#FA Success Ep 322: Developing New Advisors To Grow Their Books Of Business With A (Supported) Focus On Activity, With Kent Skornia

Resources Featured In This Episode:

• Kent Skornia
• Krilogy
• Zero To One by Peter Thiel
• Melissa Gragg (Bridge Valuation)
• 75 HARD Challenge

Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!

Full Transcript:

Michael: Welcome, Kent Skornia, to the Financial Advisor Success podcast.

Kent: Great to be here, Michael.

Michael: I'm really looking forward to the discussion today and talking a bit about recruiting and developing advisors. I find there's this shift in the industry over the past, I guess, particularly 10 or 15 years that if you go back to the, as I'll put it in air quotes, "the old days," advisors were hired in from scratch, told to sell products. If they were good at it, then they survive long enough to learn how to do financial planning and wealth management because they qualified their sales contracts and met their product minimums to stick around. And if they didn't, they were just gone, in 6 or 12 or 24 months. And it was a very high churn, high turnover. Companies generally were willing to do it because, frankly, if someone came in on commission and didn't succeed, you didn't pay them anything. So, it didn't cost that much money to lose most advisors. And if they turned out to be good, then you would hold on to them and pay their commissions and grow them from there. But it was this an incredibly, to me, painful, high churn way to approach advisor recruiting and advisor development. And I know you've built a firm for the better part of 15 years now, that is also really focused on advisor recruiting and advisor development, but a little bit of a different approach than just a pure high-volume churn, hopefully 20% of them last for 3 years, kind of traditional approach of the industry.

And so, I think I'm really excited to talk about what, because I would think of it as just what more modern advisor recruiting and advisor development looks like, as we try to build businesses where we bring in newer and younger advisors that can actually stick and succeed and grow a client base and build a business and not just have this constant flow of high turnover and losing a lot of good talent.

Kent: Yeah, I would say I love this conversation. I've loved it for a long time. Developing talent and investing in new talent in our industry is a passion of mine, for sure. So, I'm excited about today's conversation. Thanks for having me, too.

The State Of Krilogy As It Exists Today [06:03]

Michael: So, I think just to kick this off, and dive right in, can you tell us just about the advisory firm as it exists today, so we have some context for the business? Then we can just jump in further and really talk about how advisors have come into the organization and grown with the business.

Kent: Sure, yeah. So, sort of the glamour stats, right? We've got a couple billion in assets. We've been around since 2009. We have 30, what we would call full-time advisors. But if you really count sort of the KADS, Krilogy Advisor Development System group, you'd throw on there, another 10 to 14 in training, and so somewhere around the 40 to 45 advisor range. Financial planning is the core of who we are, CFP based. Our portfolio management team manages all portfolios in house for advisors. It's sort of an in house TAMP, so to speak. We do tax planning as well. So, we have a tax group, we will do individual tax returns for our clients, some trust work. And then we also have an affiliated company, Krilogy Law, who one of our partners owns that and we do in house estate planning. So, we try to have all experts in house for our team for wealth advisors, so that they can better serve their clients. So, that's kind of the commercial, so to speak, of kind of where we are today.

Michael: So, on the staffing end, I think you'd said 30 full-time advisors, 14 more in your advisor development program, so 44-ish advisors in total. What's the rest of the staff structure around? How many people in total are under the organizational umbrella?

Kent: 64. So, the rest of the staff is going to be comprised of what we call a wealth services manager. So, people who are interacting with clients and advisors on a regular basis, practice managers, those sort of folks, CFPs, full-time CFPs, and then our back-office operations. So, we have a trading team. We have our back-office operations teams that are interacting with Schwab and Tamarac in terms of just sort of processing. It's really kind of a half step between our advisory teams and our custodians to sort of help push operations through. So, that's the rest of the staff and then those advisors, and this is where we can start to get into a little bit of the training and development. It's really sort of a spectrum of there's... It's almost hard to determine when an advisor is on that team/staff and when they actually become an advisor.

So, it's not so black and white of like, oh, you're an advisor at this moment in your life. It is such a long journey for our advisors to become advisors and how we train and develop them, and it's almost they just sort of morph into this senior wealth advisor over a number of years, based on our training program. So, that's why you sort of heard me not really become absolutely accurate on the sort of number of advisors just because of the way we train and develop.

Michael: So, are they starting out in more operations support-oriented roles, and moving into advisors over time? Because I'm just struck relative to sort of calling it 40-something advisors and 60-something total staff, which puts you at basically, 2 advisors for every other 1 non-advisor is not a very heavy operations overhead portion of the firm. So, is that because you guys are just leaner on the operation side? Or do the advisor development folks support in some of that, as they're going through their learning and growth development journey?

Kent: Great question. In fact, it feels like we're actually more heavy on the support side, but the advisor development, the KADS program, and the advisor development program, we say to them, "You have 2 jobs. Your 1st job is to support the team that you're on. And your 2nd job is to control your own destiny, which is going out and building your book of business and building your client base. And the 1st job is the most critical, but the 2nd is, it's all about how far you want to take your career." So, in a sense, it sounds like we're very heavy on the advisor and short on staff. It's actually the opposite. We actually have a lot of staff relative to the advisor, probably closer to that over 1 staff per advisor type ratio.

Michael: Okay, because the 14 folks in the KAD are in that growth transition, they're doing more support work initially. They'll become advisors over time, and eventually you flip the switch on them as it were.

Kent: That's exactly right.

Michael: And then, you had mentioned wealth services managers, in the middle of that as well. So, what is that role?

Kent: That's the person supporting the senior wealth advisor, interacting with clients, setting appointments, putting together reviews, money movements, those sorts of things.

Michael: Okay. So, at least for some firms, that's kind of client service managers.

Kent: That's exactly right.

Michael: Just being that middle role.

Kent: That's right.

Michael: So, just when you've got this many advisors, how do you staff those? How do you even assign them? Is this a centralized team that rotates around? Is this every X advisors gets a wealth services manager to support them? How do you staff that?

Kent: As you can imagine, our history is the core of where we started was just advisor development. As I told the story before, I started the firm at 33, my junior advisor was 24. And my assistant was 26, when we started. And we just hired a bunch of young advisors. The core of what we do, or where we started, is that junior training program. But that was 2009. We have advisors who have books of business of $150-200 million in assets. And as you can imagine, the staffing of those practices are much more robust, 1 or 2 wealth service managers, a full-time CFP, who may not be on the KADS program and that is their career. And then you might have even more people staffed to that group, and then you might have an advisor with [$]30 million in assets and they share what we call WSM, wealth services manager. So, for us, it's really a matter of where is the need, how robust is the practice? And then, as advisors grow, we help them invest in their practice in terms of personnel.

Michael: I was going to ask, with that structure, I know the challenge for a lot of firms is essentially who pays for what. Does the firm cover the WSM, client service manager kind of role? Does the advisor cover it out of their pocket? Do you adjust payouts or dollars up or down so that they can then cover the person? How do you actually figure out who gets what WSM support and how it gets paid for?

Kent: I love this question, Michael, because it comes up all the time. It's where the dollars start to get split. We pay.

Michael: Oh, it's all easy until you get to the dollars.

