#FA Success Ep 361: Scaling A $2.4B Advisory Enterprise With Debt-Financed Acquisitions Into High-Productivity Pods, With Peter Tiboris

Resources Featured In This Episode:

• Peter Tiboris
• Park Avenue Capital
• Northwestern Mutual
• 2022 InvestmentNews Adviser Benchmarking Study
• The Game of Numbers: Professional Prospecting for Financial Advisors by Nick Murray

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Full Transcript:

Michael: Welcome Peter Tiboris to the "Financial Advisor Success" podcast.

Peter: Thanks very much, Michael. Glad to be here. I'm a big fan.

Michael: I appreciate that and I'm really excited for the conversation today and to get to hear and talk about more of what you've been building with your advisory firm. There's this trend I find in the advisory world these days of just so much discussion about mergers and acquisitions, more and more firms being acquired. You see this particularly in the Independent RIA channel, just because the firms tend to broadcast this and press release it and put it out there and some of the public data around SEC registrations means that you can track a lot of this activity that we see. All these firms getting transacted and projections that it's just going to keep going up as more and more advisors in the boomer generation kind of hit their own advisor retirement transitions and shift out.

But as much as this gets talked about in the RIA channel, it's not only happening within RIA. Every advisor channel, broker dealers are dealing with this. The banks and wirehouses are dealing with this. The insurance agencies are dealing with this because the age demographics of advisors pretty much span all of them. But I know you've been living this in particular in the large firm environment in a large insurance company that has many, many thousands of advisors and has its own proverbial pig in the python of advisors, prospectively retiring and merger and acquisition opportunities. But I know it's different when you do this in a large firm context both the nature of everything from how the firms are structured and registered because you're not necessarily selling standalone entity enterprises to how the agreements work, to how you can finance all of it. And so I'm looking forward to, I think it's going to be a different and unique new perspective for advisors on some of the other ways that mergers and acquisition activities are happening when you get into a large firm environment. And the path that you guys had to come and decide that that was part of what you wanted your growth path to be.

Peter: Yeah, sounds great.

Park Avenue Capital's Firm And Revenue Structure [2:20]

Michael: So I think as we dive in, I'd love to start by just understanding your advisory firm as it exists today. So just help paint us the picture of the advisory business so we understand where you are now and then we can talk about how you've come here and where it goes next.

Peter: Yeah. So Ben Feldman is my partner and we've been at Northwestern Mutual, myself since 2002, and Ben since 2004. So me over 20 years, him just shy of 20 years. And today we have 31 employees, 5 advisors, and by the end of this year, we'll have close to 40 employees and 7 advisors. And today we are annualizing somewhere...our ensemble, Park Avenue Capital, is annualizing somewhere in the neighborhood of $14.5 million of advisory revenue. And when I say revenue, I mean after our grid revenue, not before grid revenue. And then on top of that, we have fairly significant, what we would call risk or insurance revenue flow on top of that so today, total revenue across our firm is about $17 million. And by the end of the year, we'll be annualizing about $20 million.

Michael: Okay. And how many clients is this?

Peter: So currently, we're tabled to do another acquisition in November of this year. And after that point, we'll have 1,377 billing groups.

Michael: So what constitutes a billing group?

Peter: A billing group would be a family. So, husband, wife, kids, etc.

Michael: Okay. So kind of like a household unit kind of structure?

Peter: Correct. Correct.

Michael: Okay.

Peter: And I would say just the composition of those households, our billing group average is, across those 1,377 clients, is about $2 million. And when you look at the breakdown of the households themselves, about 6% of our revenue comes from the bottom 30% of billing groups. And so if you remove the bottom 30% of billing groups, our household average goes to $2.4 million. So we're very intentional in terms of using that data to drive decisions around minimums and who we're acquiring. And we can get into that more as we go on.

Michael: And so then what's the overall AUM base for the firm?

Peter: Right now. AUM base is $2.4 billion and at the end of this year, it'll be $2.7 billion.

Michael: Okay. So I'm also wondering, this world of billing groups and structure, I know for a lot of firms that have built in the insurance world, like you've got advisory clients that have sort of assets or management or recurring revenue. Some of those advisory clients also do risk products. So they've done life insurance or long-term care disability or something similar. And you may have some that you've only written risk products for that aren't on the advisory side. So I'm just trying to frame in my head, when you're talking about 1,377 billing groups, is that all clients who might have done advisory or risk? Is that just like active advisory clients? And then there's even more than might be on the risk side that sold something in the past.

Peter: Yeah, that's active advisory clients. There are certainly many more thousands of clients through acquisition and through our own legacy insurance production, which are insurance only.

Michael: Okay. Okay. So you have sort of indirectly like there's an even larger base of clients who might still call the office because they have a servicing need to update a beneficiary designation from a policy they got 7 years ago or something. But when we talk about billing groups like active advisory AUM-style clients.

Peter: Correct. And then…we have through acquisition and then through our legacy insurance production billions of dollars of permanent death benefit on the books which ultimately, if we're asleep at the wheel, the Northwestern Mutual retention of death benefit in-house about 15% which is pretty, I mean, it should be more. So we figure if we can do a little bit better job than Northwestern Mutual we'll be able to retain a bunch of AUM as clients, as we are able to realize death benefits.

Michael: Okay. So just the whole dynamic of if you wrote the insurance policy there is a, well, 15% roughly 1 in 6 chance that when the insured person passes away that family members who receive the death benefits may continue to work with you, right? A husband dies and death benefit goes to the spouse who continues to work with you, or parents pass away and some of the kids continue to work with you.

Peter: And I think the benefit of integrated clients…so we call clients that have both advisory and risk integrated, the percentage of retaining death benefit with integrated clients is higher than the company average for sure. Because you already have assets, you already have a financial plan with the family, etc.

And in fact, in our valuation criteria for buying practices, practices that have estate planning which names Northwestern Mutual the successor trustee for both insurance and investments, those practices are worth more to us than those that don't because we have a higher probability of retaining those dollars in the event the family has a death.

Michael: So I'm curious about some of... Just hearing some of these numbers, you said, so 1,377 billing groups, they are like client households, I think you had said 5 advisors. So any particular advisor has like 200-plus, closing in on 300 clients, if I'm doing that math right. Am I thinking about that correctly in sort of client loads for any particular advisor?

Peter: No, because we have a very specific service model for the 30% of billing groups that represent only 6% of our revenue.

Michael: Okay. So you've got kind of an alternative "small client" structure of what you do with those small households?

Peter: Correct.

Michael: So can you tell us a little bit more about what that looks like?

Peter: So if we think about our, and we're still defining segmentation and that's an ongoing thing, but right now anyone that's under half a million dollars of advisory goes to what we would call a "small case desk." Which is staffed with advisors that are charged with meeting with or trying to meet with clients once a year. Maybe those clients get an updated financial plan every couple of years and there are institutionalized touch points that we are trying to connect with those clients on a regular basis. And so an advisor that's working the small case desk along with a second chair advisor and some other support around them, if they are charged with meeting a client once a year, they have the capacity much more than advisors that are meeting clients with billing group averages of $2.5 million or $3 million a year that require 4 meetings a year.

