#FASuccess Ep 123: Buying Out A Retiring Founder & Funding Future Growth By Recapitalizing With Well-Aligned, Patient Capital, With Brent Brodeski

What You’ll Learn In This Podcast Episode

• An overview of Savant Capital. [5:08]
• How they structure their advisor compensation. [25:22]
• How the firm has had to evolve its executive and leadership structure. [34:58]
• How (and why) Savant executed its recapitalization. [44:52]
• How he navigated the challenge of buying out a co-founder. [56:34]
• Key factors he considered when trying to decide who to work with and take capital from. [59:36]
• How Savant leverages its Board of Directors. [1:12:22]
• What Savant's executive team looks like. [1:18:36]
• What surprised him the most about building his business. [1:25:49]
• His low point. [1:30:38]
• What comes next for Savant. [1:36:40]
• How Brent defines success. [1:46:50]

Resources Featured In This Episode:

• Brent Brodeski
• Savant Capital
• Young Presidents' Organization
• Carver Governance Model
• Measure What Matters, by John Doerr

Full Transcript:

Michael: Welcome, Brent Brodeski, to the "Financial Advisor Success" podcast.

Brent: Thanks for having me, Michael.

Michael: I'm excited for today's discussion because you have what I think is one of the largest independent RIAs we've had out on the podcast. I know your firm is now upwards of $6 billion under management, which is kind of a mind-numbingly large number for me to think about, you know, having started from scratch 25 years ago and have gone through just, you know, a whole bunch of different changes that firms go through as you hit all the different growth stages to go from zero to upwards of $6 billion. And so, I'm just excited to talk about, like, what that growth cycle looks like, and maybe for some advisors that either, you know, are hoping to grow to that size, are thinking about joining a firm at that size, are maybe considering whether to sell to a firm that size. Like, what does it look like? What is life like in a $6 billion RIA as opposed to, well, like, the other 99.9% of firms that are nowhere near that size?

Brent: Yeah. You know, I mean, I think where we're at today is very different than where we were five years ago, which is very different again from five years. It seems like over the history of the firm, about every three to five years it's completely changed.

Really, where we're at today, we're an enterprise. We have a real executive team. We have a real board. We have a real capital structure. We have over 50 employees that are partners and, you know, 172 employees. So in some regards, advising clients, as all advisors do, we just have some more zeros on the AUM and the number of clients and the number of advisors. But the things that make you successful, at over $6 billion, are way different than when you're $1 billion or when you're at $500 million. It's a lot more focusing on governance and leadership as opposed to management and doing. There's a lot more focus on technology and creating scalable solutions.

An Overview Of Savant Capital [5:08]

Michael: Interesting. So you mentioned, you kind of have a couple of interesting things there to me about, you know, real executive teams, real boards, real capital structures. I want to dive into all of that further. But maybe just to get us started, can you give us a little bit of just an overview of metrics of the firm? You know, I guess I sort of let the cat out the bag of being over $6 billion under management, but asset base, client base, revenue base, employees, like, how do you look at... if you're looking at this as a large-scale enterprise, what are your key business metrics that you look at to size a firm like this?

Brent: Yeah. You know, we're about $6.3 billion, depending on the day. We have 172 employees, just shy of 5,000 clients that include predominantly wealth clients, but we have a growing segment of the business that's retirement plans as well. You know, world headquarters is in Rockford, Illinois, which is about 60 miles west of Chicago. But we really sort of have several different regions, 14 offices in total, a growing presence in Chicagoland, Central Illinois, a growing number of offices in Wisconsin, and also a significant office in the Metro D.C. area.

You know, we have a deep focus on tax, wealth transfer, comprehensive planning. And our typical client, our value proposition is planning and the implementation of ideal futures for our clients, you know. And of course, like most in our business, you know, we're paid through basis points predominantly, although we do have an accounting firm we acquired a few years ago, and so we've got a growing amount of, you know, non-AUM fee revenue as well. But in aggregate, we're about $50 million of revenue and, as I said, about 5,000 clients.

What's a little different, I think, about our structure is I see a lot of advisory firms that are very top-heavy. Think of it as an inverted triangle, where you've got a lot of professionals at the top of that and not a lot of support staff at the bottom of the inverted triangle.

Michael: Right. A bunch of super productive advisors that are seeing clients and like, you know, Betty supports these two advisors and Jimmy supports those two advisors. So I've got 6 or 8 advisors and 3 support staff, and that's what makes a hyper-efficient $200 million firm.

Brent: Yeah. And a lot of times those same advisors are also sort of player-coaches. They're doing compliance one day and they're investment committee another day and they're, you know, figuring out software for financial planning another day. We've kind of taken from day one a different structure. It's just more of a traditional pyramid or triangle. And so we've got 172 employees, 48 of those are client-facing. Now, we have a whole another slew of CPAs and, you know, estate attorneys and, you know, estate specialists and CFAs and so on that support those. But it's really, we've got more than two individuals that are supporting those client-facing for every one advisor.

So really, you know, our advisors, the luxury of working with us is they tend to be able to wear fewer hats. You know, they get clients, they manage relationships, they convey wisdom. And if you've got gray hair you're mentoring, and if you don't, you're getting mentored. And of course, there's stuff that you need to do as well. But the goal of having a lot of support team and heavy technology infrastructure is to really allow our advisors to do what they love doing, which is advising, and doing that more efficiently, more effectively with more clients, and, you know, for us it's making more money.

Michael: So I'm kind of thinking about the firm just, as you said, at kind of enterprise scale of how a lot of these numbers start breaking down. So $6-plus billion, about 5,000 clients, so average client, if I'm doing the math right, is a little over $1.2 million? That's sort of your... is that a fair characterization of typical client?

Brent: Yeah. I mean, it's a big bell curve. We've got very large clients and we've got small legacy and next-gen, children of clients. But yeah, it's about $1.3 million-ish on average.

Michael: And do you set minimums at this point for who cannot come on board? For a lot of firms, as they grow, they tend to move upmarket and start setting some minimums in place just because there's a lot of infrastructure to support after the first couple thousand clients?

Brent: Right. Well, you know, I think what's a little different about us is, we're in Rockford, Illinois and it's just sort of in the sticks of Chicago. If you take the city and the suburbs of Rockford, it's 250,000 people. So when you're starting out with 250,000 people, you really don't have high minimums. You take whoever will give you their money. And what's interesting is we've built almost half of our business in that community, so we're dominant obviously, but in the process, we've been able to create scale that allows us to very profitably serve clients that have a half a million or $250 million. In fact, we'll go all the way down to $50,000, you know, at, you know, higher than a 1% fee schedule. But the beauty of it is, is at that level, it's not that complex. It's not as much work that they really need. But a lot of those become larger clients.

So, you know, we've actually, through segmentation, through using technology, through using process, have been able to, you know, make, you know, smaller, medium, large or extra-large clients very profitable. I mean, our sweet spot is let's say half a million to $10 million. I mean, that's kind of the core, but we certainly have a lot of larger clients and a decent a number of smaller clients that are profitable and that we serve well.

Michael: You make a good point there that is something that's kind of struck me for a lot of firms as they grow and tend, at least, to go upmarket. That there's sort of this irony, to me, that so many advisory firms start out with as sort of the like, if you can fog a mirror, you're a prospect. If you've got any assets you're a client now. And, you know, we'll take $200,000 accounts, $100,000 accounts, $50,000 accounts. You know, firms that started 10 and 20 years ago, the numbers might have even been lower than that. And they took those clients and they served them, and they were not only profitable enough to survive as firms, but they had money to reinvest, grow their staff, be successful, become the larger firms that they are today.

And then, to me, there's this strange thing that seems to happen to a lot of firms. All these clients that they could profitably serve with no systems and scale suddenly aren't appealing anymore now that they have all this staff and infrastructure and systems that in theory is supposed to make them more efficient. And so I've wondered for a long time, like, why is it that firms lift their minimums as they get larger? Shouldn't they be dropping their minimums as they get larger because it becomes more efficient to serve the next incremental client when you've already got the infrastructure in place? It sounds like you guys have kind of gone that curve. Maybe it's even an upside down U. You start with low minimums, you get bigger and need higher minimums, and then you get even bigger and you get lower minimums again? Is that a fair characterization of what the journey has been for you guys?

Brent: Yeah, we've pretty much had the same structure all along. The one change we made about 8 years ago is we used to have a...you know, did start it out at, you know, $1,000 and went to $2,500 and then was at $5,000 minimum. And we actually concerned that we were doing the same thing. We were getting larger and larger clients and we were concerned, well, maybe these smaller clients, you know, maybe we're not serving them as well. Maybe they don't like this. They're not getting as much attention. And we surveyed them. And it was funny because the small clients were just as thrilled with us from a Net Promoter Score than the large clients. And so we realized that it was more in our head that they weren't being served in a way that was positive.

One time we actually segmented the business into two different businesses and two different locations with two different teams. One with a lower minimum and a more streamlined service model and then larger clients. And really what that allowed us to do is to create a discipline where, you know, you had the next generation talent typically working with those less complex, you know, smaller clients and therefore your most seasoned and experienced advisors working with larger ones that tended to have more complexity. By segmenting and by having different service models, we found that you could actually provide better service and higher margins on those smaller clients and give them a better client experience, and at the same time free up valuable capacity of your most seasoned to be able to, you know, focus more on those largest clients and then mentoring.

And, you know, ultimately, we kind of rolled it all back together, but we've maintained the segmentation and, you know, different fee schedules for different minimums. And I think it's been very valuable. I look at it and, you know, we have extremely high margins, you know, relative to the industry with all the benchmarking. And it's really, we have just, you know, created process and systems, you know, and segmentation, you know, to be able to serve 5,000 clients. The beauty of it is, you know, the next-gen, if you've got a $1 million minimum or a $2 million minimum, you know, the problem is they don't know those kind of people either. So, you know, their cohorts, you know, don't have that kind of money. So it also makes it challenging from a development of advisors and, you know, giving them an opportunity to sell and grow, develop business, which, of course, is a skill set you learn over a lot of years, you know, through practice. And, you know, if you have a high minimum, you don't have as many opportunities to get up to bat.