Kent: Exactly. Right. Exactly, exactly. No, we pay up until a point and then the pay increases. And then the advisor gets to control some of their budget. So, it's a hybrid and but again, it's about the size of the practice and what the advisor wants. And what we try to do is cater to each advisor's goals and really their personality. Some advisors do not want to deal with a P&L, or dealing with payout, higher payout and lower are more responsibility on the expenses. Some advisors want turnkey solution. And, Michael, I always tell people that I look at a lot of P&Ls because we bring in senior advisors and we buy firms. I've seen a lot of P&Ls, and most advisors take home between 50 and 65 points, and you can slice and dice it however you want. If you want more control over your P&L, if you don't in the end, you're going to take home between 50 and 65 points. And it's really up to the advisor and how they want to deal. What we say though, because our passion is growing advisors, not only from scratch, which is entering the career and having a book of $50 to $100 million, which we've done, and even $150 and $200 million, but also advisors who transition to us who are senior advisors and need a junior advisor to be injected into their practice to add growth. And for us, if you want to really grow as an advisor, which is the kind of advisor we want to surround ourselves with, dealing with the minutiae of your own P&L takes you away from actually growing your practice. And so, the advisor who best fits us is probably someone who cares more about growing their practice and not about squeezing out an extra 2 or 3 points and figuring out how they're going to pay for an assistant.

Michael: So, now help me understand further just this, you called it the KAD Krilogy Advisor Development program.

Kent: System, yeah. Krilogy Advisor Development System.

Michael: System.

Kent: Yeah.

Michael: So, KADS with an S for system.

Kent: Yep.

Developing Advisors Through A Krilogy Advisor Development System (KADS) With A Focus On Activity [16:04]

Michael: So, help us understand further just how this works in practice.

Kent: So, if you are an advisor, or actually if you're not an advisor, let's say you're a career transition person, and you want to become a financial advisor, and we have a position on a team open, I think this is really critical that we don't just hire, just to hire. There needs to be a KADS position open for a senior advisor in order for us to fulfill the need. If you become an advisor, first and foremost, you obviously get licensed or the old school classic, getting licensed, and then you get acclimated to your team, but we are immediately within the first 12 to 24 weeks are going to help that advisor start to create their network and start to create their brand and not a brand that is like I'm going to focus on doctors all of a sudden, because I've been in the business for 6 months.

It's really more about learning with the senior advisor, helping support that senior advisor, getting acclimated to the business. And then we start to help them just build a network, go out and see people, go out and meet people, go out and tell the Krilogy story, tell the story about how you and your senior advisor work and how you work together. Every week we have trainings. We have Krilogy University and Krilogy University happens every Monday and it's virtual, and it's also live in our training facility here. But we start to educate them on the specific topics inside our industry. And it can range from anything. We've even had Michael Kitces' podcasts run through there.

Michael: You got to have a long, long session for that university.

Kent: Well, I think we split that up.

Michael: That's fair. We can cover a couple of weeks in the ongoing sessions.

Kent: Exactly, sometimes you've got to fill it. And then they also get an in-house, what we call director of advisor development, and that person is meeting with that KADS every week. And effectively, it's a mentor, it's a manager. And it's a person helping them understand what fundamental activity do they need to be having every week in order for them to build a successful advisory practice. One of my friends in the industry said to me a long time ago that the activity you run, just meetings, not even what we would call a fact find or sales meeting, just activity, the activity you run in the first 36 months of your career will be the activity you run for the rest of your career. A new advisor, and a senior advisor by nature, a senior advisor is going to land new clients, if they're a growth-oriented advisor, they're going to land new clients, because they run activity, and sometimes that activity is taking care of current clients, but other times just being out and about and seeing people, and we wholeheartedly believe in that. You have to have a massive amount of activity early on in order for you to create the momentum and the inertia to continue that throughout your entire career.

So, we focus a lot on activity with our advisors. You'll hear that a lot, action and movement. Be courageous, go out there and see folks. And if we made the right hire, and that person's the right fit for the industry, over time, they'll start to get a client here or a client there. And let's be honest, just even back in the old days, those advisors who made it in that old wirehouse world that you spoke of, they made it a lot of times because they had a friend or a family member or multiple family members that sort of became their first client and helped them get through the first couple of years. That happens sometimes with us, but not all the time. For us, it's more of a matter of just making sure the advisor is handling the right fundamental activity every month. And over time, it'll work. The best part about the RIA space and this is when I get really excited, the RIA space because of the recurring revenue feature allows and should allow a firm like ours to be really patient with someone early on in their career. And I think a lot of the time us senior advisors, we are impatient with junior advisors, because we forget how hard it was to build this marketing, business development, relationship muscle early on. It's just really difficult. And you have to spend a lot of time consciously thinking about this business development muscle and developing it in order for you to create a practice. And senior advisors, we lose patience with junior advisors because they don't automatically have that muscle and that muscle doesn't just automatically show up. I've never seen it happen. It has to be developed in some way, shape, or form. And you have to spend time developing that piece.

Michael: And so, that's why you're very focused on just activity, I guess, as opposed to results. It's not in the first year, show me how many clients you brought in, because almost no one really has that muscle developed in a meaningful way. And the results aren't necessarily going to be clear yet but show me your activity. I can definitely measure and look to and evaluate activities to say are you doing the things that set up long-term success and let's make sure you're putting in that level of activity.

Kent: That's exactly right. And again, this is their second job. This is their control your own destiny job, their first job is to support the team that they're on and the advisors that they work with and the WSM that they work with. So, it's not an easy endeavor, by any stretch, but if they do a great job on sort of their day to day, right, which is their teamwork and then they do they do the proper activity on their own personal business, they will make it. You just have to give them time and they have to put in the effort.

Michael: So, talk to us more about just activity. I don't know. The activities that matter, the activities that count. What kind of activity are you steering them towards? And what do you actually measure or track?

Kent: Okay. So, this is where it gets fun. We’ve created…Are you familiar with the 75 Hard? Have you ever heard of this?

Michael: Yeah, yeah.

Kent: It's an exercise program.

Michael: Yeah, intense exercise program. You go out every day for 75 days and have to do, I forget, it's a series of...

Kent: 2 workouts a day.

Michael: 2 workouts, go outside, eat certain things. Okay.

Kent: Yeah, yeah, yeah. So, we've created an application. It's not fancy by any stretch. It's a Google Doc that we have in house, and it's called Zero to One FA. And the reason why we call it Zero to One, it's built off the book by Peter Thiel, "Zero to One," which talks about technology startups. The most difficult thing to do is to create an advisor from scratch, zero to one, that's where we got this thing. And in that little Google Doc everybody has on their phone, and it has the date, and then what we talk about, sort of fundamental things that they should be doing.

So, first and foremost, 10-minute team check-ins. So, everybody should know what they're doing. So, everybody understands exactly what's happening with their team. And then accomplish 3 things for their clients. This is literally, Michael, is a checkbox, whether you complete or not. I add 1 new person's name to my call list. That would be another. And then I set 1 face-to-face networking, prospecting, or other relationship building meeting. I had one in person meeting. And then I read 10 pages of industry material. And then they mark down their own in their personal business, their assets under management. So, I would advise people that they can make up their own 7 or 8 checklist thing. But the most critical piece here is consistent activity.

So, getting back to your question about, for example, one of them is I added 1 new person's name to the call list. So, gosh, how do I add a person's name to the call list? Well, really, what you need to be doing is going back over your last week or 2 and seeing who are new and interesting people that you've met. When you're in those meetings, have you found opportunities to create more networking connections? We have this sort of crazy in-house way of doing it, we call it spidering. Spidering is way before the internet happened in our industry, it was a way that I worked. When I went into a meeting, I would actually take my next meeting. And I would say, "Okay, who does this person know that I might know?" So, for example, if I spidered you, Michael, immediately in my head, I would think well, Michael knows Adam Birenbaum, CEO of Buckingham. Adam's a good friend of mine, that's a common connection. It gives us a great common connection. You do that 4, or 5 or 6 different ways, with 4 or 5 or 6 different themes, or 9 themes as a spider's legs would be, and it would give us a lot of common ground and common connections.

