#FASuccess Podcast Ep 004: Deb Wetherby On Building The Team Of A $4.5B RIA Serving HNW Clientele

What You’ll Learn In This Podcast Episode

• The staffing and service model of a $4.5B RIA that serves ultra-high-net-worth clientele. [2:00]
• Why establishing and "managing" culture becomes crucial as an advisory firm grows. [9:41]
• Wetherby’s onboarding process for new staff and how they strategically and intentionally promote their business culture. [12:28]
• The annual business planning process and the annual feedback survey used to identify development opportunities for the firm’s employees. [12:28]
• Why Deb recommends writing annual business plans and the rationale behind limiting business projections to 3 years. [17:00]
• Deb’s journey into financial planning, and racking up credit debt while launching her own independent RIA from scratch. [25:24]
• The challenges her firm has faced that became inflection points as the firm grew. [48:15]
• The specific challenges and advantages women face in owning a financial planning firm. [1:00:14]
• The distributed ownership structure for Wetherby shareholders that maintains firm independence without concentrating ownership. [1:06:27]
• What drives Deb to grow and how she defines success. [1:08:47]

Want to listen to more episodes? Click here to check out the Financial Advisor Success podcast archives, with all our prior episodes!

Resources Featured In This Episode:

• Wetherby Asset Management
• The Five Dysfunctions of a Team by Patrick Lencioni
• Essentialism by Greg McKeown
• Lean In
• Building a One-Page Financial Advisor Business Plan
• Tamarac Advisor View
• Finding A Financial Advisor Mastermind/Study Group
• What Comes After CFP Certification? Post-CFP Designations...

Full Transcript: Deb Wetherby On Building The Team Of A $4.5B RIA Serving HNW Clientele

Michael: My guest on today's podcast is Deb Wetherby. Twenty-three years ago, Deb founded what has now become one of the largest independent RIAs in the country, with nearly 4 and half billion dollars, and her management 66 team members, and a whopping $10 million client minimum. But what makes Wetherby Asset Management fascinating to me, though, is not just the size of the firm or the affluence of its clientele, but the way it's grown its team.  On the podcast you'll hear how Deb's firm has created an incredibly rigorous hiring process, with multiple interviews, outside experts doing personality tests, and an

On the podcast you'll hear how Deb's firm has created an incredibly rigorous hiring process, with multiple interviews, outside experts doing personality tests, and an on boarding process that includes one meeting just to talk about the culture and values of the firm, and another that guides employees about what they need to do to be successful in the firm, culminating in what are now 17 owner advisors in the firm. You'll also hear about how Deb struggled with wanting to feel like she was part of the team and not separating herself out as their leader, and how she ultimately found she had to focus on developing her own leadership skills to move past that.

And that despite the size and success of the firm today, it actually took her three years of growth just to break even in the new RIA business, and she actually wrapped up credit card debt along the way, just to stay afloat, to build what ultimately is today a very large and successful firm. And so with that introduction, I hope you enjoy this episode of the "Financial Advisor Success" podcast with Deb Wetherby.

Michael: Welcome, Deb Wetherby, to the "Financial Advisor Success" podcast.

Deb: Thanks, Michael, I'm happy to join you.

The Staffing And Service Model Of Wetherby Asset Management [2:00]

Michael: I'm excited to have you on the podcast to talk about this rather tremendous, sizable advisory firm that you've created out in San Francisco. So for those who aren't familiar...Well, let me let you, actually, just describe your advisory firm. How would you explain, in our advisory industry landscape and terms, what is Wetherby Asset Management?

Deb: We're a fee-only investment advisory firm that works primarily with wealthy individuals and families. Our minimum client is $10 million, we have offices in San Francisco and New York, our team is about 66 people, and we manage between 4 and 4 and a half billion in assets.

Michael: So that's a pretty large, sizable number by any means. Do you know about how many clients is that across the firm? With $10 million minimums and 4 and a half billion, so, like, 400 or 500 kind of size?

Deb: Yes, it's about 500 clients. So we do have legacy clients from a time when our minimum wasn't what it is today, and so we do have clients below that $10 million, as well as clients above.

Michael: And what do you do for clients? I mean, I think there are even a few people listening to the podcast who are probably wondering, what do you do for a $10 million client to get them to give you assets and pay you? What does that look like?

Deb: Well, we really consider ourselves their financial partner, so we try to be their first call on any decision on the financial side of their lives. So the core of our work centers around managing their investment portfolio, but to do that work, we really need to understand what their goals and objectives are and what's important to them, so that we can support and enable what the role of wealth is in their lives.

Michael: So, what does that look like from a fee schedule perspective? What do you charge people that have $10 million? Is that a flat retainer fee? Do you still do AUM fees like a lot of other firms?

Deb: We actually have both arrangements with clients -- we have retainer arrangements as well as AUM arrangements. And our fee schedule is a sliding scale: the top end of the scale is 75 basis point, and the low end of the scale is 15.

Michael: But for you, the top end of the scale is 75 basis points. That just seems like anybody up to $10 million is basically a flat 75 basis points. Is that when the first breakpoint actually hits?

Deb: The breakpoint is higher than $10 million, but up to $10 million would be 75 basis points.