So we're very comfortable in our, you know, $500,000 to $10 million and, you know, with the right advisors and the right fee schedule going downstream. And, you know, we've got all, you know, the bells and whistles and estate attorneys and, you know, CPAs, and we've got 30 just dedicated specialists. So we can go upstream as well. And so we certainly have our family office clients and very large clients, you know, but at the end of the day, we really think that, you know, $500,000 to $10 million, you know, maybe up to $25 million, maybe down to $250,000, that's where we can add the most value. That's where scalable processes make a lot of sense. That's where, you know, the margins are quite good.

You know, there's some firms out there that have, like, crazy high AUM, you know, and not a lot of clients, and, you know, they make it higher on the list. But at the end of the day, I'm okay to be a little lower on the list. But, you know, from a revenue perspective and a profitability perspective, I think many of those firms would prefer our business model.

Michael: So I am curious really fast just to take one more moment in this discussion that you had a separate business line for serving younger, smaller clients and sound like separated internally different staff, different structures so that you could streamline what you were doing for them. Which I've seen a couple of firms launch and try over the years as a way to sort of even more deeply segment. I used to call it the firm within a firm approach. We'll have a mini-firm within the firm that does this different thing. But you, it sounds like you talked about in the past tense. You unbundled it, or I guess, like, rebundled it back in. So I'm just wondering, what led to the change that brought it back in if you were happy with how it was working separately? What drove the shift?

Brent: Yeah. So it was important to break them out. And the reason is, is when you have, you know, a seasoned, experienced advisor, you know, oftentimes those small clients, you know, would consume his time or her time yet he or she didn't then have sufficient time to either go get new clients and/or, you know, to service the larger, more complex clients. And advisors by nature are very nice people and they're relationship people.

Michael: Yes, we don't like to say no to people.

Brent: Yeah. And so it's really hard when you've collected these clients over time to say, "Hey, you're better served, you know, by this other advisor, or this more junior advisor" and feel like the client will be unhappy. Now, the reality is, is by separating it into two brands and two different offices, two different teams, two different service models, it made making those decisions easy because they were policy decisions. And we found out those clients, they actually became happier because they heard from us more often. And so it accomplished the mission of not only providing more proactive service on a segmented client model but getting the right advisors working with those smaller clients. And frankly, their hourly rate, if you will, was lower, so they could spend more time and actually be more profitable. So that was successful.

Now, after we accomplished that, the other goal was, "Hey, well, now we can proactively go out and get small clients that are high potential." Now, what we learned, though, is that we didn't get a lot more young professionals. What we found is we got a lot of, you know, older retired people that didn't used to qualify that now qualified. And as we moved forward, we were collecting a lot of these proactively, but we also realized that that really wasn't the intention.

And I think the other thing we found is, is the younger team, the maybe a little less experienced team that work on small accounts, when they were limited to small accounts and the biggest, you know, as they were successful in growing clients or relationships, they had to graduate to someone else. That didn't feel good. And by the way, those same advisors were gaining experience but they weren't...really didn't have those more complex and bigger clients to apply that experience to. So we ultimately, mission accomplished on one hand. You know, we were able to segment and get up the right clients with the right advisors. The second hand, it turned out to not be successful, that it really drove a lot more young high potential is really, you know, older retired with small accounts and spend out mode. So maybe we really didn't want to go out of our way to attract that.

And then third of all, to really allow those that worked in the small accounts as they gained more experience to move upstream, by having them in two different buckets, they didn't have that opportunity. So we eventually brought it back together,  but we still got the benefit of the segmentation and the experience that we gained from all that. So it was a great thing, but it kind of, mission accomplished and move on.

Michael: And so, how do you segment them now? Is this like, A, B, and C clients and certain advisors get certain client types? Do you have a team where, you know, you on the team get the A clients and you on the team get the C clients? Like, how do you do the segmentation now to try to maintain the benefits you were getting before?

Brent: Yeah, I mean, what we figured out was, is you didn't have to have two different business models for the more senior advisors if they just didn't get paid on those clients that were below $500,000 or below $5,000 minimum fee. They were very eager to hand those off, after all.

Michael: Ah, just from a comp perspective, "Dear senior advisor, your compensation is tied to the clients you're servicing but only the clients you're servicing that are over an X dollar minimum fee. So if you don't want to run out of space and lose your own earning potential, you might want to hand off that client to one of the other younger advisors for whom that's a good client."

Brent: And the beauty of it is, by partnering your gray-haired mentors with your, you know, younger understudies, you know, they're chomping at the bit to take lead on clients, even if they're smaller or medium-sized clients because they don't necessarily have the network to go out and develop as many of those as they have spots on their dance card. So it's a great relationship because that more seasoned, by putting the incentive place to hand it off, it actually now frees up capacity for the seasoned advisor to work on more big clients and to go hunt more elephants, you know, while you allow that younger advisor to gain more experience than they would and work with more clients than they would if they were just out trying to hunt their own clients.

Michael: Interesting. Interesting. And then in terms of the firm overall, so you said 172 employees, 48 of them are client-facing, I guess, in advisory-style roles. You've got about 5,000 clients. So again, I'm sort of doing my envelope math, you come up with something around 100 clients per client-facing advisor on average. Is that kind of a number that you target? Is that just sort of where it's landed? When you're looking at your kind of size and scale challenges, how do you think about or target numbers like that?

Brent: Yeah. You know, again, if you're dealing with $5 million clients, that's too many. On the other hand, if your average client is, you know, $300,000, you can do a lot more than that. The other aspect of our model is, we always try to have two advisors usually. And we don't call them a lead and a junior because that would...you know, who's going to want a junior? They're going to want a lead, right? So we're just advisors. Backstage, we'll have a lead advisor and a co-advisor,  for more of a kind of backstage jargon.

Michael: The client-facing you just say like, there are two advisors?

Brent: Yeah. So an advisor may have...you know, is generally going to have more than 100 because, you know, there may be a lead on this one, you know, and a co-advisor on that one. Or if it's a more seasoned, there typically always going to be lead, and then you've got, you know, cos that are working with them.

And, you know, the nice thing is, is the leads, you know, their goal is to not do a lot of preparation work, not a lot of follow-up work. You know, they want to, you know, walk down the hall with the advisor, get debriefed, you know, maybe spend a little time understanding what the needs of this meeting or the purpose of this meeting is. But they go on and they convey wisdom. You know, they use their experience working with other clients and, you know, in many cases their own personal experience, you know, to really add a lot of value to that client. But that might be 25% of the time, right? But the co-advisor, you know, they're carrying, you know, the weights on this, you know, not only on preparation but follow-up and then coordinating all the logistics with our planning team and our wealth transfer team and our estate team and our tax team backstage after the meeting, in between meetings.

So the nice thing is, is, you know, three-quarter of the time is typically expanded on the more junior where they're gaining experience. And those are usually less experienced, less expensive people. The more seasoned people can... it's like Frank Sinatra. He doesn't set up the stage, he doesn't promote, he just sings, right? So the most senior ones are going to sing and in a sense, the next generation, you know, do a lot of that other work. Which, again, allows everybody...it's a win-win all the way around, you know, because the junior makes more money and gets to do more meaningful work, and the senior is able to, you know, continue to hunt and continue to convey wisdom, which is the part that they really love doing more often than not.

How They Structure Their Advisor Compensation [25:22]

Michael: So, how does compensation for advisors work when you've got all this teaming and I'm a lead on some and a co-advisor on others, and I may or may not get compensated if the client is below a certain fee threshold because that's supposed to go to one of the other advisors? Is yours a firm that compensates tied to revenue? Like, you get x percent of the revenue that you're responsible for? Are you more of a salary and bonus structure? How does compensation work when you're operating at your size and structure?

Brent: Yeah. I mean, it's all of the above. There's a base compensation. There is a piece tied to...you know, one-time piece for new business development tied to sourcing new revenue from either existing or new client. There are ongoing income annuity streams tied to the revenue for having originated the client at some point and then for servicing. And so if there's two client advisors on a client, they'll split that servicing component. And then there's a team bonus as well that's tied to the company's success. And that's really a derivative of our growth in unit value and revenue.

So it ends up being sort of a Swiss Army knife of components. At first, it may seem a little confusing, but it only takes about one-quarter for people to understand it and actually love it. You know, because, unlike a traditional system where you kind of go beg for, you know, negotiate a salary and bonus and nobody feels like they got taken care of, by creating a lot of transparency around the compensation. But also, you know, it's not like a wirehouse, eat what you kill and, you know, swing from the rafters. When you take, layer the different component parts together, there's a stability to it as if like... there's a base piece, but then there's some of these other components really act base-like, although, you know, they can go up or down with the market. But then ultimately, if you're an advisor and you want to grow your income, you go get more clients or you take on...you know, fill more spots in your dance card in terms of providing good service and relationship management to clients.

So it's worked really well. We used to be... if you go back, it was interesting, about 10 years ago we were a base with a just bonus that had some variability but nobody understood it. And it basically ended up just being base pay. And what we realized is we need to evolve from a founder-driven business development, because there was 3 of us at that time that had developed about 85% of all the revenue each year. And at the time I think we were about $170 million of new business development. Well, what's interesting is we realized we...you know, the founders could not keep growing it. We needed to get the next-gen to move from stewards to really driving the growth and pursuing revenue and picking up the $100 bills and referrals that fell on their way.

And so by evolving this comp system, it's been transformative. I mean, 10 years later, this year we'll bring in north of $700 million new revenue purely organically from new and existing clients, and well over 90% of that is from non-founders. So we went from less than $200 million where it was 85% founder-driven to over $700 million where it's over 90% non-founder-driven.

And it's really, it's kind of a simple thing. What gets measured gets done and what gets paid gets done. So by having a system that allows people to be entrepreneurial and allows them to decide if they want to work harder or less hard. And while I'm actually going to get it if I go and join a board or if I take really good care of this client and get a referral from I'm going to get paid more, well, they tend to do those things. Where if it's just a salary and maybe, you know, Brent will give me a bonus why not sit back, you know, and act like an employee as opposed to like an entrepreneur and a business owner.

Michael: So I hear you, but on the flip side, you did make the point, you don't or you're not trying to run sort of the classic wirehouse, eat what you kill, which to me is sort of the ultimate like, if you want to make more, go hunt more, and whatever you hunt you bag, you bring in and then you make more money and off you go. How do you think about the balance of those? Is there some target like, I want the advisor's comp to be 50% base and 50% bonuses, but I don't want it to be 100% variable, but I don't want it to be only 10% variable because then there's not enough incentive to go hunt? Do you look at it that way? How do you find this balance point?