Now, today, LinkedIn does all that for you. But it's a way of being prepared to go into the meeting, so that hopefully, and maybe, there's an opportunity to create a second or third meeting with some other person that has a common interest between the 2 parties.

Michael: So, it's all about finding what are the common interests that can create a follow-up conversation, a follow-up meeting? "Hey, it seems like we share a lot in common. Can I meet with you again next week and talk a little bit more about what we do?"

Kent: That's exactly right. And then, I think this is what's interesting. Senior advisors do this by nature, we automatically do this, but junior advisors don't. And that's the muscle that needs to be created. You and I will walk into a meeting and immediately within the first few minutes, we'll find commonality and we'll probably do a little bit of prep in our head before. We need to help junior advisors figure that piece out.

So, you have that. You also have senior advisors who they can also help in terms of being a part of the senior advisor's network. And this is where our values-based organization is really critical. One of our values is abundance. And abundance for us is you got to be willing to give more than you receive. Our company is unique in the sense that advisors control their own destiny. But we also are a team. And that senior advisor with that junior advisor, if they just did some overlap in some of their common connections, there's going to be great opportunity to find potential prospects there. The important piece, though, is most of the time, the senior advisors are so busy that they don't have time to think about this piece. And the junior advisor needs the opportunity to create networking prospect lists, and the junior advisor can spend the time to create sort of out of scratch, out of the blue, opportunities for both of them.

Michael: So, this Zero to One FA activity tracking sheet, I just want to make sure I understand. So, every advisor has got a sheet of this. I'm just envisioning a bunch of rows for the different activities and a bunch of columns for each day. So, I can put an X or a checkmark, or whatever it is I want for each item I do each day. And the couple lines here, like I checked in with my team, I accomplished 3 things for clients. So, my client service and support my existing teams comes first. Then I added one person's name to my call list. I guess that's essentially just a prospect list of people I can reach out to in the future to try to set meetings.

Kent: Yep.

Michael: Then I set a meeting or scheduled some networking or prospecting event I'm going to. I had a meeting. And then I read some industry materials, so I'm advancing my knowledge and learning. And then I've got to measure my AUM, so, at the end of the day, I'm tracking some results or remembering what all this is supposed to tie back to.

Kent: Exactly right.

Michael: And so, the idea is just, if you can do those things every day, all year long, it's going to add up.

Kent: That's exactly right. And so, you download it into a spreadsheet, and you can quickly find where you spend your time. When the spreadsheet shows up to someone's inbox, they see that, oh, my gosh, and you'll see this often, where we sort of, and this happens to all of us, you float towards the 10-minute check-in, you did things for clients, and then all the Biz development pieces sort of fade away. And sometimes you have great weeks, and sometimes you have soft weeks, and sometimes you have not so great weeks.

Michael: I was going to say, is it really typical that newer advisors, they hit all 7 or 8 of their things every day of every week, week in, week out? Or is there like, if you got 3 out of, if you got 60%, that's a pretty good week? What's the expectation of how much people really manage to check this every day of the week, every week of the year in their first year or 2?

Kent: It's nearly impossible to do it every single day of the week, but we're okay with that. Because we get to help them understand and how... This is an exercise program. And that's where we got it from. We based it off of 75 Hard. The one thing when you're in the exercise world, as long as you're doing something, it's better than doing nothing. And for us, it's about, it's not a requirement where if you don't do this, you will get fired. It is a, we believe we're developing muscles here, business development muscles. So, sometimes you're going to have great weeks, and sometimes you're not. And it's just part of the journey. And this is where that patience piece, where I spoke of earlier, is so critical, because it's not about, well, you didn't do it this week. You're now on the risk of not being here. That's not...we don't even speak like that. We want to just make sure they understand, okay, well, you did a great job with your team, you've read all the industry material, but you haven't put a name in in a while and you haven't had a meeting. These things are going to compound. They're either going to compound in a great way or they're going to compound in a not so great way. Let's just understand where we are in our trajectory of growth here.

Michael: So, just curious as well, the activities here just are very in-person activity, right, like face-to-face meetings and networking call lists, in-person meetings. So, how do you think about marketing activities of social media, like email, building email lists, creating content? Does that fit within this? Are you not a fan of it? Is that another way to check this box? How do you think about just that domain of, I'll broadly call it the digital alternatives to marketing?

Kent: It's a fundamental requirement to Biz Dev in our business today, so we wholeheartedly believe in it. In fact, we've got a whole Biz Dev team that works on video content. We've got goals and quarterly objectives to put out 25 pieces of content every quarter. We do it on a scalable way for our advisors, where they get to pull off the shelf what they want, and when they want to send it. And that's also part of that sort of prelude to adding a new person's name to your call list or setting that face-to-face meeting is that we believe in those activities wholeheartedly. So, but we want to put together that content for them, and they just quickly scale up and they're able to get it out to those potential clients.

Michael: So, they don't or can't spend the time creating the content, you're going to create the content, because you're trying to push them and keep them focused on you have to actually get out there and talk to people. Can't hide in the content. Got to go see people.

Kent: That's exactly right. This is a relationship business, and it will always be a relationship business.

Michael: So, you highlighted as well, that there's a director of advisor development role, who, I guess, who mentors, who manages, who helps to drive this. So, tell us more about that role, because I find for most advisory firms, there's an expectation that mentoring and managing comes from whoever the senior advisor is on the team. You work with Bob, you're on Bob's team, Bob is responsible for leading the team, retaining the clients, doing the senior business development, and training and developing the advisors on Bob's team. And it sounds like you've got at least a little bit of a different approach, because there's a dedicated role around advisor development. So, can you help us understand what is this role and just how the roles and responsibilities work between director advisor development and I'm going to call him Bob, the senior advisor on a team that has this KADS person working for them? Who's responsible for what in this advisor development process?

Kent: It's a great question. And I think it's a nuance that needs to be divided up. Those responsibilities, I believe, should be split. So far, since Krilogy started in 2009, we've brought on 5 advisors, senior advisors who I would say were at least 15 to 20 years in the business, anywhere between $50 and $150 million in their books of business. And they joined Krilogy because of our culture of growth and the scalability piece of taking all the work off their plate, so they can focus on their clients. But when I talk to them about the KADS program, they get really jazzed up. And then I say to them, "Do you like to be a mentor? Would that be of interest to you if we put somebody on your team?" And they get super jazzed up. I say, "Well, would you like to manage that person? They get, it's almost like a depression engulfs them.

No one likes to manage. Everyone in our firm loves to be mentors. So, I wanted to take that management piece off the senior advisor, because it's draining, it's difficult. It's time-consuming, and it takes them away from the things that they love to do. The mentor piece gives them juice and it gives them energy. So, we had to create a role, the director advisor development role to be the manager, to be the coach and to help that KADS advisor really focus on the proper fundamentals and building their own book of business. So, that's why we actually created that role, to take away that management piece, and to have accountability and coaching on a consistent basis. And the senior advisor doesn't have to worry about that.

Michael: So, questions like, "Have you made your numbers? Let's sit down and look at your numbers. Your numbers are off. Let's talk about what's going on and why they're off." That's all the director advisor development's role, not Bob, the senior advisor.

Kent: That's right. That's right.

Michael: But if Bob and the advisor in the KADS program are serving clients, and there's an opportunity to say, "Hey, let's reflect on why that meeting went well or didn't go well," Bob's got plenty of room to say, "Hey, let's have a mentoring moment and talk about what went well, what didn't go well in that meeting."

Kent: That's exactly right.