Michael: So what does a client get at -- doing my math here -- $75,000 annual fee is kind of a starting point for working with Wetherby. Now, I can kind of do the math -- like, 500 clients and 66 people in the firm -- so there's a lot of people. I mean, there's only 8 to 10 clients for every staff member, so are you just regularly meeting with clients? Are you regularly talking to them? What does that service look like throughout the year?

Deb: We do have discretion over their investment portfolio, so we are managing their portfolio on an ongoing basis. In addition to that, we're meeting with them and talking about any issues in their financial lives, whether it be an investment issue, a tax issue, an estate planning issue, an insurance issue, or a philanthropic issue. And if we don't have the expertise here on staff to help with that issue, then we'll engage someone outside the firm to help with that issue.

Michael: And how often are these things coming up? Are you meeting with clients once or twice a year? Do you, like, a very rigorous, "Hey, you're coming into our office every quarter"? Is it more or less often than that?

Deb: So we let clients set the frequency of how often they want to meet. So we have some clients who like to meet quarterly like clockwork and we have other clients that want to meet less than that, or if they've got a lot going on, they might want to meet more than that. So it's really, our whole model is driven around customizing our service levels and our offering, to meet the needs of the client instead of asking the client to fit into our model. And so, it's really about doing as much for them as they want and need.

So the exception to that is, we don't hire staff for people, we don't prepare tax returns, we don't draft legal documents. We do meet with clients and their estate planning attorney, we do review tax projections, we have sat in on meetings with people hiring staff -- so we're very involved in our clients' lives.

Michael: So when the client is hiring their CPA, you might actually sit in to help them with the interview, to figure out whether this is a competent CPA?

Deb: Yeah. In fact, we might generate the list of three firms that they're going to talk to and set up the meetings and sit in on the meetings, and then we might come prepared with a list of things for the client to be thinking about and asking about, and then help with evaluation in that process.

Michael: I don't know, do you call them financial planners or wealth managers? How many people are actually doing that work with clients versus the investment side of the business, and what I'm sure is kind of a sizable operations team, just to keep that many clients and advisors running? What is sort of the division of the firm look like in staff roles?

Deb: So we have six people doing research, and some of those people also have client interaction and client roles. Then of the remaining 60 people, two-thirds work directly with clients in some form, whether it's in planning, in investments or in operations, and about one-third is support, operations, and administration that's more general.

Why Establishing And "Managing" Culture Becomes Crucial As An Advisory Firm Grows [9:41]

Michael: So that's actually a very large percentage of staff team that are outward facing with clients. So from your perspective, like, when you're in an environment where any one client -- at least for the folks that are coming on board now, you'll start to paying your $75,000, and it goes up from there -- I'm just curious, how do you get comfortable with having that many different staff members all interacting with clients? It's a lot of different people for some staff member to make some unfortunate comment that makes a very sizable client think about firing you. Is that a worry for you, with that many different staff interacting with such high-net-worth clientele?

Deb: Well, it's a worry conceptually. I think we've thought a lot and talked about, as a team, the risk to our business of having a bad employee, but practically I have the gift of having the best team I've ever had. I really have an unbelievable group of people here, and the most common bit of feedback I get from people is the comment that no matter who they talk to at the firm, that person is always professional and trying to help them. So we, when people join the firm, I meet with every single person and we have culture and values session, which I tell them they're there to drink the Kool-Aid, and we spend a lot of time talking about what our values are as a firm and why they are what they are, what the important things are.

And then we also do another session that our COO runs, which is how to be successful at Wetherby. And it's about taking ownership for your work and being an honest and open communicator, and it's a whole list of things that we tell people, "This is your path to success." So between that and the culture and values, I think we really try to set out, clearly, what our culture is and what the expectations are for people to be successful here.

Wetherby's Onboarding Process For New Staff And Subsequent Reviews [12:28]

Michael: And so literally, every employee that comes on board goes through this culture and values session, and then the second session about...with you, I think you said in the second session about essentially how to be successful at the firm with your COO, that's just like a standard part of the onboarding process?

Deb: Yes. It's part of our training schedule. And we learn to do this as we got bigger because when we were smaller, a lot of the information...you know, culture gets transmitted more organically but as you get larger, you have to be explicit about culture or it doesn't get transmitted. Or it can get transmitted in a way that you don't want. And so we've learned to be very explicit about these things and to do it right up front. And then we also, with people, we have a regular feedback process, both midyear and year-end feedback sessions, and once a year we have people set goals and also do an individual development plan.

And so all of those things are opportunities to coach people if they're having an issue that needs input or coaching, or to gather feedback, or to really mentor people on their path. And so we've had great success growing people up through the firm and we really feel like our people are our biggest asset. And so we spend a lot of time and energy thinking about, if we're going to ask a lot of them, how can we, on the other side, bring something to the table? So we do training, we do coaching, we do all kinds of things to really be a good partner with our employees so that they both know what's expected, but also have a way to grow and develop.

Michael: So is there a certain size of the firm where you felt the need to instill this kind of infrastructure around hiring and development? Was it, like, "Hey, we were fine at 20 people but it became a problem at 40," or were you fine at 40 but it became a problem at 60? Or was there something else that pushed you down the road of creating this kind of structure for taking on employees, and then reviewing them?