Brent: Yeah, when we kind of designed the system we thought on one hand you get wirehouses eat what you kill. You don't have a fiduciary mindset. There's really no team orientation. You know, it's like it's just all payout, right? And then the flip side is like a bank. Okay, they pretend to pay you and you pretend to work. You know, it's not at all...it's like anti-entrepreneurial and, you know, people go there and don't work hard and they don't make much. And so we wanted the best of both. We wanted to  be able to attract great stewards and technically capable people that were going to act like fiduciary on one hand, which is kind of bank-like, on the other hand, we wanted people that could hunt to go hunt and the ones that could foster additional wallet share from the clients they're working on to be able to do that.

And we also was really imperative to, you know, create teamwork. And so we needed to have the incentives such that there was a win-win if that gray-haired and that understudy collaborated, and if they, you know, together were able to, you know, drive more revenue than they could if they were just a bunch of, you know, individual producers in a wirehouse. So it was pretty out of the box, you know, 10 years ago, and it's worked phenomenally well.

Now, what's interesting is we are really relooking at that right now, not because it's not working, but our business goals for the next 10 years are different than the last 10 years. And so we're now saying, "Okay, the core of this still makes a lot of sense, but how do we further evolve and tweak it?" You know, there's maybe a little rust on the edges of this. You know, maybe there's some people that are, you know, maybe would like to go to part-time, as an example, and they don't want to be all on or all off. So we're between now and the end of the year where, you know, big part of what we're focused on is thinking about, you know, how do we...how we morph it a bit, how do we update it, how do we refresh it so that it really aligns our advisors' interests and their opportunity with, you know, our goal of growing 10 times in the next 10 years?

Michael: So can you maybe give me an example for someone? I'm sure there's some variability for just...because different advisor, different places. So maybe there's just some ranges. But if I'm an experienced advisor and I've been there for a bunch of years and I got my 100 clients and a decent chunk of revenue, roughly what does it look like in terms of what is my base, how much of my comp is variable and what kind of bonuses do I get? I'm just trying to visualize this a little bit.

Brent: Yeah. So let's say, when somebody is starting out, it's predominantly base, and a lot of times...sometimes some guarantees. And by the way, they're really there to serve the more senior advisors and/or the clients that the firm have accumulated over time. So it's going to be a lot more fixed and it's going to be more like any other advisory firm. On the other hand, you know, if you think about that middle stream advisor, it could be more or less. I mean, if they've collected a lot of, you know, clients that other people sourced, you know, maybe less, you know, but if they source them on their own it may be more. And, you know, there's base and then there's these variable components. But keep in mind the variable components, a lot of this is just tied to revenue, so it's more fixed after all.

Michael: Once you get your clients and you've got people...

Brent: Yeah. Now, you know, in, you know, fourth quarter the market tanks and so the income goes down a little bit. The first quarter of '19 the market goes up, their income goes up. So it's not 100% fixed, but it doesn't vary that much as you kind of build that, we'll call it annuity-like, variable income. And then ultimately, at the very highest end, our advisors are making way more than, you know, typical advisors would. I mean, they're making a lot more than the benchmarking. Because those advisors have said, "I'm going to take advantage of this and I'm going to go out and I'm going to delegate service work, and I'm going to hunt."

And so the nice thing is, is, you know, you can make a good living whether you're supporting lead advisors, whether you're a hybrid of business development and relationship management, or whether you're maybe more gray-haired and you've got a great network of people that have more wealth and you're more focused on bringing it in and being supported. So it's worked really well. And again, at first glance it seems a little more complex, but people get it when they start understanding, "Okay, this is how I make more money,"  and they get the first quarterly check. And by the time they get their second quarterly check, it's pretty ingrained and works.

How (and Why) Savant Executed Its Recapitalization [34:58]

Michael: And then how does, I guess, ownership or partnership or however you refer to it work in? Because you had mentioned, you know, upwards of 50 of the 172 employees are owners as well. So is partnership like a, you get to certain client size or certain asset size and you get to be an owner? Is there something else that determines how ownership works? Like, how do you end out with 50-plus employee owners?

Brent: Yeah, so if you go back about seven years, there's the three founders and then it didn't go beyond that, you know. And then we did our first M&A deal and we got a few more. And then we, as part of that, we had a capital structure that allowed us to bring in other minority employee owners and also have a mechanism so where they could retire and take their chips even if we weren't going to sell the company. So we kind of figured that out. And then we did a recapitalization when my co-founder wanted to go into the sunset  about two and a half years ago. And at that point, we had to raise a lot of money, you know, to, you know, provide him liquidity and also growth capital. So we kind of went to the other extreme and we said, you know, "Typical advisory firms, I mean, are going to maybe let their biggest advisors be owners and then maybe there's a manager or something." We said, you know, "What is the downside of going much more broad?"

So when you look, and there's not formulas we say, "Here's what it takes and then you're in." Because some of what it takes, you know, is contribution and expected contribution going forward. And if you're an advisor that's, you know, going to be around, you know, bringing in relationships, managing relationships, you know, getting referrals. But if you're not an advisor, it's contributing in other ways. But there's also that fit factor. Are they a good cultural fit? Are they making the firm better? Are they contributing in ways outside their job? So there's that...there's the quantitative stuff if you're an advisor, but then there's sort of the position things. If you're on the executive team or the functional leadership team, we sort of expect you to be an owner because we want you to be aligned with our success.

But then there's, we go a whole another level down. And there's a number of people that never would have imagined that they would have had an ownership opportunity, but these are really quality people that are aligned with our culture, that have contributed a lot in the past, and we're like, "Hey, we want these people for the rest of their careers. We want to fully in our soup, so why not." And so, we actually have 58 owners now that are employees. And I'm excited that we'll add more over time.

It's been kind of inspiring because we've got a lot of really young people, really smart millennial types. And we've had this robust internship program for years, and that's kind of fed our machine. And we've actually had some that have graduated to executive team and senior advisors. And so when you get... when you can see somebody that's maybe started as an intern and eight or nine years later they're a partner, that's a great message to deliver to that really talented college grad that's trying to decide between us and someone else.

So long story short we like...we noticed that there's a difference in how the employees that are also owners, how they think. They think more entrepreneurial. They look for ways to contribute in ways that they normally want if they weren't an owner, but they're also committed. When you make the decision to come in, you know, there's typically a more robust restrictive agreement. And you're putting real money in. We sell them ownership and we arrange for the financing and so on. But they're real skin in the game. So you think differently when you've got real skin in the game. So again, having gone from one extreme where we were a large firm with three owners to a third now. And as we grow, we'll keep adding them. I will definitely say that that's been a real strategic competitive advantage in terms of attracting, retaining, and motivating, and creating more effectiveness and efficiency effective from our key team members.

Michael: So you'd said they have to buy in, you'll help arrange the financing. Is there a...like, do you do a discounting process? Do you view that as like, "No, no, that's not necessary, like, you're buying into full value because you're going to participate in the upside and full value?" Like, how do your deal terms get structured if someone wants to participate?

Brent: Yeah, there's an amount when you first become a member where we'll discount it. I mean, the important part of that is, is with being a large firm the fair market value is fairly high. So, you know, if they're going to use the dividend and also have to pay their payment to the bank and they also need to pay taxes on their share of the profits, in a sense we need to discount at least the first tranche or two so that the cash flow meets their obligations.

Now, to the extent that the company grows, does the 10X in 10 years, that is part of our plan, well, it'll get paid off a lot sooner and they'll have a valuable asset and nice cash flow, you know, from the 9% to 10% distribution that we make every year. Now, if we grow less fast or if the market is more challenged, you know, then it may take longer. At least those preliminary discounts on the first tranches, you know, just make it work. And it's essentially, we're also recognizing the historical contribution. You know, now, once somebody is in and, you know, if there's additional opportunity, they're generally going, you know, to be able to leverage their existing ownership and buy in. And that's typically not discounted.

Michael: Okay. And how does subsequent purchases work? Like, do I...I get an option every year or two or three years like, "Hey, do you want to buy more?" Or is it a more of a merit or other based system like, "Hey, you made some big contribution so we're going to give you another chance to buy in more?"

Brent: Yeah. So, I mean, there's not a formal program per se, you know, because there's maybe times when, you know, if we've got somebody that's going into retirement and redeeming stock, there may be, you know, more opportunity.

The flip side, I'll give you an extreme example. When we recapitalized the firm in the end of 2016, we needed to raise over $50 million. So in that case, it was, "All right, how much does everybody want?" You know, we laid out, you know, some target amounts but said, "If people are interested in more, let us know. And if you're interested in less, that's okay too." So there was a lot of hands that went up and said, "I'll take more." So, you know, really in that scenario, you know, I doubled down, but also, you know, we allowed the 48 people that we had to add to or create a new position that kind of fit their budget, if you will, and wasn't too hot, not too cold, was just right. You know, and then we basically backfilled with some family offices that made long-term patient capital, you know, investments in us. So really, the outside capital filled the gap, but our priority is always to, you know, allow our employees who are carrying, you know, the weight for us to have the bigger opportunity.

Now, you know, at the end of the day, like, you know, we just brought in eight new members. Now, we didn't need capital, we're flushed with cash, and so in that scenario it wasn't, "Hey, who wants what?" It was saying, "Okay, who are some of the eight new ones? These are people we really think it's good business to bring in," and made offers to them. There were some others that said, "Hey, I'd like more," but, you know, it's like, "We don't need more capital right now, and so it doesn't make sense to take on more capital and have it sit on the balance sheet. But, you know, we're, you know, actively involved in M&A, and, you know, if we're ready to do a large transaction maybe in a few months from now, at that point there may be an opportunity to make additional investments."

So it's really, you know, flexibility. You know, we want to make sure the right people are owners. We want to make sure the amount that they own is appropriate for their needs and, you know, their appetite but also their ability to take risk. You know, we need to take into account how much capital the business needs and, you know, are we needing to raise capital? Are we needing to redeem capital? And so it's combination of all those variables and then kind of an art and science behind it.

But the reason why it's not purely art or science, I should say, it's not formulaic, is it's really important that somebody might check a lot of the boxes. Like, "Hey, you develop good amount of business, you're taking care of a good number of clients, you know, you've got all the designations you need," but, you know, if they're not getting along with other team or, you know, if there's some things, character issues, well, we wouldn't want to let them in the club. And ultimately, you know, we may say, "Okay, this is...you know, we've got to have you, you know, fully drinking the Kool-Aid," and then we would consider it. So I think it's dangerous just to have a formula because formulas can be gamed. And so that's where the science is. Yeah, there's some...you know, there's math behind it, but then there's the art, which is, are you somebody that will make our business better, that we want to have as a partner for the rest of your career? And, you know, when, you know, we can all check those boxes, both the employee and Savant, you know, then that typically is when we can make offers, whether that's new offers or additional offers.