Michael: And so, the director of advisor development then just, sounds like this gets pretty busy pretty quickly because I'm just envisioning, I think you said there are 14 advisors in the KADS system. So, this person is just rotating around 14 people doing coaching and check-ins and ongoing training and support?

Kent: Yeah, we actually have 2 advisors, what we call DADS, director advisor development. So, DADS is a terrible acronym, by the way.

Michael: Well, it paints a picture around manager and coach.

Kent: Right. I know. So, we actually have 2 because once you get to the 8 to 10 number, you'll start to really tap out in terms of time.

Michael: Yeah. Okay. So, what is, I guess, meeting and accountability look like from the KADS to the DADS? Are these weekly meetings, monthly meetings, how much managing and interaction goes on? What's the expectation?

Kent: Well, early on, it's definitely weekly. Because if you can imagine that you're working with a trainer on the exercise world, you want to stay consistent early on. As they continue, as the advisor starts to develop their book of business, they may or may not need, depending on where they are and what's happening in their career, they may or may not need a weekly meeting. For example, we have advisors who are, once they get to a certain point in their career, we want them to take the CFP and we fund it, we pay for it, we give it... Well, that CFP endeavor is, it takes up a lot of specific time. So, obviously, they're going to come in, they're going to do their job for their team, they're going to be working on their CFP at night at home. Where do they fit their business development time, effort, energy in there? You're going to see some flexibility there in those moments and CFP, just an example, some flexibility, but we also want to make sure that we're consistent in helping them not forget about that business development, that business growth piece in terms of the activity, because guess what? It's the CFP when you're young and not married, or maybe just married, but it's the 3 kids in the house and everything else later on in your life that takes up time, effort, energy. You still have to be in the business development mindset in some way, shape, or form over time.

Michael: So, how far do they have to get in before you would typically steer them towards pursuing CFP marks? Where does that actually come in your advisor progression, advisor journey?

Kent: Somewhere around that 3rd year, maybe 4th year, depending on their progress most of the time in that 3rd year, or even sometimes...it's interesting, back in the day, it was probably 4 years, but now because of how quickly we can scale up an advisor to that $10 to $20 million in assets range, it can come in that, they could be considering it in their 2nd year preparing for the 3rd year of industry experience. So, really kind of depends on their growth path.

Michael: Because I was going to ask what's the trigger point? So, it sounds like for you, it's not literally time based, per se, it's once you get to a critical mass of $10 to $20 million of assets and you've built some business development muscle with the training and the support. You're at critical mass, you've built up that muscle enough that we're comfortable now you can keep exercising a little bit more on your own. Now, we'll support you to go get your CFP marks.

Kent: Correct. Yep.

Michael: And is that something the firm covers? Is that something they're expected to make an investment into themselves?

Kent: We make the investment.

Why Kent Created Krilogy University And How It’s Used To Train Krilogy Advisors [39:18]

Michael: Okay. So, how does then Krilogy University fit into this? So, take me back to Krilogy University. What's getting taught there? What's the curriculum and who teaches it?

Kent: So, I'll take a further step back. So, we have a classic sort of investment committee, 9 people on the investment committee, as you would imagine. It's very similar to a lot of other firms with investment committee, but we actually have what we call a WIC, a wealth intelligence committee. We're full of acronyms as most financial firms are. But wealth intelligence committee, we have just as much weight in the wealth intelligence committee as we do with our investment committee. We believe it's critical to our organization. The WIC, actually, is all CFPs, CPAs and attorneys and they actually helped create, led by Nathan Holt, one of our partners, he leads our WIC, he creates the Krilogy University curriculum. And the curriculum will bounce between our portfolios, which is the core of what we do, portfolio management, but also CFP based planning, update on new legislation, Secure Act 2, tax and estate planning.

And each expert in the WIC can support 4 to 7 different Monday morning trainings throughout the entire year. So, you're talking about somewhere around 40 to 45 Mondays a year, we have an expert in house. Sometimes we'll use our in-house experts, sometimes we'll actually use an expert from out of the office, from one of our vendors or it can be as basic as Tamarac training, or it could be as advanced as alternative investments. It could range from a lot of different places. So, and it can also range from very basic training to pretty advanced in terms of on the financial planning side, or the investment piece, and we encourage our KADS to go there every week, even if it's over their head. At some point, they'll start to stick.

Michael: So, it sounds like these are primarily driven, internally, just like everybody on the WIC rotates around, taking a meeting every month or 2 that they've got to do some kind of training for on something that they're comfortable to train on.

Kent: It is, yes, and the WIC does a great job for us of just making sure there's coherent sort of strategy behind it. It's just not some random topic on a Monday. They sort of build out their year in a coherent way, which is really, really nice and a really effective training tool for our KADS and even staff and our senior advisors when they want to pop in.

Michael: And how long are the meetings?

Kent: An hour. No more than an hour. And they're on Mondays, so we want to respect people's time. 10 o'clock Central Time.

Michael: 10 o'clock in the...10am?

Kent: Yeah. And I'll be honest with you, it sounds like it's this wonderful set and forget it type thing. For years, we struggled with what was the best date or day during the week, what was the best time, are Thursday mornings better or Friday mornings better? Well, no one would come on Fridays, because people take three-day weekends. And Monday mornings, well, no one wants to do it on Monday at 8 because we all come in ready to do our real job. And so, we've effectively settled on that 10am on Mondays, which we believe people can come in, get a couple hours of work in, sort of clean off that soot from the weekend that you've been thinking about all week, and all that work you want to do and then get into a training session for an hour. But it's really, really heavy lifting in terms of like what Nathan Holt and the WIC are doing for that curriculum. It's, as you know, you build out these programs, they're not set it and forget it. It's a lot of heavy lifting.

Michael: And are these mandatory meetings? Does everyone have to come?

Kent: For the KADS, yes.

Michael: So, mandatory for the KADS and, I guess, other more senior advisors just get a choice if it's an interesting topic for them.

Kent: Yes, exactly. Yeah, yeah, we don't do a lot of managing, we don't have any managing of our seniors. These folks are veterans in the business. We don't need to tell them. We just need to offer them opportunities to get better. They'll take advantage of it when they have time and when it's the right opportunity for them.

Michael: So, help us understand how compensation works for the KADS. As we know, historically for the industry, was a very eat what you kill business. Your income is 0 or near 0 until you go get some clients who bring in some revenue. Even salaries were often actually draws against future commissions. You noted the shifts to the AUM model with recurring revenue and the fact that ongoing clients have to be supported means you get a little more flexibility about how you do this. So, what is compensation for the KADS program look like in practice? How do you actually do this?

Kent: It started out back in the day very simple. We paid them 40 grand the first year, 30, 20, 10. This was way back in the day. And then over time, if they put in assets, it should offset that drop in income. We don't do that anymore because we changed it. That was back in the day when we didn't have a lot of teams, so we hired advisors who just really sort of were effectively under my team and I only had so much time, effort and energy. So, that's changed a little bit since we've assigned a KADS to a team. And we feel like it's much more effective with this team-based structure because they get immediate mentorship, and we can manage them with our director advisor development.

That concept, though, of that income dropping is actually still the same. The incomes are going to be higher depending on sort of where they are in their career. But that concept of them wanting to eventually make that shift to be a senior advisor, where their comp is based on their revenue, not a salary plus, when that shift happens, the exact same sort of concept works where their salary starts to drop, and they are required to put in AUM to offset any drop in their salary. But at that moment, we believe and so do they, that they already have built a skill set out to create those new assets and new revenue to have extreme confidence in themselves to make that transition happen. And I don't give specifics, because each individual advisor's transition is different. Some may wait until they're $30 million in assets, some want to do it at 15, some want to do it at 40, depending on their comfort level. And obviously, when you get to those different salary ranges and commission structures, they get pretty custom. So, we get to customize it for each advisor based on their moment in their life.

