#FASuccess Ep 122: Splitting Client-Facing Duties From The Mid- And Back-Office With A “Supported Independence” Model, with Jeff Concepcion

What You’ll Learn In This Podcast Episode

• An overview of Stratos Wealth Partners. [04:41]
• The various services they offer to advisors. [21:34]
• Why mature advisory firms should have a succession plan in place. [29:47]
• How their payout grids work. [35:40]
• What compliance and technology look like under the Stratos model. [47:06]
• the typical size of the firms that Stratos works with. [55:05]
• Why Jeff decided to start his firm. [1:00:48]
• His experience in the early years of building the business. [1:09:59]
• What surprised him the most in the beginning. [1:15:12]
• How Jeff's role has evolved over the years. [1:22:14]
• What a typical week looks like for him. [1:24:31]
• Jeff’s low point. [1:26:22]
• What comes next for Stratos Wealth Partners. [1:35:30]
• How he defines success. [1:41:03]

Resources Featured In This Episode:

• Jeff Concepcion
• Stratos Wealth Partners
• LPL
• AdvicePay
• #FAS Ep:100 with Joe Duran 

Full Transcript:

Michael: Welcome, Jeff Concepcion, to the "Financial Advisor Success" podcast.

Jeff: Hey, Michael. Thank you for the invite.

Michael: I'm glad to have you on and really looking forward to the discussion today on the podcast. You know, there's been all this discussion in the industry these days of, you know, industry channels and, like, broker-dealer versus RIA and all the discussions and debates about scale and growth and size, and, like, are the mega-firms going to win or are the solos still going to survive? And, like, I find it's...I suppose it's sadly kind of a commentary on the political environment as well, like, everything seems to have gone to extremes. Like, it's all BD or it's all RIA, and it's all big firm or it's all solo advisor.

And part of why I was so excited to have you out on the podcast here is I feel like you sit at the midpoint of all of these different trends. Like, very literally in a hybrid firm environment, in a support environment that is big but support smaller advisors. That just, you know, we painted this as such an extreme of choices in the industry and for most advisors that I feel like the midpoint has gotten lost in the discussion. And you live at the midpoint. So I'm excited today to talk about the midpoint.

Jeff: Sounds like a great topic. Appreciate being on with you.

An Overview Of Stratos Wealth Partners [04:41]

Michael: So to get us started, why don't you just tell us at a high level about your firm Stratos Wealth and what you do?

Jeff: Sure. So Stratos is a hybrid RIA. LPL is the broker-dealer for any of our registered advisors. They're also a custodian for us, along with Fidelity, Schwab, Pershing, and TD. We built a model that basically identified what we felt were the pain points for advisors that broker-dealers or custodians couldn't really solve for. So they were providing back-office-type resources and we wanted to provide mid office and front office. And I guess the way I describe those is most of the things that a BD or custodian wouldn't do. So helping advisors that have never had to deal with hiring and benefits and real estate and infrastructure and technology and billing and compliance and all those things. So that's kind of the operational mid office.

And then I would say the front office piece, and it was articulated best by a young guy who joined us in Gulfport, Mississippi. I asked him, "Why did you choose us when you told me that your bias was a competitor?" He spoke to several of our offices without me. He just went on the website and found offices in the south and called them. And it was interesting, and I've used this many times and I credited him, so he said that our partners told him that we would roll up our sleeves in their backyard and get our hands dirty to help them grow. So in other words, it wasn't just mid office or back-office support, we'd be sitting in their conference rooms with them to help them do a CPA deal or a bank deal or buy a book or tuck in a junior partner. So it's that mid office and front office stuff that we've built ourselves to solve for.

Michael: Interesting. And I love this framing that I don't think it's talked about very much in advisor world in general. I feel like it's something more that we talk about in the support world for advisors. This delineation that you make between the back office, the mid-office, and the front office. Where the back office is like the, I guess these days sort of the pure investment guts of what happens in platforms these days. Facilitating account openings and transfers and trading and just making sure dollars show up where they're supposed to be. Then you get this mid-office function that's much more about running the office, the business itself. So as you said, hiring and benefits, real estate and office space, all these infrastructure technology pieces that sit as sort of an overlay in the firm. It's not the pure back-office administrative stuff, it's sort of much more knowledge capital work-intensive but specific to the office.

And then you get the front office part, which is basically the, see the clients and prospects. Sort of ideally what we do as advisors. Like, literally, ideally where we spend our time as advisors. And I find it's helpful to think about in these phases because then, for any particular advisor, you can now start sitting down and sketch out your past week how much time you spent in your week in each of these areas and, like, how much time are you actually spending on back-office tasks? How much time are you actually spending on mid-office tasks? And how much time are you spending on front office tasks? Because front office stuff is really the only stuff you tend to get paid for directly as an advisor. That's the part that drives the revenue. You serve the clients and get more clients. And, you know, what could you do to free up more time to be the front office advisor you can and should be if you can figure out how to alleviate this back and middle office stuff, whether that's technology, whether that's hiring, or whether that's working with platforms that help you with those things?

Jeff: Yeah, and it's interesting. I think that's well said. And what we've tried to do is not build services that we hope our advisors are going to benefit from. We ask them what their pain points are and they're not shy to tell us. So, you know, we got fairly big, 300, 400 bodies affiliated with our firm, and we had no HR. So we brought HR in from a headquarter standpoint and found out that our advisors said, "Hey, we're not great at finding talent. We're not great at retaining them. We're not great at letting them go. And when we find somebody we love, we're not great at putting in a long-term incentive plan so that they feel like there's a path for them to stay here and grow and be rewarded." We now have a business services team that's eight people deep that's all based around talent and alignment and support and practice management.

And the one thing that's an interesting fallacy in our industry, people very liberally use the term "supported independence." And to me, it's sort of an overused term. So I always challenge an advisor if they're talking to another firm and us, visit, look under the hood and see what supported independence is. Because in most cases, it's on a shoestring. And in our case, I mean, we've got almost 70 employees. We've built a business model where we can really deliver on it. So it's easy to say, but it's not easy to deliver on, especially in a world where firms that are sizable oftentimes grow on payout. So you can't expect the highest payout and the greatest service and value. There's a break. Advisors have to choose, and we're super transparent about that conversation.

Michael: Well, and it's a good point as well, that even aside from sort of the initial dynamic of just, you know, the highest payout, which essentially is the cheapest platform, right? Like, the platform that's attracting the cheapest cost, like, you don't tend to get cheapest cost and best service at the same time, right? Like, those are trade-offs. If you want a little higher service, sometimes it costs a little bit more. But if that's what's rewarding to you, that's a choice to make in the marketplace.

But to me, the other thing that usually gets lost in this that I find, like, for a lot of advisors, we don't tend to appreciate the values of platform and people who do this well until we do it not well ourselves a few times. As you said, you know, you built an HR benefits area because advisors were struggling to hire, to retain, to roll out employee benefits to create long-term development plans and career tracks for their employees. They were doing it and it wasn't going well, so it's like, "Jeff, can you guys make something to help us with this?"

Jeff: Yeah, that's a great point. I mean, yeah, I thought our business model was built for breakaways. And I could tell you now, probably 35% or 40% of our folks have gone independent and decided, "You know what? Supported independence might not be a bad thing. I don't need all the pie. I'd be happy if I had most of the pie and some collaboration." And I didn't anticipate that day one.

Michael: And from a practical perspective, like, anybody who wants to grow an advisory firm just literally beyond yourself, like, this stuff costs money. I mean, you can hire your own back office people. You can hire your own administrative staff, you can hire your operations manager and train them on HR things. You can hire people to help with your technology. You can buy the tools that you need. You can go rent the space. You can hire a lawyer to help you. Like, you can do these things as a business owner, but it's not as though, "Hey, I'm going to pay a platform to do it or it's not going to cost me," it's, "Well, hey, I'm going to pay a platform to do it or I'm going to take a platform that doesn't give me any of that stuff and gives me a higher payout, and then I'll take the extra money from the higher payout and I'll go do it myself." Which you can do. Like, that's a fair consideration, I think, for any business owner and any advisor, but to me, just, it's the other part that gets lost in these discussions about working with support platforms.