How Savant Went About The Recapitalization Process[44:52]

Michael: So talk to us a little bit about this recapitalization that you've mentioned. I think, well, frankly, the literal label "recapitalization" is not usually something that's used and thrown around in advisor circles. You know, as I understand it from what you said, the context is, I guess, the three original founders and someone wanted out, so, I don't know exactly what your percentages were, but, you know, if I assume a third, a third, a third, like, "Great, we've got this big business, one of the three wants out, we've got to redeem a third of the business, so we need a whole big old pile of cash to pay the person who wants to leave. And so now I've got to figure out like, who's buying your shares or where's the money coming from." And that's essentially what drove this?

Brent: Yeah. So my co-founder was about 16, 15, 16 years older than I was. And then we had another key shareholder that had joined us and was not looking to go away, but he said, "Well, if the co-founder is going to exit and take a pile of cash, I at least want to have some chips off the table." So, you know, and my co-founder, he's kind of an all-in all-out kind of guy, and he wanted to do some other things in life. So his condition was, "I want to go out. I'm willing to go out at a price less than the value, but I will only take all cash with no strings attached." Well, that would have required about north of $50 million. And I didn't have that in my back pocket, nor did my employees.

Michael: Right. Good news, at least it'll take a reasonable deal, bad news, you actually literally need $50 million in cash.

Brent: Literally. Yes. Yes. And so at that point it's like, "Okay, what now?" And of course, the first thought is, "Well, maybe we've got to sell the company." And so I started calling all the usual suspects, the typical financial buyers.

Michael: Like, to ask them if they wanted to buy the whole thing or just trying to figure out like, "Hey, will you buy my partner's shares but I actually want to stick around?" What were the conversations at that point?

Brent: At that point, I didn't really know what their deals were. I was an expert advisor, not an investment banker or financial engineer as it pertains to capital structure. So that is like, you know, you just call who you know that are, you know, have done deals and who had the turnkey deals. But the problem with the financial buyers is they don't really add any value, okay, but what they do is they move the numbers around and they use creative structure to provide cash. But, on the typical financial buyers, the problem is, is there's a lot of hair on them. You know, first of all, you know, they give you money, but then the people who stick around have significant preferences that they have to forever more pay. So it's kind of like a, you know, you have to pay them the higher of a high-yield bond or the full equity return.

Michael: We'll give you the $50 million, but you've got to pay us a 12% year dividend or whatever you're actually making if it's better. But no matter what, you're going to pay us at least a 12% dividend. So if you grow a whole bunch, that's probably okay. If you don't grow a whole bunch, all of a sudden they take all the cash flow.

Brent: Exactly. And then the second thing is, is the piece that's not sold, it's illiquid essentially. So, you know, you can try to convince an employee to own it, to buy it, but if an employee is the only choice and they don't have any money, typically, if you can convince them to buy it, it's going to be at a dramatic discount.

Michael: Because you've got to be in partnership now with the person who gets the preferential 12%...

Brent: You got it. You got it.

Michael: ...yield before you get the money, which I guess ironically means, particularly in your position as the guy who was going to stay with the bulk of the shares that stayed, that was, like, particularly not appealing for you to be on the short end of the financial buyer who puts liquidity on the table.

Brent: And so, as I look at these financial buyers, you know, who are they well suited for? Because obviously, a lot of these deals get done. But if you've got somebody that's wanting to go away and take the cash and stick, you know, the remaining shareholders, clients, employees, you know, with that permanent liquidity, not a bad deal for the seller, but it doesn't really add value to the clients because they're not really bringing anything that benefits the clients. They're not really bringing anything other than...

Michael: Right, they're just literally facilitating a transition event that otherwise needs to happen.

Brent: Yeah. And so it's great for them and it's great for the seller and it's bad for the people left behind. Now, the other positive is, is you get autonomy. You get to leave the name on the door. You're not needing to change the leadership at all. And so for some, you know, some firms who that autonomy is first and foremost in having the name on the door is first and foremost, maybe it's okay, you know. Or if you haven't planned early enough and that's your only choice as a founder, then I think that's where a lot of those deals are done. So that was...you know, talk to them and it's like, "Well, this is crazy. I can't believe anybody would do these."

So then, you know, I went out and talked to a whole slew of traditional private equity firms. And these are ones that... I talked to Carlyle, as an example, and several others. I mean, some of the big names. And the problem with them is they're willing to pay a decent price but they want control. They want to invest a lot of money in the business. They've got a three-to-six-year window, and it's usually on the shorter end of that. But then what they're doing is, is they've got a limited window. They want to pump it full of steroids, put you on the treadmill, make you run fast and then pimp you out to the highest bidder in three to five years.

And when you think about how they make their money, they're making a preference on their return. So how do they create return? They negotiate really hard, really well on the front end to get a good price. Okay, then they spend a bunch of money in the short term to try to drive revenue, unsustainable revenue, and then what they do is, you know, a year or so before they want to sell it, they cut a bunch of costs, lay a bunch of people off to drive up the EBITDA, which works for a little while. You know, because like let's say you stop spending, investing in the business, it doesn't really affect your growth, you know, for now, it will in three or five years from now. And then a lot of times they're using, you know, four to six times leverage so that way they don't have to put as much money in, and the leverage, you know, creates even higher return.

And a lot of times they're doing sub-acquisitions. So they're going out and...but they've only got a limited window. They've got, you know, three to five, three to six years, so they're buying whoever they'll say yes and putting those together because they don't really care if it's a bad outcome in the future because they're going to be gone. What they do is they then flip it to the next PE firm who then starts the whole cycle again.

So where I was at, when we approached these guys, I wanted to put more money in. I didn't want to take money out. And I wanted to build this. I mean, you know, I wasn't even 50 years at the time old and I wanted to build this for a lot of years. And I didn't have that choice because they were going to sell it not to who was good for my clients and good for me and good for my team, they were going to sell to whoever pay them the most.

And the other element was like, I had built some wealth through dividends, and if employees were going to come in, they were going to need the dividends to pay their debt. The problem is the private equity firms if they're going to lay around four or five times debt, there is no dividends. They're using those dividends to pay the debt during that interim period, meaning the employees wouldn't have had on the opportunity to participate in this. So how do you incent them? How do you motivate them? You know, and if I want to create a, you know, firm that might be doing this for 20 or 50 years or 10 years, I wanted to have the optionality to do whatever makes sense, not to artificially be forced to sell just because their fund was coming due or because...you know, if they can sell it faster, you know, they do these different things to pump up the return, if they can flip it faster, that return is compressed in a narrow number of years, meaning their IRR is higher and their 20% promote is higher and they make a ton of money. So it's really profitable for them, for the PE firms, that's why they make so much money.

And if you didn't care about what happened to your clients and team, you know, five years from now and it was all about, you know, taking some chips off the table and then another, my second bite of the apple in five years, it might be a really good way to create wealth.

Michael: If you believe they're good at what they do, you could actually have a hell of a second bite at the apple. Just may or may not want to go for the next cycle thereafter.

Brent: It's just, a lot of advisors, you know, feel like it's important to be a fiduciary. And a lot of advisors say, "My employees' outcome is as or some cases more important than mine." So, you know, what happens is, is you don't know who's going to own them in three to five years. I mean, it may be you might be fee-only and they're selling it to a brokerage firm. They may be slapping you together with the firm that's got a different investment philosophy, or you may think you're going to run this firm but then they're going to install their own leadership in there and "see ya."

So it's just, again, if your intent is to maximize outcome in say, a five-year window, it can be a way to do that. But, you know, like, that wasn't our vision. Our vision was to build something and have compound interest, you know, create serious generational wealth for our team, you know, to create a great outcome for our clients, you know, to...you know, I was in a position where I had...you know, drinking my own Kool-Aid and accumulated a lot of assets outside the business, so I didn't need liquidity and frankly, preferred cash flow over time. So that didn't work.

So, you know, then we talked to, you know, some traditional banks, and believe it or not, there were two banks that were willing to lend the full $50 million. But what's the problem with that? I mean, you bottom line if the market blips, you're bust, and, you know, they're taking it back from you. So that would have been, you know, another way if we...

Michael: So, you know, rather than having the private equity firm leverage the heck out of your business, you can leverage the heck out of the business yourself. At least you get the...you keep your control, you get your upside, but bank wants its check on the regular dates that the loan is due. So if the market downturn is bad enough and your profits dry up, you get a cash flow squeeze.

Brent: Right. And that wouldn't normally work for most RIAs because, you know, most RIAs, you know, they're not big enough. So the banks, the cash flow banks aren't going to look to...they're not going to have a lot of confidence in that dividend if, like, the owner isn't around or something happens to him.

Michael: Right. I guess that, at least, was the shoe horn for the size that you guys were at. Like, you actually could get the giant loan, but you'd still have to actually have the giant loan.

Brent: And it also related to the fact that I was rolling all my equity, and I had built up a decent amount of net worth outside the business. And I would have had to put all that money at risk. So not only would have I had to put, you know, the business at risk, I would have had to put my personal balance sheet at risk. I would have put my lake house at risk, you know, and probably, you know, probably put my children up for collateral. They didn't quite get to that point in the negotiation.

Michael: Right. When you borrow $50 million, they do kind of want to bunch it up, put up anything you can.

How He Navigated The Challenge Of Buying Out A Co-Founder [56:34]

Brent: Yeah. So, I mean, if we knew the market was going to do really well for, you know, the 10 years or so afterwards, it would have been a great way to build wealth and remain independent. But, you know, if it went the wrong direction, we would have been poof, and our employees would have been poof right alongside. And so that didn't make sense.

So what I learned at that point was a good mentor of mine who has his own family office and had several liquidity events, you know, said, "You know, you need to maybe raise money from family offices. And, you know, family offices, we like cash flow. And by the way, we don't want to flip good investments because when we do that, we have to pay capital gains tax. And by the way, we don't want to operate the business, we just want to provide, you know, capital." And so it was intriguing because it seemed to be a better fit, and it would allow us to not have to overlever our business. It would allow us to still take a dividend. You know, the time horizon is kind of as long as I could convince them to invest. And so, you know, I literally speed-dated billionaires for the next few months.