How Krilogy Compensates Senior And Newer Advisors [46:12]

Michael: Can you help me understand a little bit more though just what do at least salary ranges look like? Where are you typically starting people as they come in before they have any assets and they're just getting going cold?

Kent: Well, it's more than 40. I can tell you that. I mean, that was when we were smaller. I would say, depending on their experience, you're probably talking somewhere in that 60 plus. It's interesting too, Michael, a lot of advisors will come in at a higher rate, but they may be in a situation where they're with a senior advisor. They want to build their own practice, but that senior advisor doesn't want them to, because it's not beneficial to the senior. We're a great organization for someone like that. They might walk in here with a salary and $10 million of their own book of business, because they helped the senior advisor at their previous firm get that, but they just sort of hit a ceiling with that senior advisor. Obviously, that person's financial situation is going to be a lot different than someone coming in with 0 assets under management. So, it all kind of depends, but I would say somewhere in the 60 range is where we start, and then it goes up from there.

Michael: And then just how does compensation based on AUM or revenue work? It sounds like, at some point, you're getting paid some percentage of your revenue, and you can hit a crossover point where your percentage of revenue is more than your salary, and now you're in a AUM percentage of revenue world, but what are the splits? How do you actually allocate this?

Kent: Between 10 and 50, depending on what the advisor, how much risk they want to take on. Some advisors...

Michael: Between 10% and 50% of revenue?

Kent: Yeah. So, they might take, again, this is all custom, they might take 10%, but a higher salary and more stability. Or they may go, "Let me go all in on this thing. And I've hit that crossover point that you spoke of, and I'm good to go. And I feel confident that this thing's going to continue to grow. And I'm going to continue to add assets. So, I'll take the 40, 45 50," depending on how much in assets they have. It all depends on the assets they have at the moment.

Michael: Because you set maximum payouts based on the amount of assets they have, or you only allow them to do crossovers or payouts when they hit certain thresholds?

Kent: Well, we do have maximum payouts, but it all depends on the assets, I would say. But for those junior advisors, if you're at $30 million, you're not going to get a super high payout, just because of the revenue, but you can eventually get to really decent payouts as you continue to grow your book of business because remember, we're still funding a lot of things for that junior…

Michael: Right, you've got all the fixed overhead. That's always the challenge of starting advisors from 0.

Kent: That's exactly right. That's exactly right.

Michael: So, I guess a couple of follow-on questions, so just, is there a threshold in your mind in your system where just okay, the assets are high enough now that you can get our maximum payout? I guess they still have some choice about how much risk and volatility they want to take on, but is there some threshold where, okay, you can get to maximum payouts with us now, because you've hit the number that covers the overhead?

Kent: Yeah, that number is probably around [$]50 million, but you start to think about that as an advisor, somewhere around the [$]30 million range, so 300 to 500, in terms of revenue.

Michael: Okay. And then, the payouts can get up to 50% of revenue for you at the top end, and you're covering all the overhead that comes with it, thereafter, rent and staff support and technology costs and compliance and all the rest.

Kent: Yeah, and then we have different incentive programs that allow sort of a higher net take home, where you can get closer to that 50[%] to 60, 55 to 60, based on incentives, new deposits, net new deposits, growth, all of those items, and then the size of your book. We're not so naive to think that a decent sized book is going to be paid at 45 points. We want to grow big books, we do grow big books, and when those books get large enough, we want to offer optionality to those advisors in a number of ways, payout, control, but also liquidity. And we haven't gotten to this part yet, in terms of like, we talked so much about developing talent, but we have senior advisors who are exiting today, and they're utilizing this wonderful program, the KADS program to develop their successor advisor.

But we have the ability to create a liquidity moment for our advisors, and this is something we've learned over the last probably 2 years is that some advisors, actually, in their career, before they're 60 or 65, have considered a liquidity event, at least to take some money off the table. And we had that ability for advisors in their 40s and 50s, to take a little bit of equity off the table from their practices, and we believe that that's kind of a little bit of a unique thing is that we actually can help you grow your practice, build it, and then if you want to sell a portion of your practice back to Krilogy, we're willing to buy it back from you. It's a really interesting, fun, new thing that we've put together. And we've gotten some good traction with that.

Michael: So, I do want to come back to that. But I want to make sure I understand just a little bit more of the KAD structure. And I guess I'm trying to envision how this works in the context of teams. You said, right, the KADS get set onto a team with a senior advisor and are supporting the clients of the team. So, I'm envisioning that classic scenario, senior advisor has a client that they've had for a lot of time. The KADS advisor has been supporting and doing the client work. And now a referral comes in. And maybe the KADS person is the one that fields the call, or maybe the KADS person even has gotten the closer relationship with the client recently. So, how do you handle things like fee splits, and who gets credit for the referral and such when a KADS is on a team with a senior advisor, who I'm presuming also wants credit for some of the new revenue that comes in?

Kent: Great question. That comes back to our values: dedication, abundance, leadership, respect. In that moment, if that referral has come from the senior advisor's practice, even if the KADS helped generate that referral or sort of made the connection with that referral, that's the senior advisor's because it wouldn't have been there without the senior advisor. The KAD may have done a really amazing job of making the connection or figuring it out. But ultimately, that's senior advisor's. We have to really protect that because the KADS will be in that position at some point in their career as well. Relationships in our business is the most critical piece to a senior advisor's world. That's what advisors sell in the end, right? They don't sell assets under management. They're selling the relationships and that's what creates value and practices. But most of the time, if you're a mentor and you're a senior advisor, you're going to find ways to reward the KADS for making that happen. It could be a split, it's up to the senior advisor and the KADS to determine that depending on the amount of work and the effort and energy put forth in that relationship. It could be a bonus. It could be whatever the senior advisor sort of feels would be appropriate to support or to make that KADS feel as if it was a worthwhile endeavor to go down that road.

Michael: Interesting. So, the senior advisor can set some of this but nominally, the senior advisor's book is still the senior advisor's book. And I guess in turn, that means as the KADS builds their client base, that's not sharing up the line any more than the senior advisor's client revenue is sharing down the line. They're ultimately each building their own client base and their own books of business.

Kent: That's correct.

Michael: And they're each compensated on their own revenue tied to their own clients and their own book of business.

Kent: That's correct. And what's critical here, Michael, is that our value-based culture and the type of people that we bring in want to work in that environment where we're like an NFL team, everyone controls their own destiny in terms of each player, but if you want to win the Superbowl, you have to play as a team. And you want people who want to play on a team and do team-based activity, knowing that in the end, everyone grows because of that mentality. So, it's really critical for the senior adviser to be aligned in how they approach the business.

Michael: So, for the KADS, you had said there's a point where they may trigger a shift, where they're going from more salary and lower percentage of revenue to, I guess, lower salary and higher percentage of revenue. So, is that just in their control, at some point, when they are ready to bear the ups and downs, and the volatility of revenue-based compensation?

Kent: Yeah, right.

Michael: Perhaps not ideal in 2022. But yep.

Kent: Once they become officially crazy.

Michael: Pick your bull market year as appropriate. But just, is that, ultimately, in their control? They get to decide when they want to do that transition, or is there some automatic transition that happens, where their percentage of revenue goes up, if their salary is also automatically dialing down?