I love your label of supported independence. That, look, if you're going to grow your business and you're going to grow beyond just literally you being a solo with no infrastructure and no support, like, you will have to spend some of your payout, if you want to put it that way, on your business. So now it's, do you think you can spend the dollars and resources more effectively in your spare time while you're managing your clients or do you want a platform that helps with it?

Jeff: Yeah. And I'm not one of the people who subscribes to the notion that small advisors will fade away. There are actually more firms today than there have been in the past. There are tons of new RIAs being formed. I do think small firms can survive. I don't think they need to align with a shop like ours, but I do think that one way or another, the family practitioner, the family doctor needs to look more like a hospital. So however they pretend to show up bigger than they really are is super, super important. It could be by renting resources, by outsourcing. It could be by plugging in with a firm like ours. It could be by aligning. But I do think that clients want, need, and expect more. So you get into that whole argument of fee compression. We haven't seen a lot of, in my opinion, fee compression. What we've seen is a demand for more value for the dollar that they're already spending. And I think that smaller advisor, there is room for them, but I just think they need to find a way to show up or present or seem bigger than they are if they're running a little tiny boutique practice. I think there are lots of ways to do that.

I'll also say that while I don't think that we're shrinking from a number of firms standpoint, I do think we're shrinking from an asset standpoint. I think Cerulli data shows that the bigger firms are getting way bigger, way faster and the smaller firms are kind of sort of sustaining but really not, mostly bleeding down a little bit based on distributions and market and attrition and all those things. But I think there's still room for everybody, in my opinion.

Michael: I've been in the same camp for a while, that, you know, like, I mean, I'm now 20 years into the business, just about, and I look back for when I was getting started and, oh my Lord, you can do so much more as a solo advisor today than you could then. Just both the platform and kind of infrastructure support options from firms like yours and just flat out what the technology does now. The amount of things that you can automate in modern CRM like Salesforce or Redtail or Wealthbox versus what you could do in Act! or GoldMine from 20 years ago.

The trading automation tools compared to manually plugging things in or heck, even when I started, like, I was taking...I'm not that old and I was taking calls from clients, getting their stock orders, and then calling a trading decks to enter the stock order because the website wasn't reliable because it was 20 years ago and the technology was still getting good. It wasn't that long ago that we were just doing that level of tasks, purely time-based, purely manual. And now I can block-trade 1,000 clients in an hour and allocate out with a spreadsheet, and, like, poof, it's done. It's not 1,000 phone calls.

Jeff: And that's a great point, Michael. So the practices that incorporate technology. So one of my favorite topics is kind of the aging demographic and acquisitions and all that stuff. So I always tell advisors that not all practices are built the same. And there are certain practices that are scalable and others that are not. So the great use of a CRM, block trading, there's something to be said for customization, but it's not necessarily scalable. If you have 400 households and they're all being traded individually, that's hard to build on that type of foundation. So without a sound foundation, you keep on adding stories to it, eventually, something is going to break.

Michael: Well, and I always struggle on that end, even aside from the lack of technology, it gets really hard to do hundreds of customized portfolios for every client because you can't systemize the technology the same way. Like, I just struggle from the advisor end. You've got to remember 400 different conversations with your clients about who owns what and why their portfolio is different than everybody else, and you've got, like, an hour or two of prep time before every meeting because you've got to get up on their particular holdings, which are different than everybody else's because you customize the portfolio. And just, I see a lot of advisors that struggle with that.

And, I loved when our firm went model-based. Granted, it was a whole bunch of years ago now, because, you know, you learn the investment conversation. You learn what's going on in the portfolios and the models that you have created for clients. And it's a much more repeatable conversation. I don't have to do an hour or two of prep work. Anytime I was going to go out to a client to figure out what was going on in their portfolio, because I know what was going on in their portfolio because they had the same model as my other clients, or one of a few. And it's a conversation I've had this week, so I know where all the talking points are. And it gets so much more efficient.

So there's these like...you know, there's challenges of just scaling the practice with technology and there's challenges, I guess, like, scaling the client conversations, the client service. But in the past, it didn't matter because I couldn't systematize the portfolio stuff anyways. So I may as well have different things for every client, and every time we have a review, I'll, like, print out the PrincipiaPro reports from Morningstar and take them out to clients. Then we've got all this technology where you can systematize and model...and become more model-based. And now, at least, you get this choice, if you want to run a highly efficient solo practice leveraging technology, you can run a really highly efficient practice as a solo with technology.

Jeff: Yeah. This is in a whole interesting sidebar by the way and something I have some very strong opinions on. So this whole notion of Rep as PM, when you look at the incredible, incredible managers that are out there and how few of them actually beat the indexes, it's interesting to me. I think most advisors are good at a few things, and asset management I would not put among them.

So when you think about this whole concept of evolving from an advisor to a CEO and what are the critical things that you can do that you can't hire someone to do and do them at least as well if not better than you do, asset management to me is one of them. When you spend all of your time on it, it's hard to do it well. And for an advisor who's doing business development and reviews and all those things, whether they insource it to a specialist or outsource it, I don't think there are many advisors that do their clients justice as an asset manager. I think that most advisors, I'm going to stereotype, are better at asset gathering, relationship management, and maybe financial planning, but I don't see many of them...it's a very small percentage that are great asset managers. That's my opinion, at least.

Michael: Yeah, I think I would agree as well. You know, obviously, there's a subset of folks that just ascribe to a fully passive philosophy and sort of any of this hands-on portfolio "managementy" stuff is sort of a moot point for them. But even if you're on the active side, you're more inclined towards active and you think there's value that can be provided, like, you know, I find for a lot of us advisors, we criticize our clients who're trying to do this part-time on top of all the other things that our clients are dealing with in their lives, you know, their jobs and their families and their kids and life, and then we manage the clients' portfolios like a part-time job on the side of our job and business and family and life and all the things that are going on.

You know, it's one of the reasons why I've been pretty upbeat for, as you said, you can go either path. You can insource it, right? So like, okay, I'm going to hire CFA dude or dudette who's just going to own the investment process in our firm and we're going to build and invest in that infrastructure and try to scale that way. And you can do that, and firms have done that successfully, or you can outsource it and say, "I'm going to let someone else do it, and we'll work with the TAMP platform or some other solution provider." It's like, you can go either way. But trying to fit it in part-time on top of client meetings, prospect meetings, managing the firm, managing your team, doing the marketing, doing the compliance, doing the technology, right? Like, all those other mid-office and back-office items you highlighted as well just isn't likely to go well if you're doing anything more than purely passive portfolio construction.

Jeff: Yeah. And it's kind of knowing, you know, from the whole Strategic Coach perspective, I'm not a disciple, but I know enough to be dangerous, is just what's your highest and best use? I mean, there might be 10% of advisors out there where their purpose and passion is investment selection. And if it's one of those people, that's great, but if it's the other folks that just do it because they fancy themselves an investor or kind of enjoy it but, to your point, do it part-time, insource or outsource. I think there's just...there are better solutions.

Michael: Yeah. And I do know some that are...a few advisors that are, like, genuinely good at this and they know their stuff, but I find they even...they tend to end out in different roles. I see a lot more of them doing things like institutional investment consulting where they can really go deep with their investment knowledge with investment committees and institutions as opposed to one individual retail client at a time, next client, next portfolio, next client, next portfolio. Because it's still hard to scale your knowledge in that environment.