Michael: Out of curiosity, where do you find billionaires to speed date? I get the whole, "Hey, I want to check out family offices," but, like, do you literally then cold-call family offices and say, "Hey, I've got a firm if you're interested in making an investment?" Like, are there consultants that do speed dating introductions? How does that work?

Brent: I mean, I called some consultants that knew some family offices but then they put their own hair on the deal. So that didn't really make sense.  I knew a couple from the lake that I'm at, and so I said, "Hey, can you introduce me to some others?" I'm in the YPO organization, and so I tapped into relationships there. I just talked to anybody I knew that either, you know, was ultra-high-net-worth or maybe knew billionaires, and then, you know, just, you know, the story was good, and so it was classic networking. You know, so long story short, I had a bunch of them that wanted to do this. I mean, a lot of them. And so I went from at the very beginning thinking we had to sell the firm, to realizing, "You know, I can pick and choose who I want to be partners with." These guys all got money, you know, and they all want to deploy it, you know, and...

Michael: And you actually got, like... advisory firms by general standards are, you know, we run 25%, 30% profit margins for firms. Some high margin firms run higher. If you have capital to deploy and your choices are cash that yields nothing or even high-yield bonds that yield single digits or equities, depending on how bearish you are, like, maybe are going to give you 8% to 10%. Or hey, here's this advisory firm thing that has a 10% to 15% cash-on-cash dividend yield and it appreciates. Kind of a heck of an investment if you've got cash and at least, you know, are wealthy enough, you can take concentrated small company risk, right? Because we're still like, we're sub, sub, sub-micro-cap businesses relative to...

Key Factors He Considered When Trying To Decide Who To Work With And Take Capital From [59:36]

Brent: That's exactly right. And interestingly, you know, the families I picked, and the reason I picked them is because I liked them and because they could bring a lot of other value. You know, they had great expertise and they had, you know, people that work for them or, you know, that really could help us grow and that I trusted, frankly. And so I picked and choosed. But the reason why they like it is, you know, most of the money that ended up getting deployed was foundation money. And as you know, you know, there's a minimum distribution for foundations, you know, 5%, and it's hard to find 5%. So we were the yield play for these guys. And, you know, two of the largest families, they liked the cash flow because they could...you know, their billionaire patriarchs could make larger charitable distributions.

Michael: Interesting. Nothing like that humbling experience of like, where this business you spent your lifetime building really fits into the hierarchy like, "Oh, you're the cash cow dividend yield for a billionaire's 5% foundation distribution." It's like, "Okay, I'm now in my place in this world again."

Brent: It's kind of cool. I mean, if we're successful, more money goes to charity. It's like a win-win, right?

Michael: Yeah. Well, and they just want you to do your thing and keep growing and keep the cash coming.

Brent: Exactly. And then now, these same families, I mean, some of it was foundation money, but some of it was family money. So said differently, that cash flow was, they like the distributions. I mean, you know, if you're a billionaire, the reality is, is there's usually a lot of family members underneath that hood. Okay? And underneath that hood are also a lot of fairly illiquid investments because they know they've got generational wealth, so they're making a lot of direct investments or operating companies. So while they might be... they may have lots of money, it's not a lot of cash flow absent having companies like Savant that kicks out a 9%, 10% dividend per year.

Now, the other thing that worked well was, they were...what I liked a lot about them is they had a lot of confidence in me and our team because I was willing to put many millions more of my own money in. So I wasn't taking chips off, I was putting more in and they say like, "Hey, if the CEO and the founder is that confident, we should be confident." And by the way, that was part of the reason that I had 48 employees that said, "We're in too because Brent's in. You know, we're in." And as I indicated, my co-founder, because he wanted all cash no strings attached, he was willing to take less than market. So the nice thing is, is, you know, he got what he wanted.

Michael: So the family office gets a pop as well. He gets what he wants, but everybody gets a little buffer in the deal when he's taking a bit of a discount for a cash exit.

Brent: That's right. So the employees got a higher yield, the families got a higher yield, my exiting co-founder got the cash he wanted and, you know, get out of jail free and walk away with no strings attached deal. And so because of that, I was... See, I had 12 different offers and this was the third lowest valuation. Now, why would I do that? Well, because the ones that had the higher valuations had preferences, had illiquidity, sold my soul, was going to do things that wasn't good for me and my employees and our team. So I actually said, "Okay, all of these can do the deal, who do I want to be in business with? Who has an alignment of interest from a timeframe and is willing to just take common equity?"

So the deal was, is the outsiders, they just got what we get. I mean, when we get a dividend, they get a dividend. If we sell part of the company someday, they get partial liquidity. You know, there's some real simple and reasonable minority protections just because otherwise... a simple thing like Brent can't give himself a raise without the non-employee owners approving that. Because otherwise, I could, you know, just give myself a giant bonus and there's no dividend this year.

Michael: Right. Right. Yeah. Otherwise, you can, you know, nuke your entire dividend. Just pay yourself the equivalent of the dividend and a ginormous multimillion-dollar salary. Sure.

Brent: You know, some simple things like you can't have excessive leverage. You know, and if Brent you get hit by a bus, you know, the management team can appoint the new CEO, but we get to approve them.

Michael: Sure. Just really basic protections so they can have appropriate governance and due diligence.

Brent: Exactly. Exactly. I mean, they get one of the voting board seats; the management team, employees get the rest. But they get a seat at the table.

But the other nice thing is, is they didn't like leverage. They didn't think leverage was a good thing. And so that allowed us to all get our dividends, and it allowed us to not take excessive risk. They also said, "Hey, we would love to deploy more capital." Because part of the pitch was, "Hey, we've done some acquisitions to date and they've all been creative and they've all gone well and they all still like us, okay, but  to do bigger and more of them, we're going to need more cap money than we've got, and we don't want to overlever going to the bank." So they're like, "Hey, we'll commit to additional capital to the extent you find large opportunities or, you know, a lot of medium opportunities that are creative to the business."

So anyway, long story short, you know, that's where we went, and it was complex. And this is the part of the problem is, I'm told by some of the bankers that I worked with and talked to that this was kind of a first of its kind and...

Michael: I feel like almost everybody else in the business these days to the extent these deals are getting done, as you said, like, it's financial buyers, private equity firms. There's certainly a few private equity players in our space right now. Or some say, "I hate all these financial buyers and private equity firms," they go borrow the money. But yeah, it certainly feels like you were at a different pathway. I don't know offhand any other firms that, you know, did their whole recapitalization restructuring, "We're just taking patient, family office money."

Brent: Yeah. Well, it's complicated. It was complicated. Now, it's a great outcome for everybody. One of the biggest things I've learned is the importance of alignment of interests. And, you know, this is not a win-lose negotiation. It was like, "How do we get everybody what they want?" You know, we spent a lot on legal fees. We spent a lot on consultant fees. Like, I killed...you know, sort of like presidents, they get really gray when they're in office. You know, I aged, like, four years in one year when I did all this and turned out to be a really, really good outcome. And what's kind of interesting now is, you know, our plan and vision is to be, you know, one, you know, of the mega-firms that are consolidating the industry and providing a succession solution.

Almost all the others are venture or private equity or financial buyer-backed. You know, we've got structure that we're confident we can grow, you know, from $6.3 billion to $63 billion,10 times in the next 10 years. You know, remain independent, remain a fiduciary. We haven't had to sell our soul, you know, to, you know, outside interests, and, you know, which really puts us in a position to focus on creating value for our employees and our clients and our community, which is really what we're all about.

Michael: I'm fascinated with this and just I think the point that you made at the end, just the dynamic of alignment of interest. You know, if you're going to take money, it's, I guess, just sort of a reality, like, money comes with expectations and strings attached, but it's fair to recognize that different people come to the table with money in different contexts of their own and have different motivations. And so, you can pick money that fits what your... what aligns to what you want to do in the first place. You want to take a couple of chips off the table, try to grow it huge and have a big exit at the end, like, go grab some private equity money. They'll show you how to do it and amp it up. And if you want to swing for a home run, like, that's what they do. You can go along for the journey. If you want to take all the risk yourself, like, go borrow $50 million, or whatever the number is. If it works out great, you benefit from the leverage.

But, you know, if your angle is like, "I want slow, patient money," there are people out there who have slow, patient money. It's not private equity firms because they're fast and it's not banks because, you know, they just want their debt payments. But, you know, there are investors with different motivations who you may be able to be aligned to and get the dollars you want under the terms you actually want.

Brent: Yeah, exactly. So, like, you know, what I felt the best thing for our team, for me, for our clients, was not a sprint, not a marathon, but like a double Ironman. In other words, if we want to do this for 20 years, we want to compound interest for 20 years. You know, if we want to, you know, build this for 20 years, we want to do that. Now, if we want to go public at some time, we want to be able to do that. If it makes sense to sell it, we want to be able to do that. If we want to have, you know, this be a permanent family owned and family office owned business, we want to do that. I really value the optionality. And that's only possible if you get this alignment of interest.

And my analogy would be like, before the recap, we had this America's Cup sailboat, you know, but it had barnacles on it, it had holes in the sail. You know, we're dragging some anchors. We kind of had some amateur crew, but we were still winning. I mean, we were growing, we were profitable, you know, our clients loved us, but it was just hard.

And so what I've learned, my biggest lesson from all this is the importance of aligning interests. And what does that mean? It means that we got, you know, investors, you know, that likes our capital structure, that were aligned around our dividend policy, that liked the long timeframe, that didn't want leverage. We had a board. All of our board, we've got rockstar boards. I mean, it's crazy, you know, the amazing board I've got. And we have them not because they invested, they invested because I wanted them as a board member. So I went out and found this crazy best board in our industry, you know, by far and said, "Yeah, Charlie Johnston," who was the CEO of Smith Barney and the president of Morgan Stanley Smith Barney and did the largest merger in the history of, you know, financial services, you know, "I want you on my board." You know, and he liked the story, "But you've got to invest a lot of money because I want you all in. I don't want just, like, come and show up once in a while."

Michael: So it's kind of a bold pitch, like, "I would like you to take the time to join my board, but in order to do it, you have to put money in. Like, not I'm going to pay you be on my board, it's like, you've got to put money in if you want to be on my board." How does that ask work exactly?