Deb: Well, we really started to notice, at around 20 people, that we had to be much more explicit about lots of things, but I would also say that our COO, Steve Janowsky, who's just an incredibly talented person, he's really helped bring some of this structure to the table, and it's sort of his superpower is process and structure. And that, combined with the fact that we have an annual business planning process -- so we solicit ideas from everyone on the team. We also do an annual culture and values survey, which is, these are our stated values.

Are we living up to what we say we believe in? And so between the feedback we get through the survey and also the ideas we get in the business planning process, we get a really good picture of where we are and what our development opportunities are as a firm. I think a realistic picture of where you are currently is essential to a good planning process and...

Why Deb Recommends Writing An Annual Business Plan [17:00]

Michael: From the business perspective, a good planning process.

Deb: Yeah. And we've actually written a business plan every year of our existence, so if there's one thing that I can recommend for you guys out there listening, it would be a written business plan every year. And it doesn't have to be a three inch thick anything, it could even be a list on a sheet of paper that says, "These are my goals for the next year." But I think it's crucial.

Michael: Just for creating that, is a focused kind of thing? Is it just, it helps to think in advance of stuff rather than reacting? What is it that makes the business plan so defining for you?

Deb: Well I think there's power in taking a realistic look at where you are, there's also power in thinking about where you want to go and thinking about what your vision is, and then the plan is simply the way you get from where you are to where you want to go. And I think without the discipline of doing it each year and without the discipline of writing it down, it's easy -- in our lives which are full anyway -- it's easy to sort of think that you've thought about it or think that you've sort of done it in your head, when you really haven't. There's a discipline about actually doing it on paper.

And there's a lot of science that says when you put things in writing, it clarifies your thought and it gives you momentum and motivation, and it helps you follow through, and then you can see what you've done. So there's a fair amount of research that putting things in writing makes a big difference, but I think the planning itself, for us, it has helped us be proactive rather than reactive, and as opportunities have come up for us, we can evaluate them in the context of where we've already decided we want to go.

And so it's, instead of letting fate or opportunities determine our path, we determined our path, and then opportunities either fit in that or didn't, or we adapted. In some cases we had a vision, and an opportunity came that we weren't expecting and we said, "Hey, this wasn't on our one-year view but it certainly is in our five-year view." And so we're adapting.

Michael: It's long struck me, in doing regular business planning across my business lines as well, that there's an ironic challenge that arises with having a business that's successful, which is the more successful it is, often the more opportunities it attracts. And you know, Greg McKeown's fantastic book about this called "Essentialism," where he makes this point that often the success that gets you underway ultimately becomes the downfall that prevents you from moving forward, because the success brings more opportunities and the opportunities start defusing your energy and focus.

And then suddenly you're doing so many different things, you're drowning in your business and you're not growing and moving forward anymore and you can't figure out what happened. And the answer is sort of the success itself, the focus that created the success eventually brought so many opportunities, that you lost the focus that created your success. And that I find regularly, at least for me, the most helpful thing I get out of crafting a business plan about where we want to focus over the next one and three years, is that it's a filter to figure out what to say yes and no to when opportunities come along.

Not that you can't adapt it, as you said, but that if there's no plan, it's really hard to figure out what to say yes and no to, aside from, hmm, that sounds neat in the moment, which is usually not a very good strategic filter.

Deb: Yeah, I totally agree. And it also helps you prioritize and it helps you allocate resources, because you have made a decision in advance of what your goals and objectives are, both short-term...You know, we used to do a one-year and a five-year plan, but like you, we have now gone to a one-year and a three-year plan.

Michael: Yeah, I have to admit, I've actually...you know, from my end, I'm a huge fan of a one-year plan. I really like doing three-year plans because it just gives some context to sort of where we're aiming and where we're trying to push. And I have to admit, at least for me, I really don't find strategic plans beyond three years to be very helpful, because just too much changes. I mean, it's a little bit of a function of the growth rate.

The slower growth is, the easier it is to project a little bit further out, but the faster the growth rate, I find the less useful it is to project more than beyond about three years, because the business changes too fast, and frankly sometimes the world changes too fast too, to try to project that far out and draw meaningful conclusions about where to focus.

Deb: Yeah. We finally decided we just couldn't see that far out, and so it didn't make sense to do those extra years. And the reason we continue to do a three-year plan is that there are things that we want to do that are multiyear initiatives, and so...

Michael: Can you give an example of what fits within a multiyear initiative in your business planning?

Deb: So, in the last few years we've done a number of big things -- we've rebranded, which we moved both our San Francisco office and our New York office -- and because, as a part of the move, you're going to have to reprint all your materials anyway, it was an opportunity to rebrand. And rebranding, for us, wasn't something that we undertook lightly, because it was all our materials, and our website, and our everything. So that was the move. We started planning our move more than a year in advance, and we started all the branding and planning for that more than a year in advance. So that was one we're changing our reporting system, and that's been a multiyear thing.

Michael: What were you using, and then what are you going to?

