there a typical financing period or a number of years? Are you planning to spread that out over 5 years? Over 10 years? How much do you try to spread it for them to make it manageable?
Yonhee: Well, I'll use myself as an example. Mine was spread out over 6 years at the time. And so, I think that...as time goes on, I think that that's something we'll have to look at as the firm becomes more valuable and it becomes more meaningful. So, that's something that we'd have to look at.
Michael: And are there still some obligations for them to have a downpayment, some cash out of pocket, skin in the game as it sometimes is framed? Or can they spread the whole thing out when they do a buy-in?
Yonhee: Yeah, I think, before, I had to...personally, I had to come up with a pretty good amount upfront, and so it's a little bit of a shock. And I think then the plan is, obviously, you get distributions to help finance that but then it's all timing. So, now understanding that, we work with the individual, and if they can come up with something upfront, that's great, and we can spread out and come up with a payment plan of some kind. And so, it kind of depends. But we do have a standard format that we'd like to work with, with new partners. And that's all discussed way ahead of time if we know that somebody is on that path so that they can understand what the expectations are.
Michael: And then take me back to just the criteria of what it takes to become a partner. I think you said there can be a revenue responsibility component, a business development component, and sort of a broader contributing to the firm component.
Yonhee: Yeah. And then I'd add 1 more, and that's getting voted in. And so, that's why my advice to all of our employees when they start out is, "You just never know where the path is going to lead, so make sure that you're consistent in your demeanor and you don't want that to be an issue." That's why getting exposure to working with as many people is great, and being a team player, obviously, and understanding what it means to be an effective employee and also ultimately an owner of the company if you want that opportunity. The other thing, we also realize not everybody may want to be an owner. Everyone's wired differently and that's okay too.
Michael: So, I'm assuming...well, everybody's got to meet the voted-in requirements. I'm assuming you don't necessarily have to meet all 3 of the others because some of your partners are in non-advisor positions, so they don't necessarily have revenue and may not be doing business development. They, I guess, just only qualify off of the third prong of contributing meaningfully to the firm.
Yonhee: Yes, correct.
Michael: Do you have set thresholds of, "Must bring in X dollars of new revenue," or "Must be responsible for Y dollars of existing client revenue," to be eligible? Or is it more subjective with the nominating process? How do you figure out who's actually across the line?
Yonhee: Yeah, it's hard to say it's a certain number because we want to be fair, and so we look at what all the other partners are bringing in too to see what's reasonable as far as expectation on business development. And so, that's something that we monitor and that's discussed with the advisor.
Michael: And then, if new partners get introduced for a buy-in, who sells?
Yonhee: So, we have had retiring shareholders, and so, really, it's timing. So, that part of it, it is more of seeing when and knowing when the shares are going to be available.
Michael: Okay, so it's not necessarily every year we have a new inducting class of partners or a new buy-in process automatically. It is when there are retiring shareholders or folks that are exiting, it may be every year or maybe spaced out every couple of years until the next transaction comes just based on who's selling when.
Yonhee: Yeah, and currently that's what's been happening because that's what's happened with our retiring shareholders. That's just how it has worked. However, going forward, I think that's something that we will need to consider.
Michael: And then how do you decide who gets to buy? If a retiring shareholder is selling and there are 19 partners plus whoever new is coming in, does everybody get a chance to bid on 1/19th of the shares being sold? Everybody can get a pro-rata portion, or are they allocated? How do you figure out who gets to buy which and how many shares?
Yonhee: Yeah, so that's another schedule. We look at all the contributions that somebody makes, we look at the number of client relationships, we look at...it's a lot of different aspects of contributions to the firm that we look at.
Michael: So, it's tied to contribution data, the people who are managing more or bringing in more or otherwise doing the big impact-y things to the firm are the ones who get larger purchase opportunities.
Yonhee: Yes, potentially. The other thing I'll mention is, and I don't know if many firms do this, but this was put in place by my mentors, we also have a rule that when you're 70, when you turn age 70, you must sell your shares back to the firm.
Michael: So, you have the mandatory exit at age 70 even if they're still working? Or is the presumption no one is actually still working at 70 anyways?
Yonhee: Well, they can still work if they'd like to beyond 70, but they can't be an owner of the company.
Michael: So, why the threshold, and why 70?
Yonhee: I think that was put in place by my mentors because they didn't want us to have to deal with, I think, some of the issues that some other firms might be facing now with the older founders not wanting to let go. And so, as you're at that age, energy levels aren't as what there used to be and things like that. So, I think they were being very thoughtful in terms of having the next generation to have to manage and work with them.