Brent: Yeah. Well, no, I mean, the gist of it is, is, you know, we pay him, because you can't get good people if you don't pay him. But I can't pay him enough. And by the way, you know, because the kind of people I want are really successful and, you know, frankly, they can go on other boards that can pay them more. So it was like, you know, "Here's the opportunity." I had to sell them on the opportunity, and, you know, "I want you, you know, to be here, you know, advising me. I've never, you know, built an organization a fraction of the size of the one you own."

You know, Jack Brod, you know, he's the guy that started Vanguard Advisory Services, now has got the PAS $100 billion-plus robo. And then he ran strategic planning for Vanguard 10 years ago for several years. And then he started the Financial Advisor division, grew that from $300 billion to $1.3 trillion before he retired. Well, it's like, "You, Jack, have scaled a business, you understand our business, you know, you..." You know, he was the expert of Vanguard on Net Promoter Score and clients' experience. He's the CFP Board, you know, chairman now. It's like, "I want you on the board." And so he's on my board. I mean, because I can learn from this guy. He can help us. He can give us credibility.

Keith Taylor, you know, Keith was an investment banker at Goldman Sachs in the financial area for a lot of years. For nine years, you know, he ran fintech and asset management, wealth management and did some bank deals for Carlyle. And then he joined the Eccles family office known as Cynosure and is an expert in our industry. Well, you know, they ended up being the lead investor, so, of course, he was on the board. But I wanted Keith. There's a bunch of billionaires out there and they all have got cash, but they don't all have Keith. So it's really, and I can go on, I mean, I've got, you know, eight board members, six which are outsiders, only two which are employees, including me. And they're people that have all got myriad experience in growing businesses and M&A and capital structures.

How Savant Leverages Its Board Of Directors [1:12:22]

Michael: So talk to us just about, like, I don't know, the nature of the board itself. I think for most advisory firms, well, most, as far as I know, just, we don't have a...I mean, we don't have a board of directors at all. We may have an advisory board, which is sort of "get some of your good clients and have them give you feedback," about stuff that you're doing for them. But I think your board is much more of a governance and leadership-style board. So just help me understand, how does the board work? Are they making decisions in the business? Are they just informing you? How often do you meet and bring them together? What does this board do exactly contextually?

Brent: Yeah. We have quarterly board meetings that are around a full day. We do, you know, extended play retreat in the summer. You know, we do periodic meetings in between. You know, I'm calling them all the time to leverage their insights and experience and networks. The key thing is it's a real board. I mean, it's a real board and, as I said, six out of the eight people are outsiders. About one hour of each meeting is governance, is check the box things. And we use a system called Carver Governance, which basically says, "What's the mission? What must you do? What can't you do? And what do you need to give us regular reports on?" So there's kind of, we call it a, you know, formal aspect of the governance that lasts, you know, probably about 45 minutes to an hour.

And then there's, you know, kind of an update, which... so between the update and the formal governance is probably two hours. The rest of the time is really focused on strategic matters. Now, they're not wanting to tell me what to do. That's not what they do. They're advisors. They want to provide strategic input. They want to, you know, have shared experience. They want to, you know, say, "Hey, this is what worked at Vanguard," or, "This is, you know, one of my portfolio firms at Carlyle. And I've got this other direct investment and this is what they've done." So it's clearly advisory, but it's very much, you know, a strategic focus.

I mean, you know, my last board meeting, for example, were, we've decided... You know, we used to do sort of opportunistic M&A before the recap and now we've been trying to be deliberate about that. And so we've gone from very small M&A to small. And then the next logical step was to go to medium, but I realized, I think this industry is consolidating faster. And we've got this up. We've got all the pieces, all the boxes checked to be that, we kind of stand out from these mega-firms that are consolidating where we're an independent operating company that's best-in-class. We're not a financial buyer or a PE firm. Wow, that's unique. We could be a key player, so we should jump right from small to large. Build out a full deal team.

And so, you know, I wrote a full-blown, you know, Harvard case study as part of an Executive Education program I went there, and we spent four hours processing it. Now, you've got PE guys, you've got people that scaled firms. You know, you've got a guy that helped scale, you know, Vanguard. One of my board members is a $1 billion-plus RIA but he's got an accounting firm that's much larger. And we bought an accounting firm a few years, so he brings perspective on there. One of the guys, you know, is an investment banker but he's a debt specialist. So, you know, we spent, you know, about four hours just processing, you know, how we think about this. I laid out, you know, the scenario, "Here's a draft case, here's the questions I have." And I was sort of the protagonist in a Harvard case study, and Keith Taylor, who's our lead board member, ran the discussion, and it was phenomenal.

And so we came out of there and it's like, "Yes, go big," but they provided a bunch of other insights around, you know, "You should think about this, you should think about that." And you know, so we're moving forward. But it was being able to have this brain trust to help me think strategically about this. Because I've never done this before, and these guys have. And I trust them, and, you know, they liked me. So it's speed of trust thing, right? I trust them, they trust me. You know, they're vested in our game. You know, we're doing it. And I think our odds of success will be a lot higher because they've helped me formulate that long-term strategy and will help me execute where I want them to help me.

Michael: So it sounds like it's kind of 10% or 20% governance, mostly just sort of the legal formality things that need to be done from a governance perspective and 80%-plus just, "Help me really go deep in figuring out the strategy and next steps of where I'm going with the business and how I'm getting there. Like, I'm the leader, I've got this $50 million revenue business, I want to grow it much larger. I need people who've done this cycle who can give me guidance and advice. Like, that's what you all are here for."

Brent: Yeah, that's about right. Now, it's evolved a little bit. You know, the first year and a half or so there was the governance aspect, but then they needed to get up to speed. So, you know, we did a variety of presentations. Our executive team would, you know, do deep dives on different fronts. And then they got to a point they said, "We understand the business. Okay, we don't need any more PowerPoints. We want to focus on strategic. We want to help you. You know, we want to hold your feet to the fire where it makes sense. We want a pat in the back where it makes sense. You know, we're aligned, let's be successful." Anyways, it's been phenomenal. You know, as I said, there's really myself and my other co-founder who's on the board, but our full executive team, you know, are attendees. And, you know, sometimes they're flies on the wall and other times, you know, we'll ask them questions, and other times they might be, you know, giving a report on something.

So the nice thing, too, is, is you've got, you know, a real executive team. By the way, our executives aren't advisors, they're full-time professional managers that are also crazy smart and very good and experienced. But they're having the ability to gain the board's insights as well, as opposed to me hearing it and having to go back and interpret and arry the flag back to the executive team. So it's really been valuable because in real time, our executive team gets to gain the wisdom from this crazy smart group of business people.

What Savant's Executive Team Looks Like [1:18:36]

Michael: And so talk to us a little bit about the sort of...so you've mentioned the board level and then this executive team structure. And, you know, I'm struck, like, for a lot of firms, one of the reasons why people want to become partners and owners is the proverbial,  have a seat at the table and a say in the firm. You seem to not quite be running on that structure. I'm assuming, like, 58 people at the table having the conversation would be very unproductive table.

Brent: It'd be a big table.

Michael: It's like, you've got owners. You know, you've got partners who own in the business, you've got outside owners, you've got this board of directors that's doing lots of strategy and feedback for you, and then you have this executive team. So, like, what does executive team look like and how does this layer work?

Brent: Yeah. So you've got the board, we talked about, and they've got one employee, that's me. All right, my team is the executive team. So there's eight of us, including me. And you've got the CFO, you've got the COO, you've got the director of communications and culture. We've got the chief platform officer, which covers HR and technology. We have the chief advisory officer. We have the chief advice officer who oversees planning, wealth transfer, accounting firm and estate, estate settlement.

So these are, at that executive team, I'm, kind of the generalist, if you will. Of course, you know, have the most advisory experience of the group. But the others oversee parts of the business, but when we have an executive team meeting, it's really, you know, it's a cross-functional team. And that group is really charged with creating the strategy, executing the strategy. And I'm the leader of these leaders who then have the functional leadership team, which is about 12 people that report to them, who then, you know, have the rest of the company reporting to the functional team.

So if you think about it, if the executive team, even though one individual may be focusing on advice and one might be on operations and one might be on finance, it's really, we are all charged with working together to build the company. So when you come to that executive team meeting, you're not there carrying the finance flag or the marketing flag. Absolutely not. You're on the executive team and you do first and foremost what's right for the company, and you collaborate and communicate with the other executives. Now, once you leave the executive team, you go back and you've got your functional lieutenants that report to you, and your job now is to provide leadership to them who run the various functional departments. And so it's, if you really think about, you've got governance. I'm the leader of leaders, the executive team are leaders of managers, which is the functional team. The functional leadership is, it has the doers, the people that do the work, whether that's advisory or, you know, lead generation or, you know, compliance or what have you.

You know, we've got a routine. There's a great book that we've recently discovered, "Measure What Matters" by John Doerr. They promote what's called an OKR system. It's a system that, like, the Googles of the world and Microsofts have embraced. A lot of Silicon Valley, you know, the big tech have used this. And it's really a goal-setting priority, focus, accountability. The system replaces annual reviews with quarterly check-in.

So it's a really great system because we've always struggled... I'm an entrepreneur and I like ideas and I'm always finding ideas and, you know, shiny pennies all over the place. And so this system has allowed us to get a lot more focused and prioritized on a quarterly basis, you know, on an annual basis, on a multi-year basis. And we started out with, my career goal is to build 1 million ideal futures. We want to move the dial on 1 million people, that's like a 20 to 25-year goal. We've got a 10-year goal of 10 times in 10 years. Growing revenue, growing clients. So that means we'd be improving the lives of 250,000 people.

We have a three-year goal of doubling, okay? And so now we've got 17 initiatives that are tied to that based on, you know, 7-day strategic planning process that we use to build our 3-year plan. Then we've got, you know, annual retreats to update that and figure out, "What do we need to do in the next year?" And then we have quarterly offsites to identify our priorities every quarter. And then we have weekly updates from an accountability and a communication perspective. And then in many cases, daily communication to boot. So taking a very structured approach to leading the firm has really made a big difference to us.

The alignment of interests I'd mentioned, plus really learning how to lead leaders of managers, of doers. You know, that's probably the biggest change in the last five years for me. And it wasn't easy, but I think that now opens up the bandwidth, you know, grow to $25 billion. I mean, between the technology and the people and the executive team and the board, you know, we've got a long runway down to go.