Deb: We were using Advent Axys, and we're moving to Tamarac's Advisor View platform. And it took us almost a year to write our requirements document, to interview all the vendors and make a vendor selection, and to start to plan the migration -- and the migration is going to end up taking more than a year. We've got 26 years of history, and so there's been a lot of data validation to go through. You know, those things take people's time and attention and take resources. At the same time, people have their day jobs, and so...

Michael: The clients don't stop calling while you're doing switchover from Advent to Tamarac.

Deb: That's right.

Deb's Journey Into Financial Planning [25:24]

Michael: Take us back. How did you get started in this industry initially? Did you come straight into financial planning and investment management out of college, or were there some steps in between for you?

Deb: So I started working when I was 14, so I've done lots of different things. I really started working because I wanted to take a trip to the Philippines to visit an exchange student that lived with my family, and my parents said I could go if I earned the money. And so I started working and my father said that I could invest alongside him if I wanted to, in order to make my money make money. I think his secret plan all along was to introduce me to the markets, because I have always loved markets and economies and numbers and currencies. Growing up, my family spent some time living overseas, and so I was exposed to a lot of that pretty early.

So I started investing when I was 14 also, and it's really what started my lifelong love of the markets, and really, everything that I've done since then has, in some way or another, been because of my desire to work with the markets. So out of college I was a double major in accounting and finance, and I studied accounting because I felt like it was the language of business, and if I knew the language of business, I would understand business better. I started out of college working for Pricewaterhouse, eventually I got the experience to earn my CPA. Really did not want to stay in accounting but recognized that if I was going to do something else, I really needed more education, so I went back to grad school and got a MBA in finance.

And out of grad school I was fortunate to be hired by Morgan Stanley in their private client division. You know, at the time, Morgan Stanley was a small, private, very high-quality, top-tier firm, and I really felt like I had really made it and was really thrilled. And I got to Morgan Stanley and they had a fantastic training program. I spent a year in New York, where I got to rotate through every desk in every department at the firm, and then came back to San Francisco to work as a broker for high-net-worth individuals here in San Francisco. And the reality was, it was a great job, but just not one that I'd like. I hated being on the sale side, I really...

Michael: I was going to say, you've used the word broker more than once there. I know you know the industry well so I'm going to presume you're using that term quite deliberately. So, meanwhile, at the end of the day, the challenge was still, you were working with high-net-worth folks in a private client group. At the end of the day, the responsibility was still to sell the securities and the company's inventory at the end of the day. That was the job, or was it at least a little more broader than that?

Deb: It was broader than that. I mean, Morgan Stanley never asked us to do anything that crossed the line. That time, we're talking about the mid-80s, there was no other model for working with wealthy individuals other than being at a trust company, being at an individual strategy manager, or being at a brokerage firm. I mean, none of the brokerage firms had consulting groups or there was no...The RIA business was in its real infancy, it was really just starting, so the people who were working with wealthy individuals and families at that time, were all either working for a trust company, or working for a brokerage firm, or working for a single strategy type manager.

Michael: So, you were at Morgan Stanley, then, for a couple of years that you...

Deb: I was there for...

Michael: ...stayed through that?

Deb: ...three years, and I woke up one day and realized that everything about that world revolved around success being defined by money.

Michael: Money was how you kept score of who was the best broker on the floor?

Deb: Yes. So, you know, you could be a very poorly behaved individual, but if you were a big producer, your behavior was tolerated. I did not grow up in a wealthy family, and I grew up with a lot of messages around money like, "Money's a tool," and, "Money doesn't make you who you are, your character makes you who you are." And so all of a sudden I was in this world where there was one yardstick, and the yardstick was money. Frankly, it just was so...it was such a bad fit for me and who I am, that I decided I either have to make money the most important thing in my life, or I have to do something else.

I chose door number two, I chose to do something else. And I took a year off and traveled, and during that year off I realized it really wasn't the markets, it was my role, and that if I could find a way to work in the markets where my role was more like my role was as a CPA, that that would be nirvana for me. And so I started to look for what could I do where I would sit on the same side of the table as the client and have no conflicts of interest, and really be their advocate and be able to customize to their needs, you know? I started looking around and found some things that were close, but not exact.

Michael: So you looked at other investment management firms...

Deb: I looked at other investment management firms, I looked at institutional firms that didn't work with individuals, and I went to them and tried to get them to start a division working with individuals, I went to other small firms that did both fee and commission-based stuff, I went to the consulting firms. And ultimately what ended up happening is, I went to a small firm that did both fee and commission work -- it still wasn't the right thing for me -- and they also had a very different way of running their business.

And so when I look back on it, it was really a gift because it really made me realize I have very strong views about what it is I want in terms of an environment to work in, and what it is I want in terms of the way I work with clients -- and I'm not going to be happy until I try that. And if it doesn't work, I'll get a job. Because I was employable, I knew I was employable. I wasn't looking for a job, I was really trying to find my calling.

Michael: And so, I find with a lot of entrepreneurs in general that go on and start businesses, how often it comes from just that drive of...now I would call it a vision. I know there's a certain way that I think things should be done. I can't find a way to do the things the way I think they should be done when I'm working in various jobs, so the only way I'm going to see things done the way that I think they should be done is, I've got to make a firm and do it myself. And then that's kind of how it lands.