Michael: So, they were basically, I was just going to say handcuffing themselves and just have to sell but whatever the other opposite is, forcing themselves to be kicked out. Anti-handcuffed.
Yonhee: Yeah, so it's almost like a planned transition succession, so we're looking at everybody's ages too.
Michael: So, are any of the founders left at this point? It's just the firm has been around for almost 40 years, so unless they got started really young...
Yonhee: Yeah, the last one...well, he was second generation, he's now retired two years. And so, he was 70.
Michael: Wow. So, even founders and even some of the people who bought from the founders have also aged out?
Michael: And retired out now.
How Yonhee Finds The Right Talent Through Custom-Made Assessment Tests [1:07:37]
Michael: So, I'm struck by this that you had also noted as you were talking through some of the partners and the executive team who have all been there for 20-plus years and you're like, "I hired that one out of college, I hired that one, I hired that one." So, I guess I'm just curious and intrigued by what the process has been for the firm just to find people who are staying a decade or decades at a time, right? Retention is always a challenge for advisory firms both in advisory roles and operations and the other roles at the firm as well. So, what's the hiring process that's evolved to be able to get people who are a good fit and stay that long?
Yonhee: So, I think overall, it's managing expectations. I think it's really important. We spend a lot of time upfront. Years ago, over 25 years ago, when I was given the task to hire and interview candidates. I really wanted them to understand what the job is like, and how can you do that? So, I came up with assessments years ago, one by one, and so there was a time when I had 9 assessments. It took a couple of...it took a full day and I have some employees talking about that now and they kind of wear it as a badge of honor that they made it through that interview process.
But it worked, you have to let people know what it's like. So, what I did was I took a snippet of every part of the job that they would be doing, and I gave them a timeframe in which they had to complete it. It's all twofold. Not only are they understanding what the job is like and what they're interviewing for, but I get to see how they think, how they process information, how they approach problem-solving, and that's really what we are. As financial advisors, we're problem solvers for our clients. So, that has been a critical way of assessing individuals.
Michael: So, every position, whatever it is, you figure out what some of the core tasks are, I guess, ideally, in HR sense, you draw it from the job description. It was like you have a mini assessment, like a mini example of tasks from each of the core functional areas, and then ask them to just do it and grade their work product.
Yonhee: Correct, correct. And then they can explain things to me, "Here's why I do this because..." We talked a little bit ago about the advancement of technology, which has been great, it's helped on efficiencies, and we have these wonderful applications out there.
The problem is, is that the younger folks learn...what are they learning? They're learning how to just input numbers and input this number on here, and then they push Submit, and then a nice report will come out. They really don't understand if the numbers are right. And so, how do you know if the numbers are right? And the way you know that is you get a calculator, and you get a pen and paper and you figure it out, you know? They don't do that now. One of the assessments I give is actually just creating a spreadsheet from scratch with a list of data and then I give them instructions on what I want to see. That is probably one of the most challenging assessments. They don't know where to start. So, I think that there's this gap now. While it's great to have this technology available to us today, I think, on the other hand, they're not learning what they need to be learning, they're not able to lift up the hood and actually see how the engine works.
Michael: And so, the tasks, it sounds like are maybe beyond just, "Use the tools and software," it's like show some understanding. So, not inputting numbers into a retirement projection and make the chart, it's like, "Here's the spreadsheet, can you figure out what this is going to project out to?"
Yonhee: Yes. I actually don't have them do an assessment on actual programs or applications. It's all seeing what they can do by themselves from something from scratch, or giving them a spreadsheet and say, "Okay, here's some more information, how are you going to put that together and how are you going to show it to me?" And by doing this, when they join us, we always ask after a month or two of training, "Is there any surprise about this job?" Because I need that feedback, too. And 100%, "No, this is exactly what you told me I'd be doing, and I remember this from the assessments."
Michael: So, how long does it take to create these and set them up in the first place?
Yonhee: Well, I created them years ago, so we've continued to use them. However, now that we have Zoom and we can be more efficient with the meetings, we've kind of whittled them down to just a few. The few that we've picked that really can kind of get to what we want to learn from an applicant and also for the applicant to understand what they're really going to be doing in this job. The other part of the hiring process is I really think it's important for an applicant to talk to people who are actually doing the job that they're applying for. So, I connect them to somebody who might have a similar background or who maybe went to the same school and who may have actually just joined us maybe 6 or 7 months ago.