Michael: All right. So I guess I've got 2 questions. So one, who are the advisors who are doing these meetings? Is it still the 5 advisors have this as part of their responsibilities or are there other centralized employees that do the once-per-year client meetings for the small case desk?

Peter: Yeah, I think there's a bigger question there and it's really around like, most advisors operate their business as a lifestyle practice. It's not really a business. And when you look at industry data which we've dug pretty deep in the InvestmentNews studies, generally speaking, average clients per advisor in a super ensemble which we are classified as today, they are servicing 87 clients per advisor at a billing group average of about a million and a half dollars per client. And so the natural question you ask yourself is, okay. If this advisor is seeing 87 clients a year, and in our service model, a $1.5 million client doesn't need to be seen 4 times a year, but let's just say that advisor is seeing a client 4 times a year and there are 60 working days a quarter. That means that that advisor is having 1-and-a-half meetings a day with clients.

And so what are they doing with the rest of their time? Well, maybe they are trafficking for new business. They're doing some of their own prep work for cases. Maybe they're doing more service requests than they should. I mean, in the end, the most expensive line item in any super ensemble P&L are advisors. Mostly 30% of revenue is paid to advisors. And so what we're trying to challenge...and so what that says to me is essentially the super ensembles in the InvestmentNews study are just a larger version of a lifestyle practice. They're not really a business. And the way that I would look at that is I would say, well...

Michael: Because their meeting count isn't that high?

Peter: I mean, if you're meeting 1-and-a-half clients a day, what are you doing with the rest of your time?

Michael: Okay.

Peter: So my point would be the most unique asset in these businesses is advisor talent, the most valuable asset. And if that advisor is doing anything other than sitting down with clients, they're suboptimally allocated. And so what we're doing is creating centralized utility in planning and centralized utility in service. And we're stacking that particular advisor with a second chair advisor that's responsible for taking notes in a meeting, following up with a client, being the liaison between the planning utility and the advisor and the client. And a client service person that's responsible for scheduling meetings, sending birthday cards, taking inbound requests for a 401(k) rollover, and coordinating that with the operations utility. And so when you surround that advisor with the resources where the advisor's only job is to see clients, we think that an advisor could at least double the amount of clients that they see compared to the benchmark.

Michael: So when I hear like 5 advisors in the firm, that's essentially 5 advisors that are in this like lead advisor, your job is just talk to clients, interact with clients as much as possible. And then each of those 5 would have an associate advisor that sits second chair with them to do all the support work that goes along with this.

Peter: Correct. And then you'd have a customer service person and we call that a pod. So a pod is comprised of a first chair advisor, a second chair advisor, and a customer service person that is responsible for client-facing interaction. So that's one of the drivers. So our goal is not to be at 30% profit margin or 35% profit margin, which is the average in a super ensemble. Our goal is to be at 50% profit margin. And the way you get to a higher profit margin in 2 different ways. You either increase your average billing group size relative to the benchmark. So today the InvestmentNews super ensemble has a million and a half as an average AUM per client. So we could increase that. And we could also increase our allocation of clients to advisors, which reduces your cost. And part of that is in trying to hire lead advisors. We're not hiring lead advisors in a traditional sense. Ben and I have been successful because we were the survivors. As you know 9 of 10 advisors, it's certain in this business aren't there 5 years later.

And so it's a very unique skill to be able to prospect and hunt. But there are a ton of advisors, maybe let's call it 3 out of the 10, that fall away that could be world-class advisors, love the interaction with clients, but just don't want to be hunters. And so our strategy essentially is to hire, pay service advisors like high-quality lead advisors, load them with more clients than the benchmark, and incentivize them around retention more than we do around new business. We will incentivize them, of course, if they do new business, but in the end, we're concerned with buying clients and retaining them. And so we are taking away that responsibility and it ends up being a pretty attractive opportunity for someone that loves the work but doesn't want to hunt in the jungle.

Advisor Retention Through A Compensation Incentive Structure [17:33]

Michael: And so can I ask a little bit more how that compensation incentive structure works because I find it's both a broad general debate in the industry, right, how do you compensate the service-minded advisors and does that look different than the, I'll call it the traditional, at least the historical like the hunter-oriented advisors that are that are out there getting new clients?

Peter: Yeah, I mean if you look at the InvestmentNews study, the top quartile lead advisor, which is responsible for developing new business is about $300,000. And the top quartile service advisor who's not responsible for generating new business is $150,000. So we want to pay the top-quality service advisor $300,000. And their incentive structure will be a certain percentage of that will be base and a certain percentage of that will be bonus and that bonus will be weighed around retention. To the extent that they generate additional business, great, we will compensate them for that but the focus is on retention.

Michael: I just want to make sure I follow those numbers. So as you're framing it, like top quartile lead advisors who are out generating business who are the proverbial hunters are earning 300K in in the InvestmentNews study. The top quartile advisors who are doing the service-oriented work are 150. You're hiring service people, but you want to get their comp to what the hunters do, which was the 300K number. But their incentives are built heavily around retention to get there as opposed to getting new clients.

Peter: Correct. Because I believe that the 87 clients per advisor in the InvestmentNews study is suboptimal because there's an expectation. You're asking someone to generate new business that they on average cannot generate effectively.

Michael: And so is there a typical retention target that you set? Like, everybody needs to be net zero, net positive, X percent of whatever you started? Where do you actually set those targets?

Peter: It really is dependent on the segment. So we're expecting that higher quality advisor... So if you're an advisor operating in a $3 million to $5 million client AUM segment, we're expecting just by virtue of that pool of assets probably being more, the number would be higher and then those clients are typically more engaged. They retire, they have a 401(k) rollover, etc. So we're actively developing those targets based on our actual experience of what that client segment is able to do over the course of years.

Michael: And I guess the other dynamics that go with flows like my clients had tax season, have to take some money out for taxes, my clients are retired and taking some withdrawals for their actual spending in retirement, like just that's part of either what the advisor has to work to to overcome or that's part of the consideration when you set the target in the first place.

Peter: Correct. Correct. We're not going to put somebody in a hole if they had all 4 IRAs and all the IRAs were in RMD mode. We're not going to impair that advisor because of these types of accounts we gave them. So it's going to be specific to the segment and the pod.

Michael: Oh, interesting. So advisors get their own target based on where they are. So I guess you're kind of mentioning a lot around segments. Is there a standard set of segments? What are the segments? How do you think about segmenting this huge thousand-plus client base?

Peter: Yeah. Yeah. So anyone under $500,000 goes to the small case desk. Anyone between $500,000 and a million is a C. Anyone between $1 million and $3 million is a B. $3 million and $5 million is an A and above $5 million is an A+. And all of that is really around revenue. We're solving for our segments based on the amount of revenue that each client group is generating.