So was that your jump, that ultimately you left Morgan Stanley, you took a year off, you got a sense of what you wanted it to look like, you interviewed a whole bunch of firms, you couldn't find anybody that was ready to do that, and so you said, "Darn it, I'm just going to found my own firm"?

Deb: Yeah. I mean, there was a step in between which was, I really was reluctant to start my own thing...

Michael: I was going...

Deb: ...because I...

Michael: ...to say, it took you a year, a year and a half here, from when you left Morgan Stanley, to go out. It doesn't sound like you were excited and enthusiastic to say, "I want to start my own business from scratch."

Deb: No, I really thought it was kind of a crazy idea, and I was looking for...you know how we all collect evidence to support our beliefs. I was really looking for evidence that this was a crazy idea. And so I went to some of my clients who had been my clients at Morgan Stanley and who I still stayed close to after I left, and I said, "You know, I'm thinking about doing this." I sort of laid out the whole thing, and fully expecting them to say, "Oh, that's really a nice, optimistic idea but nobody's going to go to a startup firm with no history or track record or anything."

Michael: Right, you got to have the Morgan Stanley name at the top of your business card if you want to get people.

Deb: Right. And that's what I was really expecting to hear. All of these clients that I...these clients from Morgan Stanley that I was close to, that I went to, they all said, "Oh my God, that's such a great idea. We're in."

Michael: So your clients pushed you over the edge.

Deb: And so was, like, "Oh no, now I have to do this."

Michael: Yeah. You peer pressured yourself into starting the business because you told your prospective clients about it and they said, "You should do it," and then you couldn't back down?

Deb: Yeah, exactly.

Michael: So what did that leap look like? So I guess you landed as an independent RIA. Did you start out from scratch like, I want to do asset management and financial planning, and work with high-net-worth clients? Did you start it then with the vision of what it is now, or did it look different initially?

Deb: When I started, I did not pay myself for three years. I gave myself three years to make it work, and I should have given myself two because it took almost exactly three years. But I started totally from scratch in a rented office space, making every single decision and doing everything that needed to be done. And deciding from the get-go what the portfolio management software should be and how the stationery should look -- and all of that right from the start.

Michael: And so when you say it took three years, was that three years to get just cash flow positive for business expenses, or was it three years just to get back to the number you used to earn when you were an employee?

Deb: Three years to get cash flow positive.

Michael: Ouch, okay. And then you got to take something out, which I would imagine was probably not a huge number in year four either?

Deb: Yeah. I mean, I started working with clients with $100,000 minimum and grew it from there. I was doing consulting projects on the side, and I was teaching and I was doing other things so that I wasn't just living on credit cards, but you know, it was really just a total dive in. And for every decision that I made, I really tried to make the right long-term decision, I really tried to approach things with a lot of faith that it would work, and also it was really important to me to have a high degree of both professionalism and integrity.

And I decided, if I'm going to go through the pain of creating this, I really want to create something that I'm proud of, and something that is a place I want to come to work every day, and where I love the people that I work with, and I care about the clients that I work for, and that it's team-oriented, collaborative environment. I mean, I had a whole list of things that were sort of my perfect world, and I just decided this is my opportunity to create my own world and I'm going to go for it. And if it doesn't work, I'll get a job, and if it does work, I will live in my own perfect world. Which is, you know, I have to say, a pretty great thing.

Michael: Yeah. So was that a driver for you, the idea that I can always fall back on getting a job, I am employable, I have experience in a CPA and all that? Was that basically the fallback plan? I'm going to try this for three years, and if not, I'm going to go get a job.

Deb: Yeah. I mean, you know, by three years in I had my CFP, my CFA, I had my CPA -- I knew I was employable. But also having worked since I was 14 and having come from a big family where you learned to do lots of different things, I just have an underlying belief that if I needed to drive a bus to support my family, I would drive a bus and I would be a really great bus driver. I don't feel like things are beneath me or that I need to operate at some superhuman level. I felt like I would do what I needed to do ultimately to support myself and my family if I ended up just with a job.

Michael: How do you get through three years of making no money? That's 1,000 days. Just 1 day after another for 1,000 days of inching towards just break even, right? Not even, I'm going to actually feel like I'm earning a fair wage for all this work, just at least the negative cash flow will stop.

Deb: So I had some savings, I did some consulting work, I did some things like teach. Did not pay a lot, but I also had really cut my expenses to the bone, so I did not have an extravagant lifestyle. And I did, at the very end, I did use credit cards.

Michael: So you were actually racking up debt and negative cash flow by the end just to keep the business going?

Deb: Yeah.

Michael: Didn't you have a financial planner to tell you that's a bad thing to do?

Deb: It actually turned out to be a really good thing to do. I was smart about how I moved it around, and so it didn't end up costing me a lot. I did not want to raise outside capital, and by the time I felt like it was working and I felt comfortable with a notion of raising outside capital, I didn't need outside capital.

Michael: So what happened next? You get three years in, at least it finally starts turning cash flow positive. Where are your clients coming from? Where are you finding people? It's what, 1992, and you're knocking on doors in San Francisco?