Kent: You know, it used to be very sort of strict in terms of certain hurdles. But ultimately, what we have found is that people grow at different paces. And then they also have different personal situations that require some customization. So, it's really more consulting with our director advisor development, the senior advisor mentor, and the KADS to determine the best time to start. It's not even a leaping off point, it's sort of this nice, gradual change. So, it's a collaboration, and it's a conversation, and I believe that, this is I spoke early on about, you have to be able to give time to people in this business. And that part right there is a classic example of just spending time to work on that development plan. And if you give the right timing and effort, the plan should give that KAD the best possible opportunity to make the switch, and we have not had one KAD make the switch and not make it in this business. It proves itself out every single time.

Michael: Yeah. If you're just coming in that system environment, you don't really have to cut the cord any earlier than you would want to cut the cord. So, by the time you're ready to cut the cord, you're probably in a pretty good position to keep your momentum from there.

Kent: Absolutely. And what I say to the KAD is, look, if you're worried about 6 months, or if you have any worry about this, don't. Just wait. We're talking about a 30-year career, what's 24 or 48 weeks? Take your time. It's okay, because over the next 30 years, you're going to be, you're set up to have just an absolutely amazing, amazing career. So, it's okay to be patient.

Michael: So then, you had said earlier, like KADS positions are not automatic. There has to be a position open with the senior advisor. So, what determines whether a KADS position is open? And then, I guess I'm also trying to understand tied with that, who pays for the KADS? Does that come out of the senior advisor's revenue? Is that comes from Krilogy, because that's part of the Krilogy overhead contribution? So, how do you determine if there's a position open? And then, who pays for the position? Which bucket does that come from?

Kent: Good question. So, the size of the book and the amount of workload on the senior advisor's books determines that and we work closely with them. There are some sort of levels, but the levels can be fluid. If you're at the $30, to $40, to $50 million range, you start to get...there's a KADS put in there because you already have a WSM supporting you. So, at that $30-$40 million range is probably a good sort of statement to say, "Hey, KADS is something that you should have in your practice." Krilogy pays for that. And the reason is, is that we are injecting...this is where we, this is why we grow advisors by 27% a year. If you're at 30 to 40 million, you got a WSM. So, you're getting work off your plate there. And now you have a paraplanner, so to speak, on the KAD side, that can also help you and support you.

Your time, effort and energy can be focused on the right thing as a senior adviser. You also just finished the KADS program either a year or 2 or 3 or 4 earlier, but you're still remembering what it's like to go through there, through that program, and Krilogy is investing in potentially a new team, right, the KADS, we want them to flourish and grow and eventually become a new team. So, this is a multiplier effect here that we believe works. And so, that's why we pay for it. We'd rather make that investment. Because the senior adviser won't make that investment. They just, there's not enough revenue in their practice to make that investment at that moment.

Michael: So, what happens to this, I guess, what happens to the senior when the KADS graduates, because if a KADS graduates at somewhere in the [$]30 to 50 million range where they can stand on their own, they get their own WSM and they may be getting their own KADS, then I'm kind of envisioning, now, you basically have 2 vacancies. You've got a KAD support for the prior KAD who graduated and now runs their own book. And then you've got the hole they left behind on the senior advisor's team, because they graduated off. So, is that how it works? And when a KADS graduates out, you're looking at essentially hiring 2 positions, 1 to backfill the senior and then 1 to support the new team?

Kent: That's exactly right. And what we have found is when we talk about our strategic planning and the process, and what we've discovered in this is exactly what you just deduced right there, which is what happens now? You're not a $40 million advisor, you're a $90 or $100 million advisor, and your KAD just left you who's been with you for 3 or 4 years. They've made a really big impact on your practice, and you've made a big impact on them. What do you need at that moment? Your WCM is still there. But what type of staff person do you need? A lot of times, what we found is you actually need a career CFP, someone who has no desire to go out and build their own practice. And they tend to fit in that spot very well. What's interesting is that some of our KADS decide to become career CFPs. After going through the program, they're like, you know what, that that Biz Dev piece is not me. So, they may decide to stay into that career CFP piece. And we had to create that as an option over time, because that's how we all evolved. And that's how practices evolved in the firm. So, that senior advisor now has a career CFP and a WSM, depending on the senior advisor's sort of appetite for risk, we'll pay for the CFP or they pay for the CFP, depending on how they want to deal with it. And then the KADS is filled in on another team, so to speak, or we have to backfill that KADS for one of theirs.

Michael: So, you're really ending out with kind of 2 different tracks now that are starting to emerge. There's the advisors that go through the KADS program and are good at business development, like business development and want to continue that role. They get a critical mass of clients, spin off into their own team, they get their own KAD support and continue to grow and chug forward from there. Or you find or decide business development and lead advisor role is not for you. But good news, we've got senior advisors who also just want ongoing career CFP associate advisor kind of support. So, if that's your preferred role in that service advisor kind of kind of path, now that's becoming available as well.

Kent: That's right. And over time, because we have more mature teams now with [$]100, 200, 250 million of AUM, those opportunities are being created every year as well.

Michael: So, is the comp different for that career CFP, service advisor kind of role because if they're supporting a senior, they're not bringing in revenue in the same way that traditionally has percentage of revenue payouts. So, are they salaried? Do they...?

Kent: Salaried, yes. Salary, bonus.

Michael: And that may come from the senior advisor, if they're large enough that they need it, then they can support it?

Kent: Yeah, it's really more of the appetite of the senior I would say, more than anything, if they want to take on more of that responsibility versus sort of higher payout, more responsibility on their P&L, or they just want to...most of the advisors with us want to set it, forget it and let us deal with it.

Michael: Oh, so, it's actually up to the senior. They can ask for a higher payout, and then have to cover this cost and try to manage their P&L a little bit more, or they can stay on the existing grid and Krilogy covers this, as long as their books large enough to support it.

Kent: Well, it's more hybrid. We'll take care of some of their staff, a little bit higher payout. They are allowed, they can effectively, but there's, as with most things, Michael, it's not black and white. Everything is gray, I would say, my advice to any other person trying to get into this part of the development world in terms of growing advisors, everything's gray. Everything's unique. Every situation is different. You try to create rules, but every rule you create creates 3 more rules. And next thing you know, you got 50 rules and 50 exceptions. It turns into a gray area pretty quick.

How Krilogy Offers Optional Liquidity Events And Succession Plans [1:05:09]

Michael: So, now help us understand the liquidity dynamics. So, you'd said you're now building this option as well, where senior advisors who want to sell, Krilogy can support them as an exit plan. It sounds like even with either a full sale or with a partial sale. So, talk to us more about just this program and how it works.

Kent: Yeah, so this actually came, from so our strategic planning process is one of the things we do is a thing called Start, Stop, Keep. And we talk to our advisors, talk to our staff, we talk to our clients about what should we start doing, stop doing, keep doing. And one of the things we figured it out from our senior advisors really, from, I would say, more age wise, from 45 to 65, is that, obviously for the ones in their 60s, they're interested in some sort of liquidity, and we have provided that option with the buyouts. That's been there for quite some time. But what surprised us over the last year or so, is that advisors younger in their career are considering taking a little bit of money off the table, and for whatever reason. And we had never really considered that before. And so, I went with, talk to my partners, and we created a program that gives the advisors the ability and the option to take a little bit or all off the table, if they wanted to, and have Krilogy completely own that book of business or partially own that book of business. Where today, the advisors who transfer in or who have the opportunity to...our advisors who have transferred in, they come in, they own their book of business. Well, now we have the ability to buy that book, partially from them at an early age rather than waiting until they're 60, 65 and they sort of thinking about retirement there. So, it's just a little bit unique setup that we've went down here that we're pretty excited about and we have some people interested in.