The Various Services They Offer To Advisors [21:34]

So talk to us a little bit more about sort of Stratos overall in terms of who you serve, what the business looks like. You know, you mentioned almost 70 employees, but, like, on the advisor side, I mean, who are you serving? How do you measure size? I don't know if that's advisor count or AUM or some other AUA or some other measurement. Like, how do we understand size and scope of what Stratos is doing?

Jeff: Yeah, I can give you an idea. And it's a little bit difficult because of our structure, how we report. So we're not really allowed to talk about everything in one basket because of our corporate structure. But if you look at folks that leverage LPL as their broker-dealer, we're probably a little shy of $13 billion in AUA, assets under advisement, between the brokerage and the advisory. And it's not exactly the same as probably a...there's more on the advisory side than there is on the brokerage side. But then we have an asset management business which is not captured there. And we have an RIA-only business which is not captured there. And there's probably another, you know, between $1 billion and $2 billion of stuff not affiliated with LPL. Then we have firms that we invest in that are sort of standalone firms and we might own a minority stake. And those assets aren't captured there as well. So it's kind of a diverse structure.

As far as locations are concerned, I think we probably have a little under 100 locations in probably a little under 30 states, and, give or take, something approaching 300 advisors. And I think that's misleading by the way. It's a real number in terms of they're actually licensed advisors conducting business, but probably half that number are the ones that are meaningfully driving the revenue, 150 to 200 folks.

Michael: Okay. Because the rest are, they're registered or they're associates or paraplanners...

Jeff: A junior advisor, right? You're doing $2 million in production and you've got 3 juniors that are sort of your apprentices that are each might be doing $100,000 to $200,000 in gross, but they're sort of attached to your practice. So while our true number is probably, give or take, 300, I think half of those are principals running, you know, good-sized practices generating the lion share of the revenue.

Michael: And so if I'm just looking, like, nearly 100 branch locations, maybe 150 that are driving their businesses, 300 overall, it's like, your advisor base really would be a whole lot of 1 or 2 advisors with 1 or 2 assistants averaging 3 registered people per branch.

Jeff: Yep. Exactly. And here's what's interesting. That's changed. When I look at the type of advisor, the profile of people who came on at our inception, we just had our 10th anniversary. So we didn't exist in '08. We formed in '09, which was sort of a, just kind of an early launch and a painful one by the way. And a painful one.

Michael: Yeah, that's quite a time to get a firm started in this business.

Jeff: Yeah. So an interesting, again, sidebar, if I could have closed the doors, I would have, but I wasn't able to. So, unfortunately, I was stuck. We lost probably close to $100,000 a month at our inception. And our CFO, who's been a good family friend for a long time, who I adore, every time she came, it was just, I didn't want to see her because I had to write a check for $80,000, $90,000, $100,000 every month to shore up a shortfall of losses. It was that "Field of Dreams," build it and they will come. And they did. They just didn't come as quickly as I had hoped they would. So it was rough. But with leases signed and people hired, there was really no backdoor. But if there was, I'm not too proud to say that I wouldn't have thrown in the towel if I could have.

Michael: Interesting. I want to come back to that in a few minutes a little bit more. Just that dynamic of, right, I feel like for most of us that launch, like, you know, we build this great vision in our head of like, "I know what it's going to be and I know how it's going to happen." And like, "I'm going to make the thing and I'm going to do it and everyone else will see the awesome thing that I'm making at the same time. And all the clients will show up." And then they never come that fast.

Jeff: Exactly. So staying power is super important, right? It's just, it's not that some businesses are so much better than others, it's that they had enough of a foundation financially to last. And with us, we got there. By year two we were profitable, but year one was painful and literally, it was my life savings are in paycheck by paycheck, keeping the doors open and, you know, doing our thing. And it played out. It just took longer, to your point, than you hope sometimes.

Michael: So looking at kind of the firm and the stuff that you do, I'm struck that you really did kind of mention this in I guess basically four different categories. Like, advisors who affiliate with Stratos under the LPL umbrella. Because I know functionally, like, you're a super OSJ under LPL. Then a separate RIA business for, I guess, the advisors that don't even want to be hybrid RIA/BD, like, they want to be under your corporate RIA essentially? You know, like, you do my corporate RIA compliance stuff, I just want to go work with my clients?

Jeff: Yep. Those are RIA-only with the custodians: Fidelity, Schwab, Pershing, and TD.

Michael: Okay. And then you mentioned an asset management business. So is this like an internal TAMP platform kind of thing?

Jeff: Correct. Correct. Yep, exactly.

Michael: Okay. So for the folks that want to, well, I guess it's like, outsource it but insource it. Like, outsource it from their office but insource it within their platform.

Jeff: Exactly right. It's called Fundamentum. It's just a wholly owned subsidiary with a team of CFAs that run model portfolios for our folks. It's exactly right.

Michael: Okay. And then you said there are firms that you invest in directly as well. So I guess functionally, we could also put you in sort of the aggregator roll-up-style firm? Maybe that's not a fair label because I don't know if you're... or if that's accurate...

Jeff: It actually is. No, it is accurate, but it happens in one of two ways. So the aggregation side is for someone who's ready to exit or for someone who's ready just to kind of turn over the reins and do what they like doing just to get back to giving advice. We're going to buy 100% of the firm, there's going to be a rebrand, it's going to be centrally managed, built, so on and so forth. And we find those. But every day in the trenches, for each one of those I found, I found 10 people, they could be in their 40s, 50s, 60s, that weren't ready to exit but were scared about what would happen if they got hit by a bus. So lots of great soldiers but no rising general.

And that's really a different version. That's the one that we don't report, where we tend to be a minority owner, and they'll sell us a third of the practice and they'll have a small monetization event. They'll leverage the resources we have, but they keep their own brand. They're still in charge. And then their hope is, because of the collaboration, they're going to grow something bigger, better and faster. But God forbid they do get hit by the proverbial bus, there's somebody already in the door that knows the firm that can protect it and protect the remaining value. So for all those folks that we saw that were interested in a roll-up and a complete deal, like I said, we literally were finding a dozen that weren't interested in that but had real concerns about sustainability, continuation, and succession.

Michael: All right. And so I guess in essence, like, you've already bought a third of them. I'm presuming there's some kind of, you know, buy-sell sort of equivalent that says, you know, if you decide you're finally ready to retire or you're disabled or you're hit by the proverbial or literal bus, we will automatically buy out the remainder of the practice. We know we can transition this pretty well because you're already on our systems and back office. So, you know, as Stratos, like, you've just got to hire an advisor, airdrop them into the firm with whatever existing staff and infrastructure is there and just, you know, break the unfortunate news to the clients that something bad happened and say, "Don't worry but you're safe. Your money is safe. Your relationship is safe. Like, we're here to still support you?"

Jeff: Exactly right. As opposed to not having anything in place, which is mind-blowing when you look at the statistics. Absolutely mind-blowing. And you probably know all these numbers better than I do, but 87% of advisors with $50 million in assets or less do not have an executed agreement. So those little lifestyle, you know, mom and pop practices where they might make a nice quarter million dollar living, 87%, no agreement in place. That blows my mind. And it's better but not that much better when you get to the larger firms. You know, you still have two-thirds of those that, you know, don't have agreements.

Why Mature Advisory Firms Should Have A Succession Plan In Place [29:47]

Michael: It's a striking thing for me that there's been these waves of predictions for years of, you know, advisors are getting older, the average age keeps creeping up, and, you know, we're going to see this massive wave of selling and succession, and oh my gosh, like, you know, all this hand-wringing we do as an industry that advisors have no succession plan and have no exit plan.

And, you know, my challenge with this has always been that, I just feel like a lot of the...you know, a lot of the, like, consultants and commentators making that discussion have not lived the world of being a late stage advisory firm as a solo, where, like, it's horrible in the early years for pretty much everyone. A few of us get to a decent point and survive. But if you're a 20-plus-year survivor, like, you almost certainly have a pretty good client base that are pretty affluent, that pay you a good amount of money, who have been clients for a long time, which means it's much more about supporting the relationship than frankly a lot of hard grinding work at that point. You're sort of through that stage. You make great money. You know, a lot of solo advisors take home 60, 70, 80 cents on the dollar of their revenue.