Deb: Well, you know, the clients come from the same place they come from today, so our first and best source of clients has always been our existing clients. So they were very good to us in terms of referring people to us. We did a lot of work with centers of influence, so meeting with a lot of attorneys and accountants. Remember, we had the advantage of this being a new model and approach -- fee-only advisory work -- and so we had a real differentiator. And so we could meet with attorneys or accountants and just let them know that this was now out there and available to people.

So we got a lot of referrals from accountants and attorneys, and especially those who were connected with our existing clients, who saw our work sort of up close and personal. And then we did a number of things -- I would teach seminars, or speak at an investment club or other venues, and that was always really helpful in terms of building connections and bringing in business. You know, it just slowly built over time, and I would say it was much harder to go from $200 million to $500 million to $1 billion, than to go from $1 billion to 2 and a half.

Michael: Interesting. Well, I hear the first $1 billion's the hardest. So I guess, let me ask this. What is it that made the second $1 billion easier than the first? What changed?

Deb: Larger clients felt more comfortable joining us once we had a certain amount of years of history, and also a certain size asset base.

Michael: And I know we've seen this in the industry benchmarking studies for a while now, that the largest independent advisory firms really do seem to have the largest average client size. There's almost this linear projection that the larger the firm, the larger its average client size tends to be. And kind of support of this, the larger the firm, the more affluent people seem to be confident in the size of the firm.

Deb: Yeah, I mean, a lot of people don't want to be the largest client, and they also want to know that you are comfortable and capable of dealing with the issues of clients at that level. And there are different issues. I mean, when our clients were smaller, we dealt much more with, is their asset base sufficient? Now that our clients are larger, we deal much more with wealth transfer, whether it's to heirs or to charity. And so there are different sets of issues based on different size clients, and so it's a legitimate thing for a large client to think about.

Michael: Is there a particular crossover you find where those conversations and dynamics tend to change? Is that $5 million of net worth, or $2 million, or $10 million, or $20 million, where the conversations and the service set starts to shift?

Deb: Well, I guess I don't know because I'm not having the conversations with a million-dollar client like I used to, but I would say part of the reason we set our minimum where we did was because our portfolios now are more endowment style portfolios, and that's more appropriate for a client that has a larger asset base where they can meet minimums on private investments and are qualified purchasers. And so for us, we found that it is important that there is a match between not just your capabilities, but your offering and your target client.

Challenges And Inflection Points As Deb's Firm Grew [48:15]

Michael: As you look back at this path from first employee...well for owner employee yourself, just trying to get to break even after 3 years, to the subsequent 23 years or so since then, where it's gone to 4 plus billion dollars, almost 4 and a half billion dollars under management, were there particular walls or challenge points that hit you as the business grew and evolved? Or was it just kind of a slow and steady, we just kept accruing clients and accruing clients, and you looked back after 26 years like, wow, there's 4 and a half billion dollars and 66 people here now?

Deb: Boy, it would be great if it was just a easy, slow, steady progression, but one of my favorite comics is this one that is, "What we think success looks like," and it's this straight, upward, sloping line to the right. And then the other chart is, "What success really looks like," and it looks like sort of a hairball, you know? Where the line goes all over the place. And I would say there were problems and challenges all the time, and there still are. And that, to me, that's just the nature of life and the nature of a business that is growing and evolving, and solving problems is part of what managing the business is really all about. I mean, I just can't imagine that that will ever go away.

Michael: So are there particular kind of walls you hit or problems that you had that you work through that were inflection points for you or for the business? Are there any that stand out in that path?

Deb: Yeah, I would say one of the big things was me. I resisted being a leader, I didn't want to separate myself and I wanted to be one of the gang, and for a long time I resisted sort of this mantle of leadership. I finally realized that it was crazy that I was resisting being the leader -- I was the leader -- and I needed to, first of all, learn about leadership, and second of all, I needed to be a very intentional leader and really think about what kind of leader I wanted to be.

And I think my resistance of being a leader was having this notion of leadership as very hierarchical, and once I figured out that I could be...I didn't have to be hierarchical, I could be collaborative, I could be inspirational, I could be my favorite Jack Welch saying -- I think it's Jack Welch -- "Be the leader you would want to follow." Once I realized that, things went a lot better.

Michael: So did you literally go to some kind of leadership training? How did you work through this?

Deb: Yeah, I'm a book person, I'm a voracious reader, and so I just started reading a lot about leadership. And then whenever I went to any conference, instead of going to the technical sessions, which is what I'm really drawn to, is...

Michael: Oh yeah...

Deb: ...building my...

Michael: ...CPA, CFA, CFP.

Deb: I know. Building my knowledge, I would start to go to all the leadership sessions. It would have been a lot easier to take a course, but it just took me a while to embrace my role as being a leader. Which I know sounds crazy, having started this firm and grown it, but I think...until I did that, I think I was a barrier and a challenge. So I think our other challenges -- you know, we have certainly had people challenges over time, until we really learned how important our culture and values are to us, and we really started to screen for a culture and values match, as well as a skills match. And we finally realized, if you get smart people, you can teach them skills, but it's very hard, in adults, to teach them culture and values if they don't already have resonant values.