So as an example, clients that are in the C will get 1 meeting a year and the plan will be updated every year or every other year or if there's some sort of life event. If they are Bs, so $1 million to $3 million, they're getting 2 meetings a year, and the plan is updated every year. $3 million to $5 million, the plan is an A and they're getting 3 meetings a year with a plan update every year obviously. And then above $5 million is an A+, and we'll customize to their needs.

Michael: Are there other things that vary by client tier besides meetings per year or is that really, like, that's the anchor point around which you manage the tiering and the segments is how many meetings they can get?

Peter: Yeah. That's driving a majority of your resource allocation is how many meetings a year.

Michael: Right. Because that's what limits your capacity of advisors is how many meetings they can ultimately take.

Peter: Correct. I mean, in the end, across all the segments, I think you can go from 150 to 500 households depending on the segment for a pod of advisors. So figure anyone above, so a pod that's servicing only A+ clients is probably going to have 150 households. And the small case desk is going to service 500 households. And then you kind of solve for everything between.

Michael: Okay, that was, that was going to be one of my other questions like what is the target count? And so that's where you end up like a pod, which is basically 3 people like my senior advisor, my associate advisor, my client service manager. If you're all A-plus clients, multimillionaires, your capacity might be 150. If you're all small clients under $500,000, then your capacity would go up to 500.

Peter: Yeah. Yeah, but think about... Yeah.

Michael: And so all of that, if I'm mathing that, well, basically everybody's coming in somewhere in the neighborhood of 400 to 500 meetings per year. That's kind of where that blended rate comes out to be.

Peter: Yeah, I think 150 divided by 60 is... Yeah, I think that's probably, I think that's reasonable. How many is that a day? Let's see. 500 meetings a year.

Michael: Still like it's close to 2 per day. I mean, if you're roughly 200 to 250 working days a year, right, 5 working days a week, 50 weeks minus some holidays and vacation the rest. Like, a little over 200 working days for a lot of advisors. So if you're at 400 to 500, you're still 'only', like you're only at a little over 2, 2-and-a-half meetings a day, depending on how much vacation and such you've got.

Peter: Yeah, I mean, I think some of that number is skewed by the small case desk because it represents such a large percentage of the billing groups. But you know, that's an interesting point as we talk about acquisitions. That's actually pretty uniform across every book that we've looked at is that only 6% of the revenue represent about 30% of the billing groups. So we're not planning on losing the households under half a million. They're all important. But all of our deals are underwritten assuming that the $500,000 billing groups or lower, just leave the day that the transaction happens.

Michael: And you said, in addition to meetings, you have tried to institutionalize other touch points to clients on a regular basis. Can you talk a little bit about what the other touch points are and just how you guys are doing that and pursuing it?

Peter: Yeah. So one of the things that I did a number of years ago, which has been an amazing, amazing benefit to our business and I think can be a benefit to others, our business ultimately in the end is a customer service business. And a couple of years ago, I asked myself the question, who are the best customer service people in the world? And the most underappreciated best customer service people in the world are general managers and assistant general managers of the world's best hotels. So I hired the GM of the St. Regis in New York as our chief experience person. And it's transformed the way that we interact with clients on a day-to-day basis. And the idea is that each pod will actually get an assistant general manager-like person that's in charge of running the sub-experience of that pod all under the supervision of Brendan who's our chief experience officer. And so the goal in that experience is to...the overarching goal is to transform the experience of anyone that touches the organization, which would include clients, joint work partners, acquisition partners, home office people, anybody that ever touches us. And I think that starts with just the feeling you get or engineering an experience with the feeling that you get when you walk into a world-class hotel and realize that everything is taken care of.

So, the nuts and bolts of that are every client when they're onboarded, one of our customer service experience people actually asks probing questions about their life, their family, what their likes and dislikes are, and especially in the segments, A segments, above $3 million and above $5 million, where actually, the pod is creating a very specific marketing plan for that client, not for the segment. So we know what they drink, what kind of wine they like, we know what sport teams they like. And so when there's a milestone event in their life, we are following that with a curated gift experience that they appreciate very much.

Michael: Interesting. So that's the kinds of questions that you're asking on onboarding these like, do you drink? What's your favorite wine or beer or alcohol of choice, what sports teams you're into? And you said that your client service administrator folks ask that? So it's not coming from the advisor, that's from the service team.

Peter: Correct. Correct. The advisor might pick that information up in a discussion with a client, but we want...the advisor is not responsible for curating the experience other than the financial planning experience when they're in front of that client.

Michael: Well, that's interesting.

Peter: Everything else, we are institutionalizing and creating essentially a mass customization experience model.

Michael: Interesting. The firm is trying to institutionalize the rest of that which is why "the firm", so, like the service team is asking the experience questions, not necessarily coming from the advisor. The advisor is, I'm saying, like, just, I'm putting a lot of air quotes here. The advisors "just" give awesome advice.

Anchoring Client Relationship To The Firm Through Rotating Advisor Pods [32:15]

Peter: Correct. And there's a secondary goal to that, which is this business, our goal is to be at $200 million in revenue in 10 years, which is essentially 10X of our current state. And that business needs to be 3 things. It needs to be profitable. It needs to be sustainable. And it needs to be transferable. And, sustainability involves the brand being the anchor to the client relationship, not any 1 advisor.

Michael: And so can you talk a little bit more just about how you're trying to do that in practice? So I think that's a challenge and fear for a lot of firms is like how do you bind the clients to the firm and not the individual advisor?

Peter: Yeah. I mean, I think it's part of that institutionalized customer experience that I'm talking about, which is the advisor isn't responsible for the Park Avenue Capital experience. They're responsible for the Park Avenue Capital financial planning experience. Anything they can add above that is great, obviously. But in the end, their interaction is with their, former assistant general manager of a 5-star hotel who is, they don't call my clients, my A plus clients don't call me. They call Brendan. And because Brendan is...not that I'm not pleasant, but Brendan is overly pleasant. He will go out of his way…it starts with a yes. Every question starts with a yes. He's trying to get to yes for people. And he's warm and he's engaging and his mojo is that. My mojo is strategy planning and working with clients. His is creating an experience which transcends financial planning.

And ultimately what happens too, is we have some pods that at the end of the year will sit down and actually talk about their clients and they know some of the clients across pods. And so they'll advocate of 1 advisor saying, "I'd like to take that client this year". And then that advisor will sit second chair to the primary advisor and that relationship will transition. So the idea is in the pod system that there is a, there is essentially think of it like a, there is an opportunity for anyone in our organization to elevate. And that's the goal is to create a career trajectory for someone. You know, our business right now is 50 employees. We're going to have 150 in 10 years. So, and in some ways, these are the early innings of a start-up. And there is a great opportunity for employees that prove to be valuable outside of financial planning. So I think...