Because they're in the training, they're doing what this person is applying for, and I think that's important too to connect them and let them have an open discussion of what it's really like to work at our firm. And so, that's important. And then even now, just seeing the office, so many times...I talked to many students and one of the things I tell them is, "Don't just go to an office just to go there, go with intention, go look around, see how the desks are arranged, ask where you might be sitting. Are the advisors all closed off? Are the supervisors all closed off in separate offices? What does the office look like?" And that's important. And also, look to see the faces of the people. Are they engaged? Are they…look bored or whatever? You got to look at all of those things when you're visiting an office. It's just like when you go to a college, when you're looking at schools, you know it when you feel it.
Michael: So, I'm curious if you can give us some examples of the assessments that survived. Now that you've had a bunch and you've whittled them down, just can you give us some examples of what they are, what you ask people to do, and then measure and evaluate?
Yonhee: Sure. One of them is a simple pay stub exercise. So, I'll give a couple of pay stubs for a client, not consecutive. I'll give them a calendar and I'll give them a list of questions and I tell them, "I want to see your work," and I'll see how they do with that. So, one of the questions might be, "What's the projected federal withholding? What are their pre-tax deductions? What's the projected salary for the year?" So, understanding how they go through that methodology is interesting. How somebody approaches...it's really a story problem, everybody does it a little bit differently, and so I'd like to see their explanation. And I always tell them too, "I'm not really after the right answer, I could care less if you get the right answer, I want to see how you got to that answer." So, it's more of, "How do you think?"
Michael: It reminds me, there was a version of this I did many years ago when I was...I had a director of financial planning hat. Very directly, I guess, a version of this would give prospective financial planning hires a hypothetical case scenario of your client just called, their mother passed away, they're inheriting about $300,000, and they've got a $250,000 mortgage. And so, they're asking that infamous question like, "I've inherited $300,000 with a mortgage, should I invest the money, or should I use the money to pay down the mortgage?" And the task would just be like, "Write the email that you would write in response to the client." And so, it was just interesting. It wasn't really about what's the right answer because there's really not a true right answer to that, there's a lot of views and preferences about it. So, we could see what is their view, how do they think about logic through the problem, can they write and communicate it to the client, can they explain this to the client in an understandable way.
But then we can also just look at overall communication. The first thing I would always look for on that assessment exercise is like does the email start with, "I'm so sorry your mom died?" Do they pick up on that or do they just start thinking like...or they're writing to them like, "Dear client, let me show you some math about the long-term return of a portfolio versus the after-tax borrowing cost on a mortgage." It's like, "Yes, I want to see some of the math stuff as well and how you explain it, but do you have the wherewithal to recognize that the client just told you their mom died and the that you have to take a moment to acknowledge that?" So, just very similar in vein and it always fascinated me how wonderfully different and varied people showed up with responses to that kind of assessment exercise.
Yonhee: Yes. And now, there are so many other assessment tools out there, we use Predictive Index too. That's online, that's more of looking at behavioral traits and cognitive traits as well. More of job fit, just to give us a report of job fit. There's no right or wrong answer to that either because everybody's different. And that's what I love about this business too is we're all different but we're all in the same career or same industry, we just all do it a little bit differently. And for us, we recognize that and that's one of the few things I tell people when they join us is that "You may not like everybody because there are so many different personalities but here's why it works, it's because everybody respects one another."
Michael: So, for those who aren't familiar, can you just explain for a moment what Predictive Index is and why you picked that one in particular?
Yonhee: Yeah, it's an application and it's a very quick assessment for a candidate to go through a behavioral report and is looking at behavioral traits, but then there's also a cognitive assessment, which is timed. And they can go through that...I hate to call it an IQ, but it's kind of in that area. But the point is, is that then you kind of...as the manager of that tool, you can kind of put in all the attributes, characters, characteristics, skill sets, in terms of the job that you're trying to fill. And then the applicants, based on these results, will kind of give you an idea of whether or not it's a good percentage fit or maybe it's not, kind of give you a range. We don't use it as a final determining factor, it just kind of gives us additional insight so that we can kind of direct questions to the candidate in a certain way.
Michael: Very interesting. And so, what about non-advisor roles? It's just that the assessments you described were all very advisor-oriented, do you only use this in the adviser domain? Or is there a version of this if you're hiring for someone who is a client service coordinator as well?
Yonhee: Oh, yeah, we have assessments for those roles too. And what that assessment might look like is, "Here is a blank Schwab application, for example, and here's all the information about the client, how are you going to fill it in?"
Michael: Okay. So, it seems like it should be straightforward but if you really can't take the information and get it into the form, that would be really helpful to know now.