Michael: Interesting. And so that all drives from the book "Measure What Matters," Doerr's book? That's kind of the framework of lifetime goal, 10-year goal, 3-year goal, annual retreats, quarterly offsites, rolling all the way down?

Brent: Yeah. And it's, that's our variation of it. But yes, the OKR system was originally Andy Grove from Intel. John Doerr learned it from Andy, and then John Doerr became sort of the disciple that took it to all of his portfolio firms. And it's the Googles of the world. But it's also been adopted by things like nonprofits, you know, the Bill & Melinda Gates Foundation and Bono's foundation. So it's really, it's a short read, but it was very valuable. And we are more focused and more side by side, let's go climb the mountain together than we've ever been by just getting, using this sort of goal-setting system to get really clear, really focused, really accountable, communicate better.

And then, of course, getting back to alignment of interests, having the right comp system for the leadership team, for the employees, all of that thing, when you take into account all these different layers and the alignment of interest I mentioned earlier, we kind of had this barnacle-filled America's Cup we were winning, but now it's like a few years in and putting a lot of this structure in place, there's no barnacles, it's a brand new ship. We've got an expert crew. The anchors we were dragging behind us are cut and the wind is in our sail. And so none of that guarantees success, this alignment of interests, but it certainly is wind at the back, you know, where when we didn't have alignment of interest it was like wind in the face. We were still winning, but I think it's going to be easier and less...it's going to be easier and frankly a lot more fun to win as we look forward.

Michael: Interesting. So for folks who are listening and curious about this, we'll make sure we get a link out to "Measure What Matters" in the show notes as well. So this is episode 123, so if you go to kitces.com/123, we'll have a link out for anybody who's curious to check out the book.

What Surprised Him The Most About Building His Business [1:25:49]

So Brent, as you kind of look back over the journey now of doing this for nearly 25 years, what surprised you the most about just building the business?

Brent: You know what I have learned is you need to keep evolving. I mean, when I look back and say, "How have I become successful? How has the company been successful?" I'm not the smartest guy. Most of the people who work for me are smarter than me. But I think what we've been able to do is to continue it evolve. And I think about, you know, the stages of growth. When you start out, the first $50 million is just about producing. Okay? Well, the next step, it's about producing but having some staff help you. You know, maybe that's $50 million to $100 million. But then you've got to completely change again. You've got to fire yourself and rehire yourself because now you've got to coexist with multiple professionals when you go maybe from $100 million to $250 million, okay?

But then from maybe $250 million to $750 million, now all of a sudden you've got to have partners and you've got to figure out how to coexist with multiple owners. And they're all player-coaches, so you're advisor one day and you're a manager another day and a leader another day and having a board meeting another day. And so you've got to manage all that complexity wearing all those hats.

And then you get to maybe $750 million to $1.5 billion and all of a sudden you can afford to hire maybe a professional manager, but then the founders and the... now you can still be player-coaches, but at least you can get some help on that. And so now you've got to manage the dynamics around a professional manager who certainly doesn't know how to manage as well as you do, and maybe not do it the way you would do it.

And then I think about, you know, $1.5 billion to about $5 billion. Now, all of a sudden now you're in a place, I've learned, where you need multiple professional managers plus some player-coaches. But the big thing is then you've got to move away from founder-driven growth because the founders can't grow it fast enough. They can't feed the machine enough. So now you've got to really change it to where the founders are leading, they're not doing. And that's really hard. Just most of the people that get in this business, they love advising and they love selling, and leading is something they really never got trained to do. And it wasn't something they signed up for.

But then, you know, this $5 billion range, I think now you're in a place where it's like, you know, not only a specialist executive team, but you can afford A players. And all of a sudden now you need technology to scale. You need real governance. You know, oftentimes you're going to need outside capital like we did. And so those are all new challenges. And then I think...I'm theorizing because we're $6.3 billion, but I think, $25 billion, maybe you're fully institutionalized. Now, maybe you're public, maybe you're...yeah, you know, it can take different forms.

But as I look at what surprises me is, is that I had to every three to five years, I had to fire myself and rehire myself. And why is that? It's because the business kept evolving. And if I kept doing what I was doing, you kind of hit a ceiling. And so I either needed to... if the business needed new stuff, I either needed to do it or have somebody else do it. And a lot of times that new stuff, I was uncomfortable with other people doing. Now, what did that mean? That means there's too much on my plate, which means I have to delegate what I'm good at. So you're getting rid of what you're really good at to do something that you don't know what you're doing and that you've never done and is uncomfortable. So you're changing and evolving and taking a risk that..  and letting somebody else take over, say, client service or what have you.

And I kind of think about this and it's like, when we started out, my co-founder was 15 years older than me, so I was the bat boy, he was the player. And then we were both players, and then we were player-coaches. Okay, then we needed to do more coaching than players, so I was coach-player. And then I was just a coach, and then I was the general manager. And I'm not sure what the future stages are, but it's a different skill set as you go through those stages and a willingness to go from what you were good at to something you really don't...have never done maybe.

And so, that's kind of... I'm not the smartest guy, and there's a lot more smart people around me, but I think that willingness to take risk, calculated risk, that willingness to give up what's comfortable and do stuff that maybe is a little scary, I think that's a key factor to... without that, I don't think we would have gotten here. There's a lot of factors, and 174 people, so it's a big team. It's a big community. But at the top, you need to have a leader who's willing to keep evolving and changing and taking calculated risks. And I don't see a lot of that going on in our industry. People prefer to sit back and collect their dividends and sit in the RIA hot tub and life is good, and then they stagnate, and then they don't innovate, and then the business isn't worth something too much someday.

Brent's Low Point [1:30:38]

Michael: So what was the low point for you on the journey?

Brent: I would say the low point was about three-quarter of the way through my recap and the billionaire I had picked ended up trying to re-trade me twice. And there was some other red flags that came up. And then he wanted to, you know, change some terms which were completely opportunistic. And I sat there, I thought, you know, "We haven't even gotten married yet and he's cheating on me." And, you know, it was one of those points where we were literally like, you know, two weeks from signing documents and my employees were lined up, my partner was lined up. I mean, it was really complex. And I thought, you know, I was like, "I'm going into a situation that..." It's like, imagine you're getting married and you find out your potential spouse is cheating on you a couple of weeks before but all the invitations are out.

So literally, we pivoted, and I called up... there were two photo finishes for lead investor, and I called up the number two and said, "I made a mistake. Few things. A, are you still interested? B, if so, would you be willing to step into this deal, which is actually a little better than the deal that we had last time because this guy re-traded me? And then third of all, can you move fast?" And it was, yes, yes, and, "I've got to understand...I've got to work on some things to see if we can have some capacity." Anyways, within a few days, they're like, "We're all in." And we moved forward and it was a great decision. But I've got to tell you, I mean, I am in a YPO group and we always check in and say, "What's your business score?" And I've never known it to be less than 7, and sometimes it's a 10. It's always been great. And that was a two that day.

Michael: Oh, man. Yeah. I mean, I'm just envisioning, I'm on the finish line to get $50 million of cash to recapitalize my business and I'm having second thoughts about the deal.

Brent: Yeah. I mean, and it was one of those spots where it's like, if I walk away, I may blow this up, but if I don't, I could be regretting it for the rest of my career. And so I pivoted. It was scary, but it was the right decision.

Michael: I'm just wondering how do you make that call in the moment? Because I know more than one advisor who has gone through basically the version of this where they didn't say no. So, you know, I'm having cold feet in the finish line. I'm worried about something. Maybe I'm not feeling ideal about some of the negotiations or discussion, but as you said, we're so far into this deal, we're almost in the finish line. We've spent all this money on the legal fees and the costs and the rest to get this deal done. I've put my own word in it that I'm going forward, and they couldn't get comfortable pulling out of the deal at the last minute. And some work out okay in the end, some don't and occasionally finish very colorfully in a bad way.

And virtually everybody I've ever talked to who got into a deal that ended out being bad, when I asked them in retrospect like, "Did you see this coming? Were there warning signs?" And virtually every single one always says yes. There was stuff that came up in the negotiation that wigs them out a little, but they blew it off or they didn't want to blow up the whole deal for it, or they just said, "It's just a big deal, I'm nervous, I'm getting cold feet. Like, I'll power through this." So how do you figure out whether it's really real and worth blowing up the whole deal over versus just, you know, you're cold feet because it's a big deal?

Brent: Yeah. So I think it depends on one situation. I mean, if one is going to sell and take a check and go away and you're the goal line and hey, they...kind of bad actor, but, you know, they're going to, you know, re-trade it and it's 5% less money you're going to get, you probably just close that deal, right? Because, you know, if you don't, you kill a lot of brain cells, and if you don't, now you have spoiled goods, right?

Now, the flip side, though, in this case, you know, we were creating a structure that we wanted to live with for maybe the rest of my career, and I was planning to work until at least 75, right? So it was not a matter of taking a little less cash, it was a matter of, is this an arrangement that is good for us, that's going to be fun, that I can trust, that is good for my employees and good for my clients? Because we were...again, we were then and we are today thinking about this as a double Ironman. And the real payoff comes not in the next few years, it comes 10 years from now and even more later.

So I think for me, it was a matter of saying, "Everything that this deal was premised on, the foundation is not there," right? As evidenced by being re-traded and some red flags that... I knew what was going on here was not aligned with our culture and our values. And, am I going to subject my company and my team to an arrangement which is... before it even closes has challenges?

So to me, I mean, I don't know, if number two had not said, "I'll go forward," I don't know what I would do. Maybe I would go down to the third on the list or something. But long story short, we had a great company. We had a great story. And I was willing to go many millions in of my own money on top of what I had already invested. And I had 48 employees lined up. And this is unique. And so the good news is I had John call to the number two, and he told me, "Well, if you change your mind, let me know." And I did.

Michael: Always a good reminder not to burn bridges with number two. That sometimes turns out to be number one after all.

Brent: Exactly. Exactly.

What Comes Next For Savant Capital [1:36:40]

Michael: So what comes next for Savant from here? I mean, you've mentioned kind of this vision of 10X in 10 years, you know, from $6 billion to $60 billion-plus. Like, what does that...I mean, what does that mean? How are you envisioning about going about that kind of number? It's like that's, "Hey, we got $6 billion in the last 25 years, let's get another $57 billion in the next 10." How does that work?