Michael: So this is the old, hire for culture and teach the skills later?

Deb: Yeah, I think the ideal is both. You want skills. But if I have to choose between skills and values, I choose values and teach skills. We had some heartache until we learned this lesson, because if you have people who aren't a values match...I told someone one day, speaking about someone who had been on the team, who wasn't a values match, "It was like being trapped in a tent with a mosquito, where you just can't..." It's like you know it's there and it's buzzing and there's all this noise and you can't rest, but until you get the mosquito out, you don't get any rest. And it's sort of like that when you have people that are not a values match -- until you find a better home for them, you just can't get rest.

Michael: So how do you find and identify these people? Is there a particular process or strategy or something? How do you get values match people? I feel like it's one of those things you say, but how do you do that?

Deb: We have a very exhaustive interview process. So people go through three rounds of interviews -- and this is even entry-level people go through three rounds of interviews. So the third round includes people like me, I try to be in the interview process for every finalist, but by the time they get to me they've probably met 9 or 10 people on the team. And then if we're thinking about making them an offer, we also do testing.

Michael: What kind of testing tools do you use?

Deb: We have an outside consultant who does it, and she does four or five different things but it's part of what she tests for. It's not just decision-making, but it's consistency, integrity -- those kinds of things. And so we have found, over time, that that sort of broad interview process, by the time someone comes to work here, we have a pretty good sense of who they are and that they are a fit.

Michael: You've mentioned, on the leadership side as well, in that you were a book reader. And so I'm curious, are there particular authors or books that were transformative for you in that process?

Deb: In terms of the leadership, I think the one that resonated the most for me was...I think his name is Patrick Lencioni.

Michael: He does "Five Dysfunctions of a Team," I think, and a couple of books like that.

Deb: Yes, and you know, for some reason his work spoke to me. I've collected quotes my whole life, and so I started really looking a lot at quotes on leadership, and then that would lead me to someone who I might want to look at or learn about. I also did things like a group of friends that gets together once a year, and we talk about our lives and set goals and laugh and play games, and a number of them -- almost all of them -- have had very senior positions at either public or private companies.

Michael: Effectively a study group of other people who are executives or business leaders?

Deb: Yeah. And now I'm in an actual study group of CEO founders of wealth management firms, but back then I didn't have that. I really had my...what I call my girls group, and they were incredibly helpful to me as I was struggling with some of these things, because I trusted them and I could be very open and honest and vulnerable, and they could really give me great advice. And so that made a huge difference. I mean, I really encourage people who are struggling with these issues that they don't have to struggle alone.

Michael: And how do you find those kinds of study groups? Is there someplace you search for them? Did you just say, "Hey, I want this study group so I'm going to make it," and create it yourself? How did they come about, for maybe an advisor out there who says, "Yeah, that sounds really great, now where do I find one?"

Deb: I know that a number of the firms...for example, Schwab has an executive leadership program, and for people who go through that program, they have study groups coming out the other side. A number of firms at their national conferences are starting to help people put study groups together, depending on what their interest area is. A lot of local professional organizations can be a great source for...

Michael: So you got...

Deb: ...a study group.

Michael: ...FPA, NAPFA -- those kinds of groups.

Deb: Exactly. But I wouldn't discount the idea of putting your own group together and just deciding, what is it that you want and need? And can you put together a circle of people where you'll have common ground rules and you'll meet periodically, and you'll help and work with each other? So I know for women there have been these Lean In Circles that have been very successful as well.

Challenges  And Advantages Women Face Owning A Financial Planning Firm [1:00:14]

Michael: And so I'm curious about that angle as well. So not just a founder and business owner, but a woman that's done that, and in an environment that was not terribly friendly to a lot of women, particularly in the 1980s. It's frankly still we're at about 23% female CFPs and the number hasn't moved much, but it was even more unbalanced back then. So were there any particular, I guess challenges or reflections that you have back, and as you look back, going through this as a woman advisor in particular or maybe that other women listening today would find helpful for perspective?

Deb: I personally feel like women have a real advantage in this business because by nature, nurturers, and client work comes very naturally to people who are nurturers, I find. So, I'm surprised that more women haven't found their way to this, I really feel like it's a great role for women. It was much harder when I was on Wall Street at a firm like Morgan Stanley than it is in my own little bubble that I have created. And it's interesting because people who don't want to work with women or have an attitude about women CEOs, they don't show up in my conference room to express their opinion.

Those people, I don't see. They screen themselves out. And so who I do see that shows up are people who appreciate a woman CEO or appreciate the fact that 50% of my team is female. And so, one of the real advantages -- and maybe this will inspire some people -- but one of the real advantages in creating your own world, is that then you get to live in that environment and it sort of screens out...You know, people self-select in.

Michael: Right, as to who wants to be part of that environment, that business, that world that you've created.

Deb: Yes. And it's a fantastic thing. It's really been great. And so, my experience early in my career was, when I was at Pricewaterhouse, there were no women partners, when I was at Morgan Stanley, there were 14 women brokers worldwide.

Michael: Worldwide. Okay.