Yonhee: Yeah, exactly. Exactly. And what questions, because we're obviously not going to include some things and so we'll want to see, "Hey, are they going to be able to notice that this is missing?" Or something like that, and really looking at what questions do they ask.
Michael: Okay. And what if it's someone who doesn't have experience in the role? Do you worry that some of these might be a sharp person, but they just don't know because they've literally never done this before? Or is the idea these are all flexible enough that they should be able to figure it out?
Yonhee: Yeah, I think that... because we have hired people who don't have relevant experience, but they have transferable skills from other experiences that you should never ignore. And so, it's more of, "Are they coachable and do they have potential?" So, we can work with that. And a lot of times, it's like, "Yeah, you may have never done this before, but we'd like to see how you do it because this is what the job entails." So, you're either going to like it or you're not, or you're going to be really intrigued by it and then if you're curious about it, then you're going to learn.
The Surprises And Low Points Yonhee Encountered On Her Journey [1:21:25]
Michael: So, having been at the firm now for closing in on 40 years, what surprised you the most about just the way the business has changed over the years, over the decades?
Yonhee: Gosh, I feel so old when you say that, but it's okay.
Michael: Sorry. I do appreciate the phenomenon of the passage of time.
Yonhee: I know. No, it's okay. I have no problems. I literally started when I was 20 and I turned 21 my first week of work, and I was working on a client audit, which I had no idea, so I didn't get to go and celebrate my 21st birthday, and here I am almost 37 years later. So, it's really kind of made something I'm actually very proud of but I don't know that anything is really surprising. I think that it's too bad...and I really appreciate your efforts, Michael, in our industry and the work that you do, it's just too bad that there's no consistency. And every RIA... I guess that's just the nature of this business since everybody runs their businesses a little bit differently, but it's so confusing for the younger people when I have to explain, "Listen, don't go after the titles where..."
I just had a conversation with a young person about this and they're saying, "Well, what title is this? Am I applying for as a financial planning associate?" When they're looking at a job that's called a wealth advisor, when I know that it's not really a wealth advisor, it's the same thing. But it's so hard to explain that to a new graduate. So, it's more of I wish there could be a little bit more consistency in terms of the job descriptions, but I know it's probably impossible, again, because we do tax returns too. So, that's a little bit of frustration, I guess. Nothing has really surprised me. It's interesting to see how things are playing out, all the M&A activity that's occurring now, the lack of succession planning.
So, again, those are some things that I'm really proud of our firm in getting ahead of that. The amount of time we spend on coaching and mentoring our people so that they do stay, and so they do understand they have a path, they do have a future for whatever they'd like to accomplish. And so, I think that's important too. So, I don't know...I will say that I'm a little surprised with some of the M&A activity that's going on, but not really when you kind of go underneath the level of...the iceberg theory that you come up with, that you talk about, and kind of seeing all the hard things that happen and all the challenging aspects of managing a business.
Michael: Yeah. Well, I was going to ask what makes it not surprising to you around the M&A? So, it sounds like your view of it is, "Yeah, this stuff really is messy and there's probably firm owners that are just getting the messy part and can't figure out the succession, and so, yep, then they're selling and there's another one getting sold."
Yonhee: Yeah, that's what's not surprising because they're realizing just too late, that the younger folks can't afford them. And they want to...they've worked a long time, they put blood, sweat, tears and put a lot of sacrifices in because they're building the business and they're building the industry. We don't have that now, the businesses have been built. So, we have to recognize that too and the founders have to recognize that. So, I think what will be interesting to see is what these acquired firms look like in the next 3 to 5 years as they evolve because I think a lot of these acquirers are still trying to figure it out.
Michael: And so, your firm managed it because you've distributed the ownership across so many people and you're already almost 20 years into multiple generations of owners buying in since they did the big comp and ownership structure change back in the mid-2000s?
Yonhee: Yes, I think I think that's a huge part of it.
Michael: So, what was the low point in this journey for you?
Yonhee: I don't know that there was ever a low point, I am always...I'd like to think of myself as a true optimist always, we can always figure it out. And so, I think probably it's just frustrations maybe for things not getting done as quickly as I would like but I can't say that there was really a low point. I always look at every change as an opportunity. I think some of the challenges we face is change because, on one hand, it's great having this high retention and tenure and growing up with my partners and seeing people grow up and develop and it's wonderful to see. But on the other hand, it's hard for change sometimes and adapting and getting away from the, "Well, we always used to do it this way, why do we have to change it?"