And someone comes along as like, "Hey, I'll buy your firm for," even if you get, like, two times revenue, it's like, well, if I stayed for three years, I get the same money and I'd still own it. So then I could sell it again in three years, you know, choose to sell it in that year. So you stay three more years. And then you go three more years and people say, "Well, are you going to succession and exit?" It's like, "Well, let me get this straight. If I stay three more years, I still make the same money and I'll own the firm at the end of three years." And then the cycle just keeps going along Like, you know, the reward, to me, for practices where you're in for a long time is they can get amazingly profitable and successful, and, like, short of just, I'm tired of the business or having a health event, I don't know why you would ever want to leave that.

Jeff: I agree with you. I'm going to give a contrarian thought. So that's the economics, right? So from an economic standpoint, I agree. From an ethics standpoint, I disagree. Because what you find is a lot of times some of these advisors, they've already retired. They're still practicing, but they've already retired. So the conversation I like to have sometimes is the people who've entrusted their life to you, right, are they still getting the same intensity and energy and purposefulness in your advice that they got 5 or 10 or 15 or 20? And there are some people who granted, as the advisor thinking about myself, I can argue, I'll just run the damn thing into the ground. I know I'll lose 5% to 10% per year. People are wondering when I'm going to die but others will stay on board and I'll get more money. And economics...

Michael: I'll outlive most of my clients.

Jeff: Exactly. So from an economic standpoint, yes, but from an ethics standpoint, are they getting the intensity of guidance and advice that they need as their lives become more complex or do they just have somebody disengaged who's kind of writing out the goodwill and stripping the...and that's where I have conversations with people is that, "Look, it's your business. You do what you want, but I think we're indebted to the people who hire us to make sure they're getting the best." And if you're 72, and I've met them by the way, and older, and you're giving them your best, I've got no problem with that. But a lot of people have become disengaged and actually de facto retired but are still just sitting there at the desk collecting revenue. That's where I'm challenged.

Michael: And that to me are the realms where, are we at least talking about bringing another advisor in? Just someone who wants to serve the clients with energy. You can, you know, just show up to the meetings, shake hands and play golf with them and do whatever you're going to do. But, you know, put a little bit of dollars at least back into the practice to make sure clients are still actually getting the service they deserve. And then as you've sort of noted with your structure here, you do still need a backstop. Like, you can run the practice on the bet that you will outlive most of your clients. And if you've got reasonable health, you probably will outlive most of your clients and the economics can be pretty good, but heaven forbid something happens to you, you don't want the clients who are left just suddenly stuck and abandoned in their later years. And so to me, that shifts it though.

It's not necessarily like, what's your succession plan as though you're going to queue up a successor to buy you out while you can still do this yourself, it's a, what's your continuity plan? Like, what's your exit plan? Just when something happens, how do you at least ensure there's continuity for your clients? Which is a different structure than hiring a successor and queue them up to take over while you exit. You can do that if you want. It's, I think, frankly more of the structure that you're building anyways, which is, you know, we'll take a stake in your firm, you get a partial monetization event now. We'll give you, you know, some infrastructure both to grow and to ensure continuity for your clients. And if something happens to you, we are here to step in and support your clients, and your spouse will even get a check at the end.

Jeff: Exactly. And there are three constituencies. The clients, I think super, super important, right? But the advisor's family, in many cases, there's a lot of value here. And then, what about the staff that have supported the practice? So I tell them not having a plan in place, and we know that the lion's share of the industry doesn't, I mean, you're really...you're doing a disservice to everyone who's helped you get to where you are today: the staff, your family, and your clients. So I just think it's critical.

And I ask people, "Why haven't you done it?" "Well, I'm not exactly..." And my bottom line is, a bad agreement is better than no agreement. You can always tear it up and reconstruct it, but sign something, have something in place. You know, your home, if I pulled into your driveway to buy your house and it's beautifully manicured and freshly painted and landscaped, it's got a different value than if I pull in and there's a fire, there's smoke billowing out of your garage, right? So you've got to put something in place when it's appropriate to do it knowing that you can always revoke or modify it.

How Their Payout Grids Work [35:40]

Michael: So as a firm, it's like, you've kind of got a couple of different ways even for advisors to affiliate, but help me understand, maybe, like, starting on the LPL side, just because it sounds like that's the biggest and sort of the primary platform for how advisors are working with Stratos today. Like, help me understand a little how this economics work. Obviously, I know I can go directly to LPL, I can get my, you know, whatever, high 80s, low 90s payout, depending on my volume and what I can negotiate. It's like, that's my baseline. I call LPL if I've got a decent asset base. They will take my call and I can go affiliate there. You know, and there's no Stratos, but I got my dollars, I got my high payout, then I've got to figure out how to staff my back or middle office. So if I want to talk to Stratos instead, like, what does this look like now? How does it change? Like, how do the economics actually work for an advisor to affiliate?

Jeff: Yeah. So the math is pretty simple. So if an advisor is going to go join pretty much any independent broker-dealer, by and large, they're going to get a 90ish percent payout, right? If that same advisor is doing $700,000 or $800,000 in production, instead of the 90% from LPL, from us, if they're covering all their own overhead, they're going to get probably a mid-80s payout. So it might cost them five or six points. It's that five or six points plus, you know, whatever bonuses that we get for being a fairly large institution that we're able to reinvest and provide services and garner a profit.

And then the conversation I have with an advisor is, "If you're doing $700,000 in production, what do you pay your sales assistant?" Maybe they're paying their sales assistant $50 grand. So my question is, for a half dozen points on $700,000 or for $40 grand, can me personally and 65 or 70 of my team members not add equal value to what your sales assistant ads towards your success, your growth, your infrastructure? So it's an expense item. It's like, you can hire a second assistant or you can hire 70 of us, and here are the resumes. And we kind of walk them through that math.

So the conversation I have with a rep is, "If you're looking, and it's not a bad thing, to extract the very last penny out of your current revenue that you can get, you should plug in directly or plug in somewhere else. If you're wondering, 'How do I go from $600,000 or $700,000 to $1.2 million and show up like a high-end hospital, not like a siloed family practitioner and grow my business with more resources and more substance and more specialization,' then maybe you would want to learn more about our model." That's kind of the basic conversation.

Michael: Okay. I love the way that you frame that, like, straight down to the dollars. Let's get out of the percentage realm and talk dollars, right? Because that's when it gets really real. So on the one hand, like, "Y'all are going to take 5-plus percent out of my payout, that's $35 grand, $40 grand if I'm doing $700,000 or $800,000, so, you know, dude, Jeff, what are you going to do for me for $40,000? That's not trivial." To which I think you make a good point. I mean, you come back and say, "Well, $40,000 is probably equal or less than what it would cost you to do one more hire," depending on where you are regionally. Some parts of the country you can get good folks for $40 grand. We're in the D.C. area, we cannot get good folks, unfortunately, often for $40,000. We've got to go higher than that. So, you know, "For $40,000, you get pro rata access to 70-plus people with all these deep specializations. Do you think time and access to my 70 people with deep experience is more than the next entry-level assistant you hire for $40 grand?"