Michael: It's a humbling thing to have a multi-billion dollar firm and think of it as an early-stage startup.

Peter: Yeah, yeah. Honestly, I do think of it in that way. Very much so. So in that philosophy around employees and moving them up and to the right, inherent in that is a natural rotation of advisors through the pods. And so that to me creates more of a sustainable orientation with clients because their experience is not just with 1 person. It might be with multiple people all of who are familiar and who've been with Park Avenue Capital for a long time, etc.

Michael: Wait, help me understand that. So you're rotating advisors through the pods. Like, are we talking about at the lead advisor level, like clients are literally rotated around, or is this at the associate advisor level like associates are going to get to work on multiple pods and see how different advisors do?

Peter: So associate advisors, second chair advisors, their career trajectory isn't remaining a second chair advisor.

Michael: Right, right, right.

Peter: It's elevating to a first chair advisor. And the first chair advisor, their goal is to either elevate to bigger clients with bigger problems or take one of the many positions that emerges in our organization as we continue to scale at this pace. So the natural, the underlying, that mechanism, what ends up happening is I believe that there's more of an institutionalized relationship with the client where they still see Joe Smith and now Joe Smith is managing a group of pods, and Joe Smith maybe dips in and out of a meeting and says hello and how are things going, etc, etc. But their financial planning relationship is with the second chair advisor who now is their first chair and there's a new second chair sitting in that meeting. And so the idea is that, we don't want any 1 advisor to anchor to a set of clients for, a set group of clients for many years. I mean, in theory, I guess that could work, but then in the end, that's less sustainable because if that advisor goes, then some clients might go as well.

Michael: So indirectly, you will sort of trigger a rotation of clients as some clients start bonding to the associate advisor who eventually becomes a lead advisor and effectively split the team off into 2 teams that each now have more capacity to add clients and fill back up again.

Peter: Correct. So like, an example, when I have a second chair advisor and I'm looking to transition that relationship, and there's a follow-up, the client just moved jobs in there's a 401(k) and they want to talk to disability insurance, I say, "Mike," during the meeting, "Mike, why don't you follow up with Joe and go and help walk through the new benefit structure at his new company". And now Mike is developing rapport and running with that opportunity. And over another 6 months, more and more intentional rapport will be generated between those 2. And then all of a sudden Mike's running the meeting. And I'm sitting essentially second chair and can ride off into the sunset. Maybe I periodically dip in and say, "Hey, guys, how are things going? Great to see you. How's your family?". But I think that's the goal is to constantly redefine our segmentation. We want to continue to move up and to the right in segmentation, have our advisors who are now more experienced and are great advisors to continue to evolve and develop and work with bigger and more sophisticated clients. So this isn't a static rule.

Michael: And I guess now connecting the dots when your advisors are paid on salary with retention bonuses, but not necessarily sort of a classic percentage of revenue, they don't take a financial hit when the team splits. The pressure is on you when you split a team to like, "Oh, well, they're getting the full salary, and their team's small so we better fill this back up pretty quickly." So the pressure is on you to fill them back to capacity, but they don't take a pay cut when their team splits.

Peter: Correct. I mean, the math in this pod structure is pretty compelling, right? So like, let's say it's an average of $3 million a household and you have 150 clients. That's $450 million in AUM. At a 70 basis point asset yield that's $3.2 million in revenue. That's over 3X per advisor compared to the benchmark super ensemble. So, what does it cost to operate that pod? Let's say in that segment, you're paying a really good advisor $300,000 base and $100,000 bonus based on retention and some incentives for new business. Second chair is making $150,000. Service market person's making $150,000, maybe you have a $250,000 allocation to ops and planning, $100,000 in miscellaneous and then maybe there's a management layer. You're operating well above a 50% margin in that math.

So again, I think our goal in creating a more profitable business is to target really how many households a particular advisor is managing and then we are paying a premium in our acquisitions for households that represent the ideal for us. So imagine if the benchmark practice in the InvestmentNews study rather than having a $1.5 million average, they had a $2.5 million average, they need the same infrastructure or maybe marginally different. But they're generating on 2,000 clients another $2 billion in AUM, which is another $15 million in revenue. So we are hyper-focused on acquiring the right types of clients with the goal of really solving for a sustainable and profitable business.

Michael: And just continue to recognize and emphasize like higher, incrementally higher assets or revenue per client on the same infrastructure and service model just drops the bottom line. So if we can get slightly more affluent clients and service them the same way, it's just more profitable. You get radically more, radically higher asset clients and they tend to expect a little bit more. But incrementally more you can do it more profitably on the same service model. And I can see and that's why you have such a focus around client per advisor capacity because that team capacity and being able to have teams manage a higher capacity of assets and revenue is what drives so much of this.

Peter: Right. And part of the reason that we're paying more for a service type of role is that we want to take the best lead advisors, non-owner lead advisors across the industry and take away the expectation of them doing new business and just put them in front of more clients. And we think we can be incredibly competitive in the talent game if we're willing to pay the salary or the total comp of a top-quality lead advisor that's responsible for generating new business and just give them service advisor responsibility.

Growing The Firm Through Mergers And Acquisitions [43:18]

Michael: So in that vein and shifting tracks a little bit, now talk to us about growth at the firm level and I guess by mergers and acquisitions I know it's a big part of it but talk to us about how growth works in this world where you've got all these highly compensated, not business developing-oriented advisors, not necessarily business development oriented. So for most firms historically that literally was the growth plan. Lead advisors are supposed to get clients and grow their teams and that's the classic deal. So help us understand how growth works overall.

Peter: Ben and I, to this point before we did this acquisition in March, which was the largest advisor practice acquisition in the history of Northwestern Mutual, before we did that, we grew primarily from organic channels. And Ben and I through our organic channels, our minimum net cash loan to advisory goal for us together is $150 million a year which is a big number, but we continue to hit it every year. So the first channel is…that is why we are who we are. We have the ability to generate organic cash flows that are substantial and ultimately provide significant growth at the firm level. And then the second area is because we come in with such strong legacy P&Ls, meaning we didn't borrow to grow, we can lever that up and buy others.

And so that represents a very strategic advantage compared to competitors in that our ability to borrow...most buyers are operating acquisitions as a dividend stock where they're dependent on some of the income that's coming from the acquisition after the cost of the acquisition financing, etc. Ben and I don't need the money. So we're re-investing... we're operating acquisitions like a growth vehicle and we're re-investing the "profit" into infrastructure, people, and multiples because just through scale, our multiple, our collective multiple goes up. So by the way of example, Ben and I 2 years ago, operating separately compared to Ben and I today when we merged, along with this new acquisition, our multiple on our legacy P&Ls went up 25% just by virtue of scale.

Michael: Simply because the valuation...because there's such a size premium to the valuation advisory firms each of you running separate practices got the small practice multiple. When you merge together and become a multi-billion dollar firm, you get the multi-billion dollar firm multiple that's higher than the small individual practice multiple. And so the 2 of you together with the same assets and the same revenue and the same profits still get a higher valuation multiple simply because you're larger and there is a size premium in today's world.