But I think also as we're now looking ahead and looking at all the technology that's available to us, I think what I've learned is that communication is so critical. It's not telling everybody what's going to be done, it's including everybody in the conversation, and I think that's really important. Even though we may not go in a certain direction because somebody would like to go at it that way, but at least they were part of the conversation. And a lot of times, they'll say, "Well, thanks for asking, I appreciated actually being heard and you guys listen to me, and I understand why you're going in this direction," something like that. So, I think what I've learned is that communication transparency from leadership on down is just so important to an organization and to the fabric of the culture.
The Advice That Yonhee Would Give Her Former Self And Younger, Newer Advisors [1:27:56]
Michael: So, what else do you...I guess, what else do you know now that you wish you could go back and tell you 20-plus years ago when you were moving into the leadership position? What do you know now you wish you knew back then?
Yonhee: Well, I think that I don't want to say it was hard because, for me, it's just like I just put my head down and just plow through it. I think that I probably cared too much about what other people thought where it could have delayed things. But I don't regret that, I think it's important that other people knew that I care. And so, I don't really have any regrets. If anything, for me personally, earlier on, I probably should have had a little bit more confidence in my ability. And so, now, being a Korean woman in this industry, I'm like...yeah, I never really thought about that until people brought it up to me just because I've always been in the minority.
Michael: So, what advice would you give to younger, newer advisors looking to come in and get started in the industry today and want to get off on a good foot?
Yonhee: Well, I tell students that it's important that you first understand what's important to you. So, kind of building your ideal culture in a company, what's really important to you, and then when you start meeting with potential employers, kind of seeing how they fit into that. There's so many times, I think, young people get persuaded so easily and not really being mindful about that and sticking to their core values. I think that's important. I think also not to be so narrow-minded and to understand and try to get a big picture. It's also not about the money. I think that, of course, we need to make a living and things but if you're always chasing money, you're really never going to be satisfied.
So, I think just saying those things, I think back on, that would have been helpful to me too. I also tell students that your first job out of college may not be your lifelong job, unless, of course, you work at our firm, but it does set the tone for your career path. So, I tell students, be very mindful about that first job, just don't jump at the first opportunity because it's a job, it's the first job offer you get. Really think about what you want to do and think about if that firm and that job is going to fit and be in alignment with your core values and who you are. And I'd also say don't burn any bridges because the world is small and you will...
Michael: Yeah, the financial planning world is really small.
Yonhee: It is, it is. Even between you and I, we had a lot of mutual connections and things. So, just don't burn any bridges. And I've even helped people leave our firm because I also know that if you don't like what you're doing, your job performance is going to go down and you're going to be asked to leave. So, I've helped people figure out, "Let's figure out your next move but in the meantime, let me find your replacement, and here's what you need to do." And just make sure you leave on good terms so nobody can talk badly about you. And so, because of that advice, we've rehired about 7 people who have gone because of whatever, personal reasons, and I will also be the first one to tell people, "If you're really going to regret not trying that opportunity, then you got to try it."
Michael: And maybe if you want to come back.
Yonhee: Yeah, just make sure you do it the right way.
What Success Means To Yonhee [1:31:52]
Michael: So, as we wrap up, this is a podcast about success and just one of the themes that's always comes up is the word success means very different things to different people. And so, you've had this wonderful path for your career of building within the firm all the way from the entry-level start, turning 21, to executive leadership as the COO of the firm. So, the business and career has gone well. How do you define success for yourself at this point?
Yonhee: Yeah, as I think about that question, I think that the definition of success changes as we age and go through different stages of our life. I also think that success is really in the eyes of the observer a lot of times. So, for me now, as I work with others, I really view their successes as my successes if I have a role in their development. And I think for me now, it's having an impact. I'm looking at, "Have I added value?" Knowing in my heart that I did the right thing, I think, to me is what defines success where I am today.
Michael: And I can hear it in how positively you talk about people who've been there a long time that you got to hire and bring in and train and develop, it's really cool to see over the span of the growth of the firm.
Yonhee: Yeah, it truly is, it really gives me a sense of personal pride too. And if there's anything I've also learned as a leader as I have grown in my career and my career path, coming to different parts in my career and just understanding that letting go is hard but holding on is harder. And I think that's something that we all recognize, and we have recognized at our firm, and that's why we continue to be successful because we're always working on developing that next generation.
Michael: Very cool. Very cool. Well, thank you, Yonhee, for joining us on the "Financial Advisor Success Podcast."
Yonhee: Thank you so much, Michael, for having me. Truly, it's been an honor and I really enjoyed the conversation.
Michael: Likewise. Thank you. Thank you.
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