Jeff: Yeah, you're absolutely right. You're absolutely right. And to go back to that back, middle and front office, a lot of this stuff is stuff that directly helps them grow and run a better business. So then I would say, "If you want to talk to 10 people, go on our website randomly, I'm not even going to give you names, and ask them, 'Have you ever landed a high-net-worth client because a couple of our CFAs sat there?' And not that you're not a good advisor, but you're not going to show up the same way a guy would who was the lead portfolio manager of a five-star Morningstar fund, a $15 billion fund, who's one of the CFAs on our team now. Or did you happen to buy a book because you were competing against five other firms? And we've helped do 30 or 40 tuck-ins in the last 36 months, and we could speak differently to the seller than an individual guy or gal who's bought 1 book and is trying to buy their second. Did you not close a CPA firm or a bank for a strategic alliance? So don't take my word for it, but just randomly pick up the phone like this young guy in Gulfport did and see what you hear because that's real." So it's all those things, I think, that have allowed us to be fairly fortunate and blessed in what we built in the timeframe we've built it.

Michael: So I'm presuming, though, that also means just, to make the math work, I guess both for the advisor to justify the value proposition and just for your firm, because you're providing a whole bunch of services and have 70 staff you've got to pay off of a couple percent slice, that, like, there's a minimum level of production or firm size that they need to have just to make this a mutually beneficial arrangement to come and affiliate with Stratos? Do you have, like, a target or a minimum? Like, how do you handle that if I come in and say like, "Well, yeah, I really don't want to hire a staff member and I only have $200 grand of production, but I'll happily pay you 5% of that for your 70 people?"

Jeff: Yeah. And here's what's really interesting, too, right? If you look under the hood, if most hybrid OSJs, I'll use that as a reference point, but I think it's also true of platform providers, most of them aren't making money. And we are very, very profitable. Our valuation, the first valuation we had January 1, 2010 with a large firm out of Chicago, the dividend we paid this year to our shareholders was more than 10 times the actual underlying stock value at its first valuation 8 years ago. So we are profitable and we are making money. When you look at most firms like ours, platform providers, hybrid OSJs, throw them onto a box, most of them do not make money.

And we have a progressive grid. So while our largest advisor is getting paid more than what I told you, there are other advisors that are getting paid less. So there might be someone who might be at 80% or 82% or at 85%. On the RIA side, we're getting 100 cents on the dollar. We also have a full-service model, because, as you and I talked earlier, some people are more enamored with the notion of being self-employed than they are being an entrepreneur. So while they like the autonomy, they don't like the risk. So we'll sign a lease anywhere in the country, which we have, which most firms won't do. We'll take down bricks and mortar, and that advisor will build in about another 5% premium to ourselves for taking on the risk. So that advisor, the grids run from 50% to 70%. On average we're paying people in the mid-60s. And that gives us about an extra five points net after paying the staff, paying the lease.

So people who sit in that model are even more creative. And we tell them, again, it's all full transparency, "If you want us to take the risk, and you've been," I'm not going to mention names, but, "If you've been at XYZ wirehouse at 38 or 41 points your whole career and you say, "Hey, I'm pretty darn happy at 66 points, you know, I don't need 85. You guys build all that out, treat me well.'" So we have a chunk of our folks in that model as well. They're still all 1099, it's just really a risk shift to us for the fixed costs. So there are places where we garner more margin than the initial example you and I talked about.

Michael: So just help me connect this a little bit more. Like, how exactly am I getting from, like, my 80-something payout down to my 60-something payout? That's just because I just keep layering on more stuff from you? Like, there's an a la carte list? You know, you want this, it's a few more points, you want this, it's a few more points?

Jeff: No. Not really. It's a transfer of fixed costs. If you're getting paid 85 or 87 or 88 points with us, you signed your own lease, you hired your own staff, you're paying your own E&O and licensing fees and all that. In the 66, we're signing the lease, we're building out the space, we're furnishing it, we're paying for your staff, right? And because we took on all those fixed costs, we're building in a little premium for ourselves. So if the payout would go from 85 to 68, as an example, our costs are something less than that spread to the point that further risk we're actually making an extra 4 or 5 points. So you're running your own practice. You're a 1099, you've got your own LLC, it's just you're shifting all those fixed costs to us.

Michael: So you know, functionally, my LLC has an employee leasing agreement and space leasing agreement back to Stratos. So I run my 1099, I run my standalone LLC, but you're getting the employees and leasing the people, I'm re-leasing it from you down to my firm so I can run my firm for essentially a 34% fixed overhead cost.

Jeff: Yeah. Not in a literal sense is that true, but in a figurative sense, it is. Yes.

Michael: Well, and it strikes me as well. I mean, just you go back to traditional practice management benchmarking studies for advisors, at least on the independent RIA side where we have I think just the cleanest data, the old rule of thumb was always 40%/35%/25% of your revenue. Forty percent goes to direct cost, which is basically your advisors and your investment folks, like, the people that actually make the revenue happen and the relationships happen. Thirty-five percent goes to your overhead. So your admin staff, your technology, your rent, all those administrative costs. And then that leaves you with a 25% profit margin as a reasonably healthy advisory firm.

So, you know, when you're in a world of, you're shooting for 35% overhead anyways, although some firms struggle to get there because it's hard to do it when you're a small firm and the staff are lumpy hires, to say, you know, "Stratos will do my 35% overhead for 34% and I get all of the depth and quality of their economies of scale," like, the math actually lines up pretty well. I just don't have to hire one person at a time and figure this stuff out. I pay roughly the same level of overhead and I get all your systems and structure.

Jeff: Yeah. So if someone has been in an environment all along where they didn't have to sign the lease and pay for build-out and spend $30 or $40 grand on computers and phone systems and furniture and copiers and all that stuff, it's a way of sort of bundling what we tried to unbundle. So when we had our first model, it was only the higher payout model. And then advisors said, "Look, I get this, but I just, I don't want to struggle with the math. I just know I was making 39 points at Merrill, you know, what am I going to make here?" So the notion of bundling it made it easier for them to wrap their heads around. And we let them know that we're going to earn more. So where you can be in the very high 80s, approaching 90% in our independent model, a $1 million advisor is going to get 70 in that bundled model. They're no less entrepreneurial, they're no less in charge of, you know, running their firm. We still work for them, but the difference is we just provided all that fixed cost stuff turnkeyed to them. That's all.

What Compliance and Technology Looks Like Under The Stratos Model [47:06]

Michael: Interesting. And so, I'm presuming sort of built in all of this as well, you've talked about a number of these mid-office functions, how much is just...well, so I guess two questions. One is, what does compliance look like in an environment like this, where I'm independent but not, but I am, but not, right? Like, what is compliance in supported independence world? And I've got some technology questions as well, but let me start with, like, how does compliance work in this environment? Right? I know what it looks like when I'm in a wirehouse. I know what it looks like in a purely independent role with an IBD. What does independence look like in a supported independent Stratos model?

Jeff: Yeah, it's probably our largest department is compliance and operations. So we do all the same stuff that you'd typically see done. We're reviewing trades, we're looking for performance outliers, we are reviewing correspondence, we're doing audits in 100 locations around the country. And it's a sizeable team that does it. So we're providing all those basic core functions from compliance that a firm would need to otherwise have done. And there's no a la carte. When I told you those payouts, essentially, other than asset management, we're doing everything for them. Compliance, technology is an interesting one.

Michael: So I guess from the purest sense, right, like, at the end of the day, you are an office of supervisory jurisdiction, right? The anchor point of this is an OSJ or a super OSJ across a whole bunch of branches, like, literally as the intermediary compliance infrastructure to get, you know, large-firm BD compliance down to the local level. So you are fulfilling that  literal role in BD compliance. I guess it just means in practice, if I'm doing this, like, I don't have to call LPL's compliance department when I've got an issue, I call Stratos, who is my, you know, OSJ under the LPL umbrella, and I deal with my compliance issues at my local Stratos level instead of going all the way up to the big parent company.

Jeff: There's collaboration between our compliance department for the folks that happen to be securities-licensed. There's collaboration between our compliance group and LPL's group. Then you have the IAR-onlys, they would deal exclusively with us. We're the only compliance partner of theirs, where folks who are securities-licensed are kind of seeing a collaboration between us and LPL.