Peter: Correct. And then ultimately the drivers of valuation are profit, profit margin, and those things are driven by service model and AUM per household. So that's why we're so hyper-focused on service model and AUM per household because I think ultimately the buyers out there or businesses like this are in the asset aggregation game. I think in a jump-ball scenario if we're more profitable, have a higher profit margin, have a leaner and meaner service model, and a higher AUM per household we're going to be more valuable than the person that's not focusing on that. So when we're looking at acquisition specifically we are making those decisions and paying a premium for businesses that are on board with aligning, with what we're trying to build. Meaning, we're going into a conversation around an acquisition in an early discussion gathering their book-level investment detail and giving them a 10-page report on here's the amount of mutual funds, ETFs, individual stocks. Where are your off-benchmark bets? What's your cost structure across client portfolios? What's your dispersion and performance amongst client accounts? What is the tax structure of your client accounts? And essentially putting together a recommendation and a plan which is designed to increase their valuation to us. So if you do X, Y, and Z, we will pay you this. Because the difficult work is getting alignment in clients and then more specifically investment portfolios and then in operations, etc.

Michael: Wait, and so you'll consult with your advisors you prospectively might want to buy about how to make their firm more expensive for you?

Peter: Right. Because it's expensive regardless. If we're having to reorient the clients, that's expensive for us. So we would rather have them reorient the clients. And it's a cost either way.

Michael: But I guess from the business end, if you acquire them for cheaper and then have to retrain and restructure their clients and their practice to align to you, you run the risk that doesn't go well and the deal blows up.

Peter: Correct. Correct.

Michael: If they do the work, you have to pay a little bit more, but you're buying essentially a higher quality less risky acquisition from your perspective.

Peter: Correct. And by the way, on top of that, if they say, "This sounds great, we want to get there," we will actually partner with them and they'll pay us through account splits and we'll actually become their back office. And we will give them an actual transition plan and a roadmap in order to get there and we'll actually do the work. As long as they reorient the clients, we will provide the infrastructure and support and back office to make it happen.

But there are other drivers of valuation, right? So, investment alignment is a really important one, but...so we're asking questions like at the client level. So, remember, we're not looking at valuation at the top, we're actually digging into the client data. So, when was the last time the client had a financial plan done and discussed? How old are they? What's the household AUM? What is their broader net worth? What is the net cash flow at the account level? How long have they been a client? Are they integrated, meaning do they have risk products? What's their estate planning structure? Are you having that conversation? And so all of those things go into our valuation methodology. And so the clients that check all those boxes are exceptionally valuable to us. The clients that only have 3 of them aren't as valuable. And so, we're really digging deep.

Michael: And so I'm envisioning basically like a ginormous spreadsheet that's got all of these different factors. You toggle it for each individual client. There are some formulas that show how much higher or lower your valuation multiple is, as you check "yes" es and "no" s and amounts for each of these various factors. And then it all rolls up to 1 giant valuation for the practice and the aggregate. Like, is that a characterization about this flow?

Peter: Yeah, yeah. I mean, it's, it's somewhat arbitrary, right? Because we're assigning a weighting that is valuable to us but isn't traditionally used in a valuation multiple process. So we're actually using that, what we would call an index, a valuation index to compare them against other businesses that we're looking at. So it's not directly translatable into a multiple, but it's used to compare other benchmark practices or businesses that we're looking at. And we have done extensive modeling with consultants around what we are willing to pay based on AUM, service model, etc. for various businesses. So we have a very complex financial model that allows us to toggle the average household per relationship multiple and we can forecast based on a certain pace of acquisitions, what our profit will be and ultimately what this business is worth in years forward.

Michael: So, I want to make sure I understand this valuation index. So, because you're in the Northwestern system. So there's, probably I don't even know how many thousands of advisors now, many...

Peter: I think it's about 7,000.

Michael: Okay. So you've got lots of practices you can potentially look at that might be of interest.

Peter: But there's probably less 1,000.

Michael: Okay. It's still pretty darn big market of firms. So in a world where there's 1,000 firms that you might be able to buy, if I'm understanding correctly, the dynamic of the valuation index, like you, you've got some target of, this is the multiple we're willing to pay for a good fit firm based on our financials and the model that we need going forward. So, then we might look at 5 different firms that we're considering, and each of them gets a relative valuation index waiting. Like this is 1.2 times more valuable than the benchmark practice for us. This is 1.1. This is only 0.9. And so both which one you want to buy and your price or your offer will dial up or down from whatever your original benchmark rate was in the first place.

Peter: Correct. And then we're also, I mean, so we're constantly on loan underwriting. So every year we need to redo our valuation. So we know when we're about to do an acquisition, we reorder that and know based on the size of the acquisition, the client, the client base, etc., we know what that acquisition will add to the collective in terms of the valuation multiple. So that also gives us some leeway in terms of being competitive in an offer to a business.

Michael: So then can I ask what's the benchmark valuation multiple that you use? What's the starting point that you're trying to acquire firms at that's a good, a creative deal for you if their factors are reasonably on target?

Peter: I mean, I would say depending on the client base. So that's a complicated question because typically the deal structure…the present value of any asset is its earnings, its future earnings. So most of our deals include a large percentage of upfront cash. And then in our now period, usually 2 to 3 years where we have an expectation that that advisor stays on, transitions clients to a second chair advisor, and is able to generate an accretive net cash flow. And so the natural question is, okay, what are you willing to pay? I mean, we're willing to pay really any multiple. And the reason we would say that is because if you think about it like this, let's say the deal upfront on a million in revenue with 3X. So it's a $3 million deal. But part of our earnout agreement incentivized that advisor to bring in more AUM. And let's say that our resources, we're able to weaponize them to get in different markets, win different opportunities, etc. And at the end of the 2-year period, now they're annualizing at $2 million in revenue. So they've doubled their revenue. We'd be willing to pay that advisor 6X, which is essentially 6X on $1 million, which is 3X on $2 million. Do you follow that math?

Michael: Yeah. Yeah.

Peter: So when an advisor comes in and says, "I want to get 6X". I'm like, "There's a path to 6X, for sure. If you do X, Y, and Z, we'll pay you 6X." And so I think you're, I think what is the benchmark? I mean, the benchmark in the market is 2.5 to 3 times revenue for a lifestyle practice doing $2 million to $3 million in revenue. So I think that's the benchmark. I think when you package in growth, it could be more than that.

Michael: Right. That's what I was wrapping my head around as well. So you live a, sort of like a flatline starting point is 2.5 to 3X, revenue. If they've got a growth goal or a growth target and they're willing to aim for it, essentially, you'll prepay or commit to a payment for the growth that they're going to generate with the asterisk that that's going to be on an earnout basis so If that growth does not come, you do not get those dollars. I'm not paying you cash upfront for growth you're supposed to do later, but I'll pay you cash for what you've got now and a committed multiple on the growth you generate so that if you want to keep growing, you will get compensated for it.