Deb: In my department there were 14. So the things that you can imagine, the things that you've heard about, yes, all true, they all happened. But now, later in my career, I find it to be a tremendous advantage because it's like we're a novelty, and people appreciate it and enjoy it, and I hear from people all the time...You know, we recently got hired by a significant client, and the matriarch of the family said, "I'm so happy to be with a firm run by a woman." So it feels to me like, just like our strengths can...the flip side of our strengths can be our weaknesses, the same is true those things that you might have thought of as difficult or disadvantageous in one setting, in another setting they can really be your advantage.

Michael: So as you look back over this career trajectory that you've had, I'm curious, is there any particular thing that you say like, "This was the turning point. I got this thing right," and that's what drove it all forward? Was it just the decision to move away from the brokerage firm and start your own firm that you would view as that turning point? Or was there another one that came along the way you would say that that's what really powered it forward into the success that it is today?

Deb: So I think there are definitely moments that you can point to, but I would say it's not one thing, it's a series of things. And for all of us, we can look at moments in our lives where we had choices to make, and if we had gone down the left path instead of the right, our lives would be really different. And so making the decision to start my firm was definitely at the root of creating what's been created, but you could also say decision...you know, my desire to travel and my dad's secret plan to get me involved in the markets -- you could go back further to that point.

And what I would say is, it's really a series of decisions. And in terms of practical things that people can do, I think certainly one of the best decisions I made was to write an annual business plan, certainly one of the best decisions I made was to share ownership. I have 17 other shareholders, and there's no way we would be what we are today without those other people who really are as committed to driving this business forward as I am.

The Distributed Ownership Structure Of Wetherby Asset Management [1:06:27]

Michael: So what does that look like at your firm? Do they buy-in shares? Do they earn them as part of their compensation? Is it a bonus for reaching certain objectives? How does someone actually become a shareholder at Wetherby Asset Management?

Deb: So we have, as you might imagine, written criteria for ownership and people get invited to become a part of the shareholder group. And when they're invited, then they have the opportunity to buy shares, and they buy shares from existing shareholders. So you know, we're very committed to staying independent and recycling our equity, and so existing shareholders sell to new shareholders over time. And we have been doing this for a long time because we didn't want to create an issue in terms of any one person controlling the fate of the firm. So there's no one person that owns more than 23% of the firm, so we have distributed ownership, which we believe in.

Michael: Interesting. And so it's just like an annual valuation process about how that gets done?

Deb: Yeah, we do it once a year and it's a formula. So it's 50% based on the top line, and 50% based on the bottom line. We had an investment banker that we brought in to help us figure out what the formula should be...

Michael: In terms of the multiples of top and bottom line.

Deb: Yes, and we do it at a discount to what it would transact for in the outside world because we want to promote internal ownership.

Michael: So it's a value creation discount.

Deb: Mm-hmm.

Michael: Since I'm presuming the people who get the buy-in opportunity are the people who've been contributing to the growth along the way, so that's part of the...

Deb: That's right.

Michael: ...a reward for them as well.

Deb: Mm-hmm.

What Drives Deb To Grow And How She Defines Success [1:08:47]

Michael: So as you reflect back on the business, you know, $4.5 billion and $10 million minimums and 60 plus staff is I think what most people would call, at least externally, projecting a very successful business. And so I'm curious from your end, particularly since you talked in the beginning about how one of the drivers that made you leave Morgan Stanley was a definition of success that was framed around money is the measuring stick and didn't align for you, so as you look at the business and yourself now, how do you define success at this point? What does that mean to you?

Deb: Well for me, it's still really what it was at the beginning, which is do work that I'm proud of, with and for people that I care about, then go home and have a life outside of work. So nowhere in there did you hear number of clients, size of firm -- any of that. So I want the business to be healthy and to grow because I want to give opportunity to younger people coming up through the ranks, but by no means do I define success by size.

Michael: Was it always that way or was there a time where, hey, I needed to get to a certain size because I've got to pay my bills and be able to retire and all that stuff? And then after it gets past a certain size it's not really about the size and the dollars anymore, or was building in that direction just never really the driver for you?

Deb: I was really much more driven by serving the clients than by building a big firm.

Michael: Even though the result happened to be an absolutely enormous firm.

Deb: Yeah. And it is sort of ironic, but it's so interesting to me, in this industry people, I think, focus disproportionately on assets under management -- on things like that. And personally I feel like you can have a really wonderful, successful firm that has a smaller asset base, and that might totally be the right thing for you. And so I'm not in the camp of everyone has to be big and everyone has to grow indefinitely, and I think it should be driven by what's right for you, what's right for your employees and what's right for your clients.

I've always viewed this as an ecosystem, and those things all have to be in balance. And what drives me to grow is that I have really talented younger people coming up through the ranks and I want them to have opportunity to grow and develop. That's what drives me to grow, is giving them opportunity. But not to see a bigger number on a list somewhere. That's not that meaningful to me.

Michael: I think that's a fantastic place to wrap up right there. What a great message. Well, thank you, Deb Wetherby, for joining us on "Financial Advisor Success" podcast.

Deb: Thanks, Michael. Pleasure to be with you.