Michael: And then, talk to us about technology. Do I buy my own? Do you buy it for me? Do I get choices? Do I have to use what you use? Have you made what you use into an integrated thing where I wouldn't want to use anything else anyways? What does technology look in this kind of environment?

Jeff: Yeah. So it's interesting. When I think about technology I think about when we formed, and we outsourced tech support. And I almost had a stroke when we hired our first person who was a fully certified Microsoft engineer and I was like, "Oh my gosh, I can't believe how much that costs." I think today we have eight or nine people full-time in technology. So we have people at the platform and systems level. We have a 24-hour per day, 7-day a week helpdesk of a handful of folks. It doesn't matter when you call. If something is not working, we're going to get it working. We have folks who design websites and apps and write code. And our most recent hire was a security analyst who only looks at protecting the network and data and everything else. So that went from an outsourced function to now today I think eight or nine full-time people in technology.

When you talk about applications, yeah, we, limit ourselves. So, on the planning side, because we have to surveil and do compliance on those plans, it's eMoney and MoneyGuidePro. When you talk about CRM, what we support, meaningfully support, is Salesforce and Redtail. From a billing standpoint and a performance reporting standpoint, if it's a non-LPL advisor and even sometimes for LPL advisors but exclusively for RIA only, we use Orion for performance reporting and billing. And then you also hit another good point. We're in the process now and pretty close, probably 30 or 45 days away, from completing an integrated single sign-on that's going to be Salesforce, Orion, a planning tool, and then a handful of other tools will all be connected as APIs to a single sign-on dashboard.

Michael: Okay. So, welcome to the Stratos dashboard.

Jeff: Yep. Yep. And we have one now. We have a dashboard for our asset management business. This is now going to just sort of fully integrate everything at a Stratos dashboard level.

Michael: Interesting. And as you said earlier, these costs, at least if you're willing to take something on the Stratos menu, like, this is all built into my points that I'm paying off of my grid in the first place to be working with you guys.

Jeff: Technology is a little bit different. So all the resources, the employees and the services, are built in. The technology is more a la carte because people can choose different things. When we have that single sign-on, yes, we're going to get to a point to say, "This is kind of the package," and I suspect that will happen probably by the end of the year, "That you can use what you want. If it's a firm that we buy, this is a toolset that you're going to use. And if you want to leverage that fully bundled toolset, here's a way that we can provide that at a deep discount based on scale." So we'll still offer optionality, but we're probably going to have a strong endorsement for this kind of turnkeyed single sign-on dashboard, which I think will be very appealing.

Michael: Interesting. And then I am struck that just the broader nature of the model. You know, you mentioned this earlier but I do think it's a fascinating part of the current advisor landscape. Your model is sort of this, you could get roughly 90%, give or take a little, from LPL, you'll get roughly 85% from Stratos. Obviously, both sides have a little bit of up and down based on your production volume. But you live in this space of about a five-point spread, and that's how you get to power the business. Plus a little bit that comes from LPL because you do now get to go back to them and say, "Hey, guys, you want economies of scale, like, worth $13 billion. You know, we at Stratos would like a little bit of a higher payout than the average rep who brings $250 grand of production to the table," or whatever.

Jeff: Yeah. So it's interesting, there's no negotiation there. I mean, our advisors kind of get what they get from us. We get what we get from LPL. They had a structure in place that based on your size, right, on the RIA we're at 100 points, you know. On the broker-dealer side, it doesn't go up to 100 but it caps out mathematically, and we're at that highest level. So we've never negotiated or discussed. We felt that they offered a fair value prop, and we make our economics work in that.

Michael: That is part of the angle, that kind of there's an additional layer that you get to work with. And nothing nefarious, just that's part of being an intermediate layer that aggregates for scale. Like, it's not just, "You have economies of scale and employees who I can give you, you know, a slice of 70 people more effectively than you can hire them one at a time, and we'll use our size to get discounts on tech because there are so many of us," you get to bring that up the line as well, where, as a much larger firm than any of the reps individually, LPL gets some economies of scale working with you and not 300 individuals. So a little bit of that cost savings for LPL comes to you, and that's part of the piece you get to work with to provide the services down the line.

Jeff: Yeah. And it's pretty transparent to advisors. If they plug in and they get 90 plus a bonus. In our case, if one of our larger advisors is at 87 or 88 points, they know that we're getting 2 or 3 plus the production bonus. They sign something that says their production bonus...we're not building what we built on three points, right? So their production bonus on the brokerage side, and then the revenue spread from that 87 to 100 on the advisory side is coming to us.

The Typical Size Of The Firms That Stratos Works With [55:05]

Michael: So is there...I know obviously you can be flexible at the end of the day to anybody you want to be flexible to, but from a practical perspective, is there a size where firms tend to be too small, the production dollars just aren't there enough for it to be a good match for Stratos? And is there a point at the other end where they're just so large it's like, "Hey, guys, neat thing, but we've got enough assets and staff, like, we already built this infrastructure, so this just doesn't make sense for us. For better or worse, we already built past this point ourselves?"

Jeff: Yeah. No, it's a great question. That's a great question. And it's different today than it was three years ago or than it was six or seven years ago. I would say early on, the advisors who were joining us were $300,000, $400,000 advisors. And then it was $500,000 or $600,000. And then it was $700,000 or $800,000. And probably 3 years ago, two-thirds of the advisors who joined us were doing over $1 million in production. Now, remember, the higher their production, the higher the payout. So that big advisor might be getting 87 points and the smaller one might only be getting 80, and that's a big difference.

Michael: Which ironically means... I'm just sort of doing rough math in my head... from your firm's perspective, it seems like you end out fairly consistently in this range of, you know, we get to play with about $30,000 to $40,000 revenue per advisor to provide our services. Maybe a little bit more from, you know, the payout override level that comes from LPL. But if I'm doing 3 points on $1 million or I'm doing 5 points on $700 grand or I'm doing 8 points on $400 grand, we're kind of getting to a similar number just to operate the business.

Jeff: Yeah. So if you take an advisor doing $800,000 in revenue, from us they'd get an 85% payout, right? If it's primarily advisory, we're getting 15 points. That's $120 grand coming into the house on RIA. So there's revenue there.

Michael: Interesting. So functionally, like, the RIA in advisory side is just, it's more profitable for the platform at this point because I guess, no offense to them, but you get to cut LPL's layer out.

Jeff: And it's all through LPL. LPL just, they make money different ways. On the advisory side, LPL looks more like Fidelity, Schwab because they're all essentially giving 100 points.

Michael: They're in the custody business. They're self-clearing firms. They're making their spread in the transactions and all the other pieces that come into it. Yep.

Jeff: That's correct. And so, just going back to your question about what's sort of the right size? It's less about the size, because if I look now at the 3 offices that we're opening up in the next 30 days, those advisors have anywhere from $200 million to $300 million individually in assets. And it's not that we wouldn't hire tomorrow. We have. We'll have people joining us doing $400,000 or $500,000 in production. And if they're good people doing good, clean business and they want to grow and be better, we're super, super excited.

I think the fit really is less size and more people who value collaboration. So going back to what we talked about earlier, someone who wants to extract the last penny out of the revenue they're generating is not a good fit. Someone who wants collaboration and wants to grow and just have a better experience for their clients, have more resources, look like the Cleveland Clinic, where we live today, it's a world-class hospital, they want to look and feel like the Cleveland Clinic to their clients, not a solo practitioner, that's the person who's a good fit for us. So it's less revenue-based.

Michael: But I guess sort of mathematically from what you were saying, like, you're sort of, you're kind of $300k in production on the low end and as high as, like, call it $3 million at the upper end if you're averaging 1% on a $300 million of assets?