Peter: Correct. And we should probably touch on, just generally like who the buyers in the marketplace are like, in general, I think most advisors or a large group of them are thinking that someone on their team might buy them. And so, oftentimes when we're coming in and we're the bad guy in that scenario where the team member thinks they're potentially going to be the ultimate buyer and we're coming in and offering…it ultimately comes down to counterparty, right? Like who's who is a stronger counterparty?

So we're creating a management incentive plan in our entity, which creates a separate pool of capital for those that, for potentially G2 advisors who feel a little burned by the fact that they're not going to be buying the business and essentially aligning the G2 advisor with the seller and saying, if you guys hit certain goals over your remaining working relationship, you're going to earn your way into the management incentive pool to a business that, if we end up getting to $200 million revenue, we're talking about over a billion dollar enterprise. So that can be meaningful. Others that will earn into the management incentive pool would be valued employees. And then we're also creating like a "founder's class" for certain high-quality sellers that can provide strategic benefits to our business separate and apart from just the sale of their clients. So we're really looking to align sellers and valuable team members in the growth of the enterprise.

Michael: So help me understand though just what is management incentive plan mean at the end of the day. Is this a way to get equity? Is this simply like additional compensation dollars that are paid out of a pool to eligible people if certain goals are met? What is this?

Peter: It's a profits interest in the management company and you can be very specific with how that profit interest vests and how it's paid and what are the criteria where it's forfeited.  

So basically once that individual earns their way into the management incentive pool, it's at the valuation on a forward basis at the time they've earned the grant. So there's no taxable income to the receiver. It's a profits interest in either the operating profit and/or the exit profit of the business when we sell. So we can actually have varying management incentive pool certificates for various different employees which has different terms, different investing, and different payment in the waterfall depending on the person.

Partnering With The Right Institutions To Finance Acquisitions [1:09:17]

Michael: So now help me understand how you're financing acquisition. A lot of firms do this industry-wide. They go out to a private equity firm. They raise capital which essentially means they issue shares to a private equity firm in exchange for cash that they then use to go and acquire. You had mentioned earlier we're in constant loan underwriting, and so it sounds like you're doing this more debt-based than equity-based as some other firms have done. So help us understand just how you're financing this acquisition system.

Peter: Yeah, I mean, the equity is too valuable to give away at this point just given our growth trajectory. So, like I said, Ben and I are...because we haven't grown through acquisition in the past, we are exceptionally well capitalized and can lever up our P&L. But it's not just P&L, we are levered together and our whole lives are levered. And so when you're thinking through financing and you're buying multiple businesses, the most important loan that you do isn't your 1st one, it's your 5th one. And so because no bank is going to want to take 2nd position. If you do a deal with one bank and you hit their capacity at a $15 million deal, the next deal you do, the 1st bank isn't going to give up their position. And the 2nd bank isn't going to want 2nd position. So you have to be partnering with institutions that have capacity and the ability to meet your needs in terms of financing.

Michael: Okay, because if I'm going to do deals serially like a hypothetical number like I buy 5 practices... it costs me $2 million or $3 million each as we said earlier. So like I can get a $3 million loan and then another $3 million loan, another $3 million loan, another $3 million loan. But at some point the bank, if it was a smaller bank, they might say like, look, we're only willing to do up to $15 million in total loans to any 1 customer because that's part of the bank's concentration risk retention policy. And so you're chugging along great doing these, you get to the 5th loan. You're now up to $15 million. You've hit the capacity cap. The bank says we don't want to do a 6th loan. We can't lend you anymore. You go to a 2nd bank and say we'd like to do a $3 million dollar loan and they say, well, sure, but we need to be in the first position if your company defaults. And you say, well, I can't be in first position because the other guys with $15 million are in first position. So now either I have to refinance the whole $15 million plus the next deal with the new bank or I just have to find a bank that's got a larger capacity in the first place that isn't going to get capped so soon.

Peter: Correct. And so in our strategy, we have, we had to put, and I think this represents a competitive advantage for us. We found 2 banks that partnered together to manage our capacity. So they're sharing in the risk. So we have the ability to go many, many millions and in debt if we need it.

Michael: Okay. So you found 2 banks that would work together to split the risk so you can get a higher borrowing capacity, which means you can run this longer on the current cycle before eventually, you may still have to find the next bank that swims in bigger ponds when you get to a certain...

Peter: Yeah. I mean, remember... So most of these loans are... So in general, in the industry loans are amortized over 7 or 10 years. So incidentally that's what makes the cash flow tight for a generation 2 purchaser is that valuations haven't really moved and at 8% the cash flow becomes pretty tight. So we're paying down a pretty significant amount of principle on an annual basis. So every month as we paid on principal that raises our capacity, and our organic growth raises our capacity. So, I don't really see in our modeling in terms of like capacity. Our goal is to do at least $5 million in acquisitions of revenue on an annual basis. This year we did $7 million. If we kept at $7 million and did $150 million of net new cash flow into advisory every year from the next seven years, by 2030 we were at like $75 million in revenue at the enterprise level. So, we're going to have, in all that while we're going to have been paying down amortization. So, we've all modeled that and it still works at that pace.

Michael: Interesting because I was going to say then just you, you just have to manage in this dynamic of… I think you'd said, like closing in on $17 million of revenue this year annualizing about $20 million. So, just making numbers round and easy. Like if you could do a 50% margin on that, you basically got $10 million of free cash flow. So, that gives me a lot of both borrowing capacity because I can borrow tens of millions of dollars before I hit typical debt coverage ratios that banks want to see. But that should give me enough cash that almost by definition, if I then buy a purchase that I finance over 7 to 10 years, my business is still very, very cash flow positive. But if I want to, I should have enough free cash flow to pay down some of my debt, which then gives you more capacity next year. So, I guess, the piece I'm wondering though is if you've got that much free cash flow, like, why not just buy with cash? Like why go through the process of the debt and take on debt and then use your free cash flow to pay down the debt that you could have just not taken because you have that much free cash flow? Like how do you think about using debt versus just paying cash when you've got such a profitable base?

Peter: Well, Ben and I have 7 kids between the 2 of us under 8 years old, and we live in the New York area. So, it's an expensive lifestyle. But, yeah, I mean, I think in our view on an after-tax basis, so our, our loans are priced to the 7-year treasury, are margined to the 7-year treasury and on an after-tax basis. At the rate with which we're growing, that's a reasonable arbitrage. So, I'm not...remember, on an after-tax basis, we're borrowing at 3%, if the rate is 7% or 3.5% if the rate is 7%. So, I'm totally comfortable with that as a hurdle for arbitrage. And cash ultimately, like, we're investing heavily in infrastructure. I mean, we're going to hire a CEO, and that's going to cost us half a million dollars just to do that. We've got to hire a new chief marketing person. We've got to... there's a whole bunch of hires in our strategic plan, and we want to remain nimble and we can borrow and the hurdle is not high. So we want to remain nimble.