Michael: So, help us understand a little bit more of just how this actually works, right? I'm an advisor that built up to $100 million book of business, I've been doing this for a while, I'm, I guess, probably in my late 40s, early 50s. So, I'm at that maybe I want to take some chips off the table stage. So, I come to Krilogy and say, "I want to take half my chips off the table." So, how does this work? What do you do? What do you buy?

Kent: What do you do?

Michael: Yeah.

Kent: It's simple. You get the practice valued by a valuation expert, number comes out, they figure out if they want to sell portion of it, all of it. We get financing for it. And the transaction's made. It's a very simple transaction, because we all know where the clients are. There are no skeletons in the closet. We all know who we are. It's a very simple deal. So, it's not a difficult process.

Michael: So, you're doing all this. It's not an internal formula thing. They just go get a third-party valuation.

Kent: We use the same firm that we use for Krilogy's valuation.

Michael: And can I ask who is that that does the valuations?

Kent: Melissa Gragg is her name. Bridgevaluation.com.

Michael: Okay.

Kent: So, that's who Krilogy uses. We just hand it over to her, she comes back with a number, we don't negotiate over it, because we believe she's going to give a good number. And we go from there.

Michael: Okay. So, for that structure, they just come and say whatever percentage they're willing to sell and you'll do the deal on that. So, I want to sell half of my $100 million book, we get a valuation on the $100 million book from Melissa, divide by 2 and off we go.

Kent: Right.

Michael: And so, what are terms around this? Do you pay the whole thing upfront? Do you pay it over a bunch of years? Are there contingencies to it? How do you actually structure the purchase since I feel like it's a little bit different than some traditional deals? They're still there. It's not like a total exit transaction.

Kent: Yeah, obviously, when there's employment agreements, it's a different deal, right? They're looking for liquidity. So, you're not going to say, "Hey, I'm going to pay you out over 10 years." That defeats the purpose for them. So, this is a true liquidity moment. So, there is a portion or that's the reason, so we want to give them liquidity. But then from there, it's employment agreements and non-solicits and non-competes and all that fun stuff, right? We are taking over that book of business. And that's no different than, we see that no different than when, we've done this multiple times where owners of individual RIAs, [$]50 to 100 million, have decided to move over to Krilogy to get all the back-office work off their plate, yada, yada, yada. We strike them a check. We find the succession advisor, all that stuff. This is the exact same way except we don't have to find a succession advisor. They get a lower payout, of course, because we're buying.

Michael: I was going to say, so then the other follow-on to this is how does the advisor comp work on the other end? Do you just divide by 2 since I sold the book in half, like I had $100 million book and I sold $50 million of it to Krilogy. So, now my compensation, the rest is just only based on the 50% I still own and I just kind of cut my comp in half in exchange for selling half the business?

Kent: Effectively. There's obviously nuance to it, but that's effectively right.

Michael: Okay. And how do you handle the financing for this? Do you cover this from internal cash flow? Are you going out and trying to get bank financing to manage this?

Kent: Both.

Michael: Okay, is there a particular go to or preference?

Kent: Not really, I don't think so. Cash flow is always nice to do it because you don't have to worry about having a bank to deal with. I'm from a small town in Missouri, Washington, Missouri, and I've got a great bank in that small town, it takes great care of us and has always been a really great partner. So, the stress of banking is not too terribly difficult for me. I'm very, very fortunate in that. But I prefer to do it cash flow wise if we can.

Michael: And then if and when the advisor eventually gets to the total sale, I presume at that point, the purchase structure is more or less similar, we bring Melissa in or back in, we value the whole business or whatever's left of it, we get a number and then Krilogy can do the purchase on whatever was left in the book when the advisor ultimately wants to retire?

Kent: That's exactly right. The caveat to that is though, we need 2 years notice, so that we can spend the next 4 to 5 months on finding a successor advisor, and then a year and a half on the transition, because that's a really critical piece. And we've transitioned multiple senior advisors out of their books with succession advisors, and we need that time to make sure that the succession advisor is set up for success and that the practice is going to sustain itself. We get that successor advisor either from the KADS program or the KADS who have graduated and the senior advisors, or we have the ability to recruit in someone who aligns with what we're trying to do and is excited about taking over a book of business. So, we kind of find our candidates from 2 different piles. One is a current roster of advisors, and then the second would be recruiting from the outside.

Michael: And is there a different comp structure if Krilogy buys and essentially, hands them, assigns them the client base, as opposed to a clientele that they went and sourced themselves?

Kent: Yes, as you can imagine, it's that, closer to that 20%, 25% range, depending on the size of the book, and how much support they need. It's going to be somewhere around that.

Michael: Okay. Which, by the time you're getting to a $50 to $100 million plus book that you may be buying, 20% to 25% of revenue is a nice number. You're not doing this with a small book, you're doing it with a good sized one in the first place.

Kent: Yep, that's absolutely right. And they have the opportunity to build that book grow their income. We want to, again, we want advisors thinking in grow terms.

Michael: And then, what happens during that 18-month transition to make it go smoothly? You've said you've done a number of these now. So, what do you actually do in that transition period to make sure this goes well, and clients transition smoothly?

Kent: Well, I think it's being intentional about the transition, first and foremost. You have to have a program where, how do we introduce the successor advisor? How do we not spook the clients? Which parts of the relationship does the successor advisor take over first and sort of control and then how eventually, what are the next parts of the relationship where they take over the entirety of the meeting, so to speak, the review meeting? So, for example, we just, we have an advisor who's transitioning out here this year. His successor advisor is a CFP, CPA by trade. So, as you can imagine, her part of that meeting that she's going to take over first is the planning and the tax conversation, right? Eventually, she'll take over the investment and the portfolio piece, but we're going to put her in the best possible situation right up front to take advantage of her skill sets to show her chops with those clients for the first 6 to 12 months before she takes over the entire piece. So, we actually have a very specific program of how that works. And the senior advisor or the retiring advisor and the successor advisor follow that program over the 18-month period.

Michael: Interesting. So, it sounds like the transition of is the successor advisor going to start taking the lead on the planning stuff first or on the investment side first, is driven much more by what is the actual strength of the successor? If they're coming from a tax and planning background, we're going to have them start with the tax and planning end because that builds more trust faster by showing competencies to success in the strength and then they'll do the investment side later. And I'm presuming the reverse is true as well. If it's someone that was more investment inclined in the first place, and that was their strength, then they may start with the investment review conversations, and they'll pick up the tax and planning conversation second?

Kent: That's exactly right. Yeah.

Michael: Interesting. And...

Kent: There's some intentionality too, with even the first meeting, and I would mess this up if we didn't come...if this didn't sort of come through our start, stop, keep as well. Let's say that I have, I'm leaving the business, and I have a successor advisor named Bill, and he's coming in to take over for my practice, and I might walk Bill into that first meeting and say, "Hey, meet Bill. He's a CFP. And he's just started my team, and we're really excited to have him," and then move on. Right? Well, the important piece of that meeting is really critical. You've got to take the opportunity to give more of a commercial about Bill. Here's Bill, here's his experience. Here's what he's going to be working on. Here's his expertise, here's why he's an expert in this particular field. Here's some of the examples of some of the things he's worked on. And actually, just be a little bit more intentional about the depth of Bill's skill set and why he's such a great fit on the team. It's small nuances like that, that really make a big impact on the succession planning.

Michael: Interesting. So, it sounds like this has become much more intentional of how do we really build up the successor advisor to just be able to stand on their own merits into this relationship?