Jeff: Yeah. So at the high end, it would be bigger than that. We have individual advisors doing more than that. And the model has evolved, by the way, recognizing that as individuals build bigger practices, we want to understand how to support them and what those relationships will look like. So I'll kind of leave it at that. So we've changed nothing other than the fact of understanding that individuals build bigger practices, and we have to figure out how to...if we help them have that level of success, how does a partnership and alignment still continue to make sense? And there aren't many people doing $3 million, $4 million, or $5 million individually, but they're out there.

Michael: And in terms of the RIA side for people that are...decide to do the pure RIA affiliation and don't want to live under the hybrid end, is the structuring different or is it basically same deal, same structure, same payout, same resources, you'll interact with slightly different people because we don't have the LPL layer, we just have the Stratos RIA layer? But is it otherwise the same or is there a difference in payout structures, resources, etc.?

Jeff: No, it's all very much the same. Technology you're going to interface with the same team and same people. Compliance is going to look a little bit different, but it's primarily the same resources, although some differences based on channel of how they plug in, but the economics and structure are all the same.

Michael: And from the advisor's end, is the...the value prop is still functionally the same as well? Because I know just historically I feel like we've talked in the industry about BD support services is different than RIA support services because they're these different channels and they've got these different needs and different compliance rules and the rest. But it sounds like you really just kind of map the same thing onto both because at the end of the day they're all doing...they're all advisors doing advisor business, so they need surprisingly similar stuff regardless of channel. It's only some compliance checkboxes that change?

Jeff: Correct. Yep.

Why Jeff Decided To Start His Firm [1:00:48]

Michael: Interesting. So help us understand just, like, the journey. You mentioned briefly, you know, "We launched this at the beginning of 2009." Interesting time to launch a firm and a platform. It wasn't even though you launched, like, August of 2008 and then were like, "Oh my God, who saw that coming?" two months later. The world was already ending. At least that's how it felt at the time. It's like, the world was already ending and you're like, "I got me an idea. Let's build a practice around supporting advisors while the financial system disintegrates." Help me understand, like, what was going on. What were you doing previously and what led to the launch and build of Stratos?

Jeff: By the way, where were you then to ask me, "What the hell are you thinking as a financial...?" I needed you back then, buddy. I needed you.

Michael: Yeah, it's, God, I'm going to butcher the quote, but I had heard someone that made the comment the other day to the effect of, you know, the funny thing about being an entrepreneur is that it's a good thing more of them don't have MBAs. Because if they did, they would do the math and realize this is a terrible thing to do.

Jeff: Yeah. So, no, I spent my whole career at one large firm, and they were kind enough, for complicated reasons, to basically throw me out in the middle of the night. And I'd like to say that I'm entrepreneurial, but it took me being sort of kicked out as opposed to leaving on my own. And when that happened, I was able to kind of think about what I felt were some of the flaws or challenges in the industry, right? You've got kind of the full-service world, if you will, where payouts are low, and there's a notion that brand and support and all these things are in place. You have the independent world, where there's this notion of autonomy and entrepreneurship and high payouts, but in fact, you're living on an island in most cases to accomplish that. So can you not find some blend where payouts could approach what people would get from the independent space but just have more robust support and resources that...front, middle, and back office to really help people drive and grow and build great businesses?

The second concept, I'll just say real quick.

Michael: Sorry, I just want to ask really fast. So I kind of set up this discussion at the beginning when we were getting started of these polar extremes... all employee, full-service platform, all independent, you're out there on your own and there's this midpoint. So for you guys, truly from the start, your vision was, "I want to build at the midpoint."

Jeff: Absolutely, yes. Yep. I want to bring the attributes that people value and appreciate, kind of that turnkey notion of support that historically they may have gotten from the full-service firms. I think it's arguable today as to whether or not that same value proposition is intact. And the autonomy and excitement about running their own business, but for the reasons that they wanted to. Most people aren't drawn towards independence so that they can sign leases, build out space, figure out technology, HR benefits. That's not what's exciting. So if we can let them enjoy the exciting stuff and a huge lift in revenue, have that autonomy but also have support and areas where they need that depth, we might be on to something.

And then the second notion was, people sometimes evolve or grow away from a firm that they work at, but they don't necessarily evolve or grow away from a firm that they own. So from day one, from day one, I started to share equity at the end of our first year. Even when there was little value at the time, there's tremendous value now, I started to share equity. I wanted there to be an alignment where we're going to help you run and grow and build a bigger, better and more valuable business of your own, but as we succeed as a firm, we want you to benefit from that, too. So we have 100ish shareholders at our own internal stakeholders that probably today own approximately 15% of the company, somewhere in that range.

Michael: Fascinating. So how do shareholdership work? Who gets to be a shareholder? What determines that? How does that work?

Jeff: So our internal stakeholders, staff and leadership, more often than not were granted equity, and then our partners, our field partners, bought it, but at a very deep discount. So the firm that would do our valuation each year would kind of give us a range of value, because it's an art, not a science, and I'd always pick the lowest number, and then off of that number we would then discount it again materially. We had an embedded discount in it. So they knew they were buying it on the cheap. And as they saw the dividends rise and the value rise and everything else, they're super, super proud to be a part of it.

I think we've got an unusually good network of people. Anybody would say that, but I really love the people that we have on our team, in the field, and in our headquarters. And there's an alignment there. They're super excited that we're opening up in three new cities this month. They benefit from it monetarily. And not all own stock, but the advisors who were, you know, productive at a certain level were offered the opportunity to own our equity.

Michael: Okay. So it's sort of a...it's a size production threshold of when you get to the point where you get that option. And does that mean only upon signing or is this even like a shareholder track, you know, if you can grow your practice to a certain size then when next year's cycle comes around you get an opportunity to buy in?

Jeff: Correct. And that's how it worked up until this past year when that program basically concluded. We got into a level that I wanted to. We had, give or take, 100 shareholders, and now, it's really reduced itself only to new people coming in at a level that would sort of move the needle. So that traditional program closed a year ago, but any advisor who comes in today with $1 million of revenue and more is going to get 2 bites at the apple. Two opportunities to own our equity as we've continued to focus on helping them grow the value of their equity.

Michael: Okay. Because I guess at some point, we've created the collective buy-in effects that we want to, we've shared ownership, at some point, it's just getting really tedious to add, like, 1,000 individual shareholders and then do the administrative work and deal with the costs?

Jeff: And it was also meant to be a reward for early adopters. This thing is proven now and it's functional and it's profitable and it's seasoned, and we can provide a great experience for people who came out on in those earlier years. We're still evolving, but there was more evolution occurring then, and we were just kind of tightening up to sort of be the best version of ourselves that we could be. But now that it's established, I still want to make it available to folks who come on who I feel will be meaningful contributors to our continued growth and success.

Michael: And it's just a...it's a striking thing to me. It reminds me of, well, the Vanguard structure in sort of the logical extreme. You know, as a large producer in particular, like, it's easier to not chafe about the payout rates and wondering like, "You know, I feel like Jeff could do it for me, you know, at 86 points instead of 85. Like, I wish I could get that point back." If it turns out that it was actually more profitable than it need to be, like, guess what? You get the dividend check when the firm is profitable.

Jeff: That's a slippery slope. I can tell you that I see a lot of sizable firms, meaningful firms who negotiate on their value proposition. And to me, it's the beginning of the end. So I love you. I want to make you successful. I want to be in partnership with you. Hold us accountable to delivering an experience. Because once you start to negotiate on the grids... And I'll tell you what my philosophy is. So if you're at 82 and someone else is at 85, that's because of your revenue production. If I paid you at 85, I'm doing a disservice to all those people who are producing at your same level who aren't getting it. It's not that I don't want to help you, but I'm not going to do that to the detriment of others. So let us help you grow to that level if that's what you want. I think you've got to be rigid on that.

This is a model. It's what we agreed to. We've never reduced payouts like the wires do. We've never changed any of those components but force us to provide that value to you. Iif you feel, for whatever reason, it's absent, because when you start to play with the grids or any of those things, you're doing yourself and your co-workers and your partners a disservice. And we've been very rigid there, but for a reason, for a reason philosophically.