Michael: Interesting. So if I'm, understanding right, there's kind of a blend of this just helps near-term cash flow, right? At the end of the day, if I'm getting 7- to 10-year amortizing loans, like, it's a lot easier on cash flow to pay one-tenth of the purchase this year, than to pay all of it from cash. So, I get a short-term cash flow lift, which helps when you've got 7 kids under 8 living in that area. So, there's cash flow benefit, and then there's just sort of the pure economic arbitrage of debt financing in general. You're paying a margin over a 10-year treasury, 7-year treasury, that's adding up to a rate of about 7 after tax, that's barely 3-something. My advisory firm organically, I mean, just even markets on the AUM are growing at better than that on average over time. So, there's a risk-based arbitrage, because this doesn't have to go well in any particular year thanks to markets. But, market growth plus any level of underlying organic growth means my growth rate should be better than my borrowing costs. So, not unlike all of us that tell clients, you should keep the mortgage and stay invested, not withdraw from your portfolio to pay down your mortgage because of the arbitrage. Like, you've effectively got the same thing here except ironically, advisory firms are even more leveraged to the upside in market growth because of the operating leverage than just owning a portfolio and a mortgage.

Peter: Correct. And by the way, because of how quickly we're growing, every decision...so I'm 43 years old. Every financial decision that we make at the firm level isn't asking my 43-year-old self. It's asking my 46-year-old self. And my 43-year-old self is really uncomfortable hiring a CEO and paying them half a million dollars a year. But my 46-year-old self is saying, "Don't be an idiot. You have got to do this.". So, and I think that's…I think most advisors, I'm not investing in mutual funds. I'm investing in this. And there is going to be no better return on my savings over my lifetime than sticking to this.

Michael: And so is that literally, like, you don't take profits out to put in investment portfolios. You pull profits back into this because this is your way to grow with markets.

Peter: Correct. Yeah, and I would look at that as doubling. I would look at putting money in equities for myself personally as doubling down on equity. I mean, I already have enough market exposure in this enterprise. And it's levered. It's not just, it's like, it's market exposure on steroids because we're going to be highly levered.

Michael: So what are like, what's the biggest challenge you're finding as you're trying to just execute on growth this way?

Peter: I think there's the change management element that's challenging. You know, Ben and I have teams. So, Ben and I formally came together in 2021, and prior to that, we had just been operating as separate teams. And then we had this acquisition in 2023, which brought in a team. And so up until just recently we've been operating somewhat together, but still as 3 separate distinct teams. And so we've worked and done a lot of work on how we're going to bring everybody together to have common goals, common vision, common mission and values. And actually come up with an org structure across the organization, what roles we need to fill in the near term and beyond that. And so I think just the change management in that could just, it's not just today it's going to be ongoing because every business we buy comes with talent that we want to integrate probably. And that just requires a lot of change.

Every seller that we're working with has been the top dog and now they're not going to be making decisions. So, that is a significant…just it's a factor that occupies a good portion of our day like how do we manage that element. But we're getting experience in doing it and certainly, we've made mistakes and we'll continue to make mistakes, but the end product is what we feel is a better solution for sellers compared to whatever other alternatives they have out there. And by the way, we're not specifically just buying Northwestern Mutual businesses, we're talking, we're looking at everything. It's easiest to buy businesses at Northwestern Mutual because there's some philosophical alignment, for sure. Northwestern Mutual is a planning-first culture. And there's familiarity with the clients. So the attrition risk is much less. It's not a cross-platform change which requires paperwork. It's just a rep code change in the back office. So certainly, it's easier for us to do deals at Northwestern but we're open to doing deals anywhere.

Biggest Mistakes Peter Made Going Into The Acquisition World [1:23:14]

Michael: So, you'd commented on mistakes you made along the way. So, what were the biggest mistakes that blindsided you as you started getting into this acquisition world?

Peter: I think, in the beginning, when we started working through this, I think we moved a little quickly on some of our assumptions. And it would have been better served taking a measured approach. We were kind of learning along the way. And so there's mistakes all inherent in that. From when we were going to the finish line on closing our first deal, some issues came up in…the banks were pushing back on a couple of points that we were asking for. And we were confident we were going to get it done, but it didn't look exactly the way we had envisioned it. And so I think in some ways, I think we were overly optimistic in trying to get our first big deal done and should have been more thoughtful in some of the finer details. Ultimately, we got it done and it's fine. But we might have approached it a little bit differently if we had not been so singularly focused on getting it done and just been a little bit more deliberate.

Other things that have been, or some other mistakes, not really doing a good job in fact finding the process of the seller from March. We thought that he was using some specific tools that he had developed and were compliance-approved but weren't scalable in our model. And so after the closing, there was some friction around the scalability of that tool relative to our common practices. And so just doing a better fact-finding process early on with the seller in terms of their processes in order to not have that conversation happen, be like a postmortem point, probably would have served us a lot better and created a lot less heartache. We ended up in a good spot together, but it definitely was avoidable. You know, you want to avoid the avoidable.

Michael: So you had said part of your work and kind of the change management and bringing the teams together is envisioning the org structure and roles of the future. So can you share with us a little bit more on that end, like how are you envisioning the the org structure going forward from where you are?

Peter: Yeah, I mean, I think it starts with CEO, a CFO, not a CFO at this stage, but at some point in the future, more the traditional roles. We'll have a board, which has internal and external folks. I think ultimately, Ben and I my partner are really great at generating new business, thinking strategically in big picture. We're not great in the day-to-day. So that's part of what we've recognized early on is leave your ego at the door and hire what's best for the business, not what's best for your ego. And so we are going to be in a position or we've come together and determined that in the long or even in the near medium term the person that's running the day-to-day of the business is not us. And so the most important hire that we're going to have in the coming 2 years is going to be a CEO. But outside of that, creating more formal structure around departments, so planning, investments, operations, having key leadership roles in those departments responsible for executing what the leadership team is passing down. And we have a lot of those key leadership roles. Are we who we think will fit those leadership roles in our existing structure? But the goal of creating an extensive org chart is really to, is a powerful tool for our existing team and folks that we're trying to bring into the opportunity because we want them to see a really exciting possibility for career progression with us and ultimately those that are key players will earn their way into what we think will be an exceptionally valuable business.

Michael: And so I've got to ask like, how are you feeling about the idea of a CEO who runs your business day-to-day today at this size? Like it's a lot of net worth to have someone else running day to day.

Peter: Relieved.

Michael: Relieved?

Peter: Yeah, exactly. I think there's clearly...right now, I'm the acting CEO and so I'm involved in personnel decisions, HR issues, financial stuff. But that's not my... Ben's and my greatest asset to this business is acquisition-oriented so closing deals and being in front of clients. And no different than the allocation of our lead advisor talent. We want everybody optimized to what they're best at. And I'm not best at thinking about the payroll for January 15th, 2024. So I will have a pulse on what is going on, but what my strengths are not leadership and development, and we want to bring somebody in who brings that to the table and then some.