Kent: And it's a balance of honoring the legacy of the original advisor because they put their heart and soul into this practice. And you have to honor the legacy, but yet help the successor advisor start off on a really great solid foundation, because all you care about really is just the peace of mind with the clients. You just want to provide them peace of mind. And for us, it's critical for them to start off on a great foot and then be intentional about every other meeting going forward.

The Surprises And Low Points Kent Encountered On His Journey [1:18:16]

Michael: So, as you look back over this journey, what surprised you the most about building your own advisory business?

Kent: Man, so much. What doesn't surprise me at this point? I think every day I walk in and find something new. That's a challenge and fun. The joy of watching people grow and working with my teammates. We have teammates in Dallas and Florida and Omaha and Raleigh, North Carolina. The relationships we get to build is the absolute most fun part of our business and watching friends and colleagues and teammates going through different life's moments and opportunities and challenges. We have people who have grandkids, and we have people with having their first baby in our firm, and it is such a joy to be a part of those parts of life. So, the hard part though, is I always I have the saying, the best part is we get to make this up. But the hardest part is we have to make it up. And sometimes figuring things out, like I said earlier with each individual advisor's sort of payouts and all that stuff. That's not easy, and it's not clean and it's never as simple as it seems. And we have to sort of get used to just living in that space of not knowing. Sometimes it's just really, really difficult and you have to make a decision and move on and learn from it and be able to adjust and be able to move, pivot, but the most important thing is you grow and the most important thing is you move on and the most important thing is you keep going because you know you have no other choice once you're out here in this RIA space. You just got to keep going.

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

Kent: I would say low points for me are when...I don't really have a major low point. I would just say this, that there's, one of our great clients said to me one time, "The more money you make, it accentuates the person you are. And if you're a wonderful person, the more money you make, you're going to be even more wonderful. But if you're an egotistical maniac, the more money you make, you're going to be an even bigger one." And I think the low points for me is when I see success for certain people in the industry, and it sort of exposes the person they are and that person ends up not being a part of Krilogy, and those are really difficult times because you spent a lot of time, effort and energy with them, and it just doesn't work out. And I think those are difficult times, because you...

Michael: When the advisor you developed ultimately decides to leave and move on.

Kent: Yeah, yeah. Because together, we did some great things and, but it just, they just didn't align with the values and our approach to business. And I think those are, it's never easy when that happens, because we put our heart and soul into our advisors.

Michael: And the challenge sometimes is you can try to evaluate and vet values upfront, but per the comment from the client, the more money you make, the more it accentuates who you are. So, some people, you may not really be able to see the full or real them until they get to a certain point of income and success.

Kent: That's right.

Michael: And then it shows up. It's like, oh, yeah, you're not actually going to be a good fit here.

Kent: That's exactly right. Yeah. Well, there's humility when we're all struggling and poor. When the humility is gone, who are you? So.

The Advice Kent Would Give His Former Self And Newer, Younger Advisors [1:21:53]

Michael: So, in that vein, what do you know now, you wish you could go back and tell you from almost 15 years ago, when you were thinking about starting Krilogy?

Kent: Oh, my gosh, I would tell that guy to probably not start it, because...not start it the way I started it. I think that we've learned so much now. I'd probably skip the first 5 to 7 years, just because of all the iterations.

Michael: So, what were the problem iterations that have now fallen by the wayside that in retrospect, you wish you hadn't started with those?

Kent: Well, hardly paying our advisors, I think. The KADS, we barely paid them. And if you look at it today, right, I think I said earlier, 40, 30 20, 10. If you would have just paid them each 10 grand more, their lives would be completely different. Our lives would not be that different. It's those sorts of things that I think you try to save money, you try to keep a healthy business going. And you just worry so much about those little, small dollar amounts, when in the end, they probably don't add up to much, but they could actually make a really big impact on your people. And I think that's the thing I would definitely change because, and by the way, all those people that started with me are all partners. So, it's really fun today, and we have these great partner meetings where we joke where none of us had any money, and we were all trying to build something really special. And we're getting to that moment where we feel like we've got a fairly mature company. We could have been a little bit more liberal in our comp with those advisors early on, I think, for sure.

Michael: And so, it was just not really having good clarity early on of where can we afford to spend a little more and where can we not because everything feels tight at the beginning when you're trying to grow the business?

Kent: Yes.

Michael: So, what advice would you give younger, newer advisors looking to come into the industry today?

Kent: Find a firm that cares about your growth.

Michael: And how do you figure out which ones really care about your growth? Because no one really says we don't care about your growth.

Kent: I know, I know. I think it's the most difficult piece, so the only way to probably to find out is to interview other KAD-like people in that organization, and I would ask for that opportunity to do that. I would ask the question, "Who would be my mentor?" And then I would also ask the question, "Who would be my manager?" And then you kind of have to interview them back saying, "Are they qualified to do either?" Because I think that's a really critical piece. For advisors who want to build their own book of business, it's difficult to find organizations who want that as well. Most advisors, most senior advisors don't have the time, effort, and energy to make that happen. We would love to help senior advisors with that as well, because I think they want to, it's just they don't have the time, effort, or they don't have the time to do it or even just sort of a scalable model to do it by.

Michael: Interesting. So, try to interview other newer associate advisors in the organization to find out what their experience has been like, and then ask, "Who would be my mentor? Who would be my manager?" And see if you can interview them to understand how they approach it, and do you feel like they're really qualified and ready to invest the time into that growth.

Kent: Yes, because if you get into a situation where you've brought in [$]5, 10, 15, 20 million bucks into your senior advisor's practice, and that senior advisor sort of doesn't allow you to take that next step, it's really stressful and it weighs on that planner. It's like I think I can do this, and I want to do this and my gut's telling me to do this, but I just don't have a way to do it unless I completely jump off a cliff and hope the parachute opens. So, it's really important to have that interview and that research before you join an organization. Is that where you're going to end up or is there a path to control your own destiny?

Michael: And so, how do you make sure that the advisors don't get stuck in your context in your organization when you've got that same scenario, the advisor, the KADS that's grown to $15 million, and the senior advisor who doesn't necessarily want to lose them?

Kent: Well, it's pay it forward and it goes back to those values, right? If you have alignment of values and you believe that paying it forward and you have that same mindset of, we love to watch people grow, then it doesn't really become an issue.

What Success Means To Kent [1:26:41]

Michael: So, as we wrap up, this is a podcast about success and one of the things I've long observed is just the word success means very different things to different people and so, you built, I think, what anyone objectively call a very successful advisory business as you cross, I think, $2 billion under management. So, the business is in a very good place. How do you define success for yourself at this point?

Kent: Impact on people. I just think that that's what gives me juice, whether it's a senior advisor having their first grandchild, or we have people getting engaged and married and having their first babies. To be a small part of their world during those times is just, it's an honor. And I think we should, as leaders in the industry, we should cherish those opportunities. We get to see them with our clients often, but I also think, for me, it's just success is just being a part of that for people and sending the texts early in the morning and you get the pic back of the first or second child straight from the hospital. Those things are the fun parts of our business and that's where I believe all success comes from. Obviously, there is a business here and it's not all fluff and we have to be successful in what we do in this endeavor and there are moments when we give massive celebrations to our advisors and their teams on client retention and new clients and growth and all those fun things. And that's the fun part of the job. There's no doubt about it. And I love to watch people grow and build their books of business and do that sort of thing and that's our day job, but the success part comes from the relationships we build while we get to do our day job.

Michael: Amen. Amen. Thank you, Kent, for joining us on the Financial Advisors Success podcast.

Kent: Oh, it was a pleasure, Michael. Appreciate your time and everything you do for the industry. It's wonderful stuff.

Michael: Thank you. I appreciate it.