Brent: Well, so really, going 10X in 10 years means you need to double every 3 years. So if you do the basic math on that, it's not going to be possible to get there just through inorganic. And inorganic in itself is not a good business model. And it's not going to get there just through organic. Our whole industry has grown mostly organically, but it's going to be a lot harder growing organically going forward. I mean, more of the money is in RIAs and wirehouses. So there's not as much easy pickings any longer. There's great RIAs that, you know, we're competing against and some that are becoming very large and spending a lot of money on branding and marketing and technology.

So I think the organic, wow, that's mostly what got us here. I mean, we've done 7 transactions but 80% of our assets are organically-driven. That's still a key thing. But it used to be organic was the motorcycle and the sidecar was a little bit of M&A here and there, you know. And what we've learned is it's not about acquiring. Unlike financial buyers that are trying to, you know, buy financial interests or PE firms are trying to buy accounts and then flip them, what we're doing is we want to supercharge organic growth by using M&A to acquire talent, to acquire gray-haired mentors, to acquire great partners that are part of our big vision, and to expand geography. And we've gone greenfield three times in new markets, and it was very successful, but we were a lot smaller. And I look at now at $6.3 billion, you know, replicating what we did in Madison or Peoria or Geneva, Illinois, where we went greenfield, it doesn't move the dial enough. And there's a talent shortage.

So, you know, the M&A is really about... we can grow our own organically. I mean, we've done a great job growing our own. And that's the best way to grow talent, is, you know, from intern to senior advisor over 10 or 12 years, but that takes a long time, and you need mentors to develop those smart, young people. So we've kind of learned that the right combination for healthy growth, which is a combination of growth plus being excellent, the combination of those is really healthy organic growth. And, you know, our vision is to...we want to target 7% net new assets per year, plus you get, you know, maybe 5% from market on top of that. So that's great. But then doing very targeted strategic M&A, and I don't even like the term M&A, it's really partnering, because if I can't hire somebody, okay, let's do a deal so that we can become partners and you can bring your next-gen over and they can become owners as well to be better together.

So really, we see this side by side. Instead of a motorcycle that's organic growth and a sidecar that's M&A, we're really more in the direction of having these side by side motorcycles where one feeds the other. The talent that we're able to acquire helps us to grow better organically. So we don't want to be a financial buyer and do 20 deals in a year. We don't want to be a PE firm and do a whole bunch and then flip it. We're really... we like to do a bigger one and a medium one and maybe a couple small ones per year. Which is more than we've done in the past, but we've had success in the past doing small and medium. And so it's really just, you know, doing some more and doing some larger, leveraging the capital structure, levering the governance to really then create that scale and to...you know, if you have scale, now we can invest a lot more in technology. We can invest more specialists, you know, we can invest in people development, and frankly, you know, create a true enterprise.

Michael: And out of curiosity, you've talked about both...well, you've talked about talent shortage. There's also some discussion out there of just shortage of firms to buy even. We never seem to have as many sellers as we've been predicting for a long time, there ain't going to be any sellers. Do you worry at some point that just, you might not be able to find enough firms to buy or do you think there's still plenty out there at the end of the day?

Brent: So here's the secret, the firms that are for sale, you don't want to buy. The ones that you want to buy aren't for sale. Okay, now what do I mean by that? The very best firms, one of two things, either they start way early and try to do internal sales. The problem with that is if the firm is big you've got to discount it, you've got to be the bank, you've got to start way early. A lot of times the next generation doesn't have the appetite or the interest or the skill set. So this internal succession, it can be done. There's some...I've got several really good friends that have done that successfully, but it took 20 years, and it took, you know, frankly leaving a lot of chips on the table by the founders.

Now the problem is there's a lot of excellent firms out there that have looked at the financial buyers, that have looked at the PE buyers, that have looked at the bank buyers, that have looked at, you know, the concept of using a lot of leverage and they said, "No way, no how. I'd never do that to my clients, I'd never do that to my employees. And frankly, I built this to be excellent. I built this to be a fiduciary and I've got more pride than to, you know, sell it to the highest bidder."

Yeah. So I think the interesting thing is, is there's a bunch of these firms that are excellent firms that are just doing nothing or they're saying, "We're going to try internal succession," but they kind of know that's not the right answer. But the easy answer is to not do anything because they're not going to do the standard fair turnkey deals that are out there, the normal buyers. So my mind, we've looked at a lot of deals that the bankers bring, but these tend to be oftentimes spent oil wells, companies that they need to sell or they want to sell or they're looking to go all out.

And, you know, a lot of times if you've not really prepared along the way and then you go sell to the highest bidder, the highest bidder is oftentimes going to be a PE who will pay more because they don't care if it ends up being a bad outcome for the clients and the team because they're just going to own...they're going to be a renter of it for a few years, not a permanent owner. So they're going to pay a premium, and that owner, if he doesn't care, he's going to take, you know, a check. What we're looking for is the firms that say, "No, we don't want to go away, but we just...but we want to be part of something bigger. We'd like to solve for succession over time. We'd like our employees to be able to become owners and grow their ownership over time. We would like to be part of a firm that can bring us more lead generation, that can bring us better technology, that can have a real brand to compete with some of the big brands that are now spending tons of money."

So that's kind of how we're thinking about it. And we don't need to do a lot of deals, we just need to do a few bullseye ones of people we really like, that have a shared vision, have a shared culture,  have a similar philosophy, that share our values. So we think there's about 100 beachhead-type firms that are, we'll call it a billionish, give or take, that would be good fits. And we just need to do five or seven of them in the next five or seven years. You know, and I think there's a couple hundred that are more in that spoke size that, call it $500 million, give or take, that would be a good fit for us. And then there's a whole lot of smaller ones, but really, our strategy is going to be to say, "We want to be...10 years from now, we want to be..." We're in 4 markets now, we want to be in maybe 10 to 15 markets 10 years from now.

But we want to be dense. So, you know, we go in and we'll identify a market we want to be in, find a great beachhead, you know, somebody that wants to be part of what we are. But then do, you know, sub-acquisitions, spoke acquisitions to add, you know, offices in a geography and tuck-ins to expand. So it's really about not being a national firm but instead having...being a super multiregional firm where we've got 10 to 15 geographies and then we're dense in those respective markets, you know, through a combination of organic and inorganic growth.

And Mark Tibergien, you know, I've heard him say several times the top three players in any market get half of all the leads, half of all their bats. So our ideas is we don't want to be in 100 markets, you know, nationwide. That's too complicated and it's spread too thin. We'd rather be big players, branded players in 10 to 15 markets. And a lot of those will be Midwest but we're open to any market and we're flexible on the size. What we're less flexible on is the quality, the people, the alignment with our culture the sharing values, the sharing of our vision, the sharing of our philosophy, because that stuff is really, that's required, that's mandatory. You can have microcultures in different locations and you can have different niches and you can have different styles of doing business, that's all great and that's extra spice to the soup, but the core stuff is really important.

So we think that we can be really picky and identify the right partners that want to drink our Kool-Aid, our collective Kool-Aid, that want to identify the best practices and they'll bring some of them with them and create something big. And what does that mean? How do we get to 10 times in 10 years? It's doubling every three years,  three times over. And I think that'd be pretty cool. If we did that, we'll have a market cap of probably $2 billion to $3 billion. I figure at that point we'll be improving 250,000 lives. We'll have probably 1,000 employees, and I'm guessing a third of those will be owners and have a big piece of that value creation that we created for all those clients.

How Brent Defines Success [1:46:50]

Michael: So, as we wrap up, this is a podcast about success and one of the themes that always comes up is just even the word "success" means different things to different people. Sometimes changes for us as we go through our lives. So, you know, you've built this phenomenally successful business growing $50 million of revenue as an advisory firm, but as you look forward at a personal level, how do you define success for yourself at this point?

Brent: So I had to really think about this deep and hard two and a half years ago. Because again, I was at this...as I said before, I was at this point where, you know, I needed to raise $55 million. And if I was going to...if I wasn't willing to put more chips on the table or if I wanted to take chips off the table, I was going to have to sell my soul. Okay? And that was one path. Could have gotten, you know, pile of money for it, you know, but when I...you know, I was like, "What do I do? How do I think about this?" And it hit me one day and it's like, okay, I did the basic math and I said, "How big are we?" And it's like, at the time we were, you know, probably moving the dial on about 15,000 people, you know, improving the lives of 15,000. Now, that includes clients, including our employees, include their families and include, you know, the direct beneficiaries and nonprofits we contribute time to and money to. So that was kind of my rough math.

And then I did the compound interest and said, "Okay, I mean, let's kind of have a BHAG." You know, this time I was, you know, 49. I said, "Okay, if I work till 75, God help me if I've got my health and energy, you know, then what would that look like?" And I did the math and it's like, you know, if we did this, this is 1 million people that we would improve the quality of their life. Okay? And the cool thing is, is we're not in the nonprofit business. So if we are really improving 1 million people's lives, we're creating a giant amount of value. And the clients will get some of that, our employees will get some of that, you know, our community will benefit from that, and we'll benefit from it. You know, we're going to get a lot of that.

And so that to me, and it wasn't about the money at that point. Because even, you know, when we did the recap, I had enough money at that point that if the business went away, I would have been fine. You know, I wouldn't have had to change my lifestyle. Okay? So to me, it wasn't about the money, it was about this really...building something that created a lot of value, but the nice side benefit is I get dragged along. And by the way, you know, I mean I've got a lot of partners, you know, that aren't in that same position I'm at. So I get excited about the idea of building the ideal futures, you know, of our employees as well and our partners. So, I mean, if we accomplish those, I mean, again, we're, you know, creating $2 billion, $3 billion, you know, of market capitalization. Whether we're public or we sit back and collect dividends on that, that's a cool thing. That's a good problem to have at that point.

So that was really how I thought about it. I love to build, you know, I love to create value. And, you know, if we can create this aligned model where our clients win, our employees win, our outside shareholders win, you know, I win, our partners win. You know, it's not a win-lose negotiation, it's a, you know, how do we maximize the size of the pie so that we've got and all have enough to be satiated?

Michael: Well, very cool. I'm excited to see how it plays out. We'll hopefully have you back again in a few years talking about, you know, crossing the $10 billion threshold and closing in on $20 billion and just doing these doublings.

Brent: Yeah. And certainly, I'll have more war stories at that point. So I look forward to that.

Michael: Well, awesome. Well, thank you, Brent, for joining us on the "Financial Advisor Success" podcast.

Brent: Thanks for having me. It's a pleasure and really enjoyed the time together.

Michael: Absolutely. Likewise.