Surprises And Low Points Peter Experienced On His Journey [1:30:42]

Michael: So what surprised you the most about this path of building and scaling your own advisory business?

Peter: You know, when I graduated from school, it was post-September 11th, so really difficult to get a job. The first class after September 11th with a background in finance in New York. And I had a transformational moment. So I started with Northwestern Mutual. I went to Cornell and I started cold-calling Cornell people. And had some success really on helping folks transactionally. So, retirement rollovers, education accounts, life insurance, disability insurance. And then I encountered Nick Murray, who I consider myself like the prime number 1. There's no bigger disciple of Nick Murray than myself. And I read a book that was probably the most...well, two books of his that were…if you haven't read these, you should read these like yesterday. One is called "Behavioral Investment Counseling", which really arms you with a philosophy around investment management that creates sustainable relationships with clients and really gives you...

The thing about philosophy is, you can't... Philosophy is like religion. Like you can't tell somebody all the reasons to not be Jewish if they believe that they're, if that's their religious belief, so, and I think it's the same thing that's true here. And Nick Murray arms, you with a philosophy that's sustainable in any environment. And really brings the focus back to investment behavior. And so that transformed my thought process around investment management. But more specifically, he has, there's a book called "The Game of Numbers", which is a book designed for prospecting for financial advisors and that is a must-read. And there was a particular passage in "The Game of Numbers" that resonated with me at this critical moment in my life where I would have taken a back office job in an investment bank at the time, over sweating it out, riding the subway to see people that didn't want to see me at investment banks downtown. And the passage basically equated our business to a slot machine and basically draws this analogy that if you had a slot machine in your kitchen and you knew that you had to pull it, you had to pull it a couple of hundred thousand times to get a pay off of a million dollars, you would sit there unemotionally and just continue to pull that handle. And you brush your teeth, you pull the handle, you wash the dishes with one hand, you pull the handle. And, ultimately, you get paid a million dollars. And he equated that to picking up the phone or making an approach to clients in this business.

And over time, to the extent what was a really liberating moment for me was, when I recognized that to the extent you're willing to emotionally disconnect from the no and you're just willing to pull the handle, i.e. call clients or approach prospects or clients, your success is assured. Someone's going to say yes. And your ratio of "no" s to "yes" es will improve over time as you get more experience and you learn more. But I would say that that's the most surprising thing to me in this journey is that this is the only career that I know of that requires no start-up costs. The firms that we all affiliate with or the large firms will front you the cost. They'll give you a computer, they'll give you a desk, they'll give you a phone. And all you have to deal with on a day-to-day basis is your visceral reaction to the word no. And to the extent that you have a management system in place to manage your emotions around that two-letter word, you will be successful. And I'm the byproduct of that. And that to me is the magic of this career.

Michael: I love it. I love it. So for folks who are listening if you're trying to scribble down book names, we'll have this out in the show notes as well. So this is episode 361. So just if you go to kitces.com/361 we'll have links out to the Nick Murray books as well. So Peter what was the low point for you on this journey?

Peter: I mean there were many. I have a vivid memory that I referenced riding a subway down to an investment bank. So when I was cold calling and it was probably around the credit crisis. So, the world is coming unhinged. I'm on primarily a commission-based job. I didn't have much fee revenue at that point. And I was meeting with anybody who would talk to me. And I was in a suit and I had friends who had moderate degrees of success doing other things. And I was a guy that went to Cornell who's at least on the surface being recognized as somebody with a briefcase selling life insurance. And I was going down to a well-known investment bank on the subway. It was 100 degrees outside. And I got stood up and I was sweating and I was standing outside this investment bank and I was asking myself what am I doing with my life? And right around that time was when I found the Nick Murray books and, what was probably a low point in this career really turned on a dime to a high point in that I had a philosophy and a roadmap for success.

And so yeah. And then I would say another point my mom was my office manager, and she was – actually, her background was hotels and that's where I got my my idea about bringing hotel people into this business. And in 2015, she was diagnosed with leukemia and then passed away in 2016, and that was a really tough time for me. But she still is remembered and lives on with clients and my clients from that time and is fondly thought of and remains in the back of my mind and I know she'd be proud of what we're building. So that's part of my motivation too is to make her proud.

The Advice Peter Would Give His Former Self And Younger, Newer Advisors [1:37:53]

Michael: What else do you know now you wish you could go back and tell you from 10, 20 years ago?

Peter: Oh, man. I would say I still don't think I'm dreaming big enough and I'm talking about 10X-ing our business in the next 10 years which is a monumental goal. So I would tell myself, don't underestimate what you can do. I'd go back to Nick Murray's book and really, and still, to this day, I mean, I posted on my desk, there's prospecting and there's avoiding it. Those are the two activities in this business and I just constantly remind myself that anything you're doing that's not being in front of clients and pushing the ball forward is avoiding the important work that pushes the ball forward. And that's incidentally why I feel like I'll feel liberated once we hire a CEO for this business is I'll be able to...that post will resonate again. Right now, less prospecting and more day-to-day. So I'm looking forward to getting back to that time where I'm doing what I love to do.

Michael: And any other advice you'd give younger, newer advisors getting started today?

Peter: Yeah. I mean, I'd go back to my original thought which is don't ask your 25-year-old self today whether you should make that infrastructure or hiring decision. Ask your 28-year-old self. Of course, that requires growth and a relentless forward momentum in pushing your goals and your business forward. But I've always been a proponent of the good kind of stress. So putting myself in a position where I'm uncomfortable, constantly uncomfortable but in a good way because I'm excited about what's ahead.

Michael: So as we wrap up this is a podcast about success. And just one of the themes that comes up is the word success means very different things to different people. And so as someone who's already built what I think anyone would objectively call a very successful advisory business as you're coming up on $2.5 billion, $3 billion of assets and $15 million, $20 million of revenue. So the business is in an amazing place. How do you define success for yourself at this point?

Peter: Yeah. I mean, my success is about experiences. I've always placed a high emphasis on creating great experiences for my family and myself, my friends, and really great experiences cost a lot of money. And doing them off and cost a lot of money. So I think I've always been an adventurer. I traveled to Cuba before it was cool, and there was a legal way to go to Cuba. I have a certificate in photography, so I enjoyed taking pictures and traveling the world and doing that. So I think life is all about experiences, and to the extent that I can bring that to my loved ones and friends and do it in a regular and in a big way, that's really what drives me. Not money specifically but experiences that require it.

Michael: Very cool. Very cool. Well, thank you so much Peter for joining us on the "Financial Advisor Success" podcast.

Peter: Yeah. Thanks so much, Michael for everything you do and we all very much appreciate this podcast and the work that you do. So thanks.

Michael: My pleasure. Thank you, thank you.