Michael: Well, and I think frankly, it's a philosophy that's equally relevant to us as advisors and what we do with our clients as well, right? Like, when you get a client that comes in and haggles on the fee, you know, are you going to acquiesce and then you're committing to give them a similar level of service as other clients who have the same resources but have to pay more because they just didn't haggle with you or are you going to try to stand by your value and say, "Look, you know, we believe we're full valued for what we charge, and hey, if you disagree, like, either, you know, I wish you the best of luck finding another firm that's better aligned or better yet, you know, give us feedback and tell us what we can do to be more valuable to justify the fee that we charge, but this is the fee that we charge."

Jeff: It's a great analogy. Great analogy. Either they value the advice and the service that you provide. They can tell you other ways that you can provide more value and service, but when you start altering your model, you're selling out, and more to the detriment of the other clients that didn't haggle than to your own detriment. I mean, couldn't agree more.

His Experience In The Early Years Of Building The Business [1:09:59]

Michael: So take me back again to 10 years ago and getting started and just, what did this look like as you were getting started and launched? Or what were you seeing at the time as the opportunity? You know, you kind of painted, you know, this world of like the barbell. There's the full-service all in, low payouts, big brand, big support. There's the pure independence, high payouts but you're out there on the island. We want to be in the middle of the barbell and, as you've now put it, like, create this supported independence model. But, like, who exactly were you going after at the time? Was there a particular group you were aiming for? Was this more about grabbing independence and supported independence? Was this more about pulling people out of wirehouse world and saying, "Hey, you don't have to go all the way out to an island?" Like, what were you seeing as the opportunity when you were looking to building this?

Jeff: Yeah, I think the opportunity that I viewed was more, you know, breakaway brokers. So figure it out on your own if you want to or leverage infrastructure and a smoother glide path for a transition and benefits of scale that you won't get on your own. And we're going to do it in a way that's far more profitable to you because we're going to be great fiduciaries and stewards of our P&L. We don't need to take 60% of your revenue to do it. We might be able to do it at 15% of your revenue. What I didn't anticipate at that time is that so many people who had already gone independent would see that same value because now they understood better what they didn't know when they left, and that's that there are a lot of other things that need to get done that are important but that can be outsourced and be done by somebody else so they can focus on the things that are important in growing their business. That's the part that I probably underanticipated, how many independent folks would see value as well.

Michael: Well, as you said earlier,  they went independent because they just... they wanted to run their businesses and do a certain thing for your clients. As I put it, the driver for independence tends to be, look, I just want to serve who I want to serve the way I want to serve them. That tends to be the driver even more so than the economics, then we just, make sure the economics fit and not horrible if we make this transition. But it's usually this, I want to serve who I want to serve the way I want to serve them. Which is great. I think it's a wonderful driver for independence, but then as you said earlier, it's like, "Well, if you really want to go pure independent, you get to serve who you want to serve the way you want to serve them while you also negotiate leases and do HR." And then all of a sudden you've got all these other things on your plate. It's like, "That's not actually the part I was signing up for. I liked the other part of the independence."

And if they've gone out there for a while and have felt the pain of, "I really don't enjoy doing that stuff. There's nothing like having that as a motivator," then to say, "Yeah, maybe I just need to pay someone to do this mid-office stuff for me so I can do the parts of my business I enjoy." Whether that's a Strategic Coach, find your unique ability, or just, "Yeah, I did some leases and HR, that sucks. I don't like doing that. Someone else can do that."

Jeff: Right. And here's the thing, too. I mean, you know, I travel a ton, but it's really, and I try to tell people, as much as I'm on a plane and seven meetings a day, it's really not work. And this is the most important thing, and I think you'll agree with this too if you make the analogy from an advisor to clients, when you're with people you just enjoy being with, it's not work, it's those clients that eventually as you get successful and maybe you decide to fire people that don't really value or appreciate you or constantly pushing back, I love the people I'm going out to see. And if I'm helping them grow their business and there's a whole team of us that do that, it's not that hard to have these conversations, help them become the best version of themselves as they run their business.

What you and I talked about earlier, I love nothing more than the conversation of evolution from advisor to CEO. How do they think bigger? You know, fire themselves, hire talent around them and really grow an enterprise versus simply be, and you said, you used great words, rather than just being self-employed, how do they really become an entrepreneur? Not all of them aspire to that. If they want to be self-employed, we want to dial down the noise and let them be self-employed in a more pleasant fashion. But for those who want to be entrepreneurs or evolve from an advisor to CEO, that's not work. For me, it's fun. So I enjoy it.

Michael: So what did the value proposition look like when you started? What did you launch with originally? Because I'm presuming, if only due to resource limitations, it wasn't exactly the same full-service offering that you have today. Where did it start? What did you find worked when you were getting going?

Jeff: Probably the same thing that most of our peers still offer today, just the basics: billing, compliance, financial planning, and maybe real estate. Those were kind of the basics. And the notion that we would help them grow. But we had far less resources to do it then than we do now. The notion of strategic alliances or acquiring practices, we were doing it but with only a fraction of the depth that we have today. And then most of the services that we've evolved to add are not things that we thought they would need, but it's just pain points that they just continue to share with us in the aggregate that we decided to solve for over time.

What Surprised Him The Most In The Beginning [1:15:12]

Michael: So what were the biggest surprises of, I don't know, things you never thought you would be in the business of doing and now suddenly you're in the business of doing?

Jeff: I mean, the technology gets super highly rated. And that's just the experience. You walk into your office and stuff isn't working the way that it should be. Silly stuff. It could be their phones, it could be their computers. When they call this team that we have, the helpdesk, 24 hours a day, 7 days a week and their stuff gets fixed, and what could have taken them hours takes minutes for someone to take over their computer or instruct them on how to fix, people love that. They love that experience.

The practice management side of what we're doing today. They want to build a house, but most of them set out building a house but they haven't gotten a blueprint yet. Chances are that house isn't going to be exactly what they want. So when our practice management team helps them build a blueprint and vision where they are and where they're headed and then helps them, you know, hire the subcontractors along the way to get that to look just the way they want it, tremendous, tremendous feedback on the practice management side. It differs by advisor. And sometimes I'm shocked when I ask them what they value most. Sometimes it's sort of obvious and other times it's just shocking. Helping them on the compliance side when they're nervous about being audited and wanting to make sure that, even though they're well-intended, are they doing things the right way? The right procedures, the right processes?

I think on the topic of compliance, we say no when we have to, but if we can coach them or guide them, "I know you want to do X, you really can't." It's that collaboration of saying, "But you can do Y, and that gets you two-thirds of the way there. Would that be a good solve?" So it's that notion of them viewing us more as a partner and less of an overseer, even though clearly we're an overseer is that desire to find a solution. I think people value that.

And then even the platform, Michael. When I look at, you know, we were an LPL-only shop. A lot of our growth today is not occurring at LPL. We're still growing there, but there's much more going on the custodial side. Rather than people talking because it was sexy and cool about RIA-only, they're actually doing it. Two of our 3 offices that are sizable offices opening up in the next 30 days. They're leaving wirehouses, dropping their licenses as they join and going RIA-only. So the evolution of the platform on the custodial side, on the lending side, on the technology side, it's an evolution that our advisors have driven. So it's no surprise they like it, because they told us what they wanted and what they've needed and we've listened.

Michael: So what surprised you the most about trying to build your own business? Like, just the actual building a business. You know, as you said, like, you were at one firm in corporate environment previously, now suddenly here you're an entrepreneur now in the middle of a financial crisis launching a firm from scratch. What was the biggest surprise for you and just what you had to do or what it took to actually build a business as an entrepreneur?

Jeff: I think I just underestimated the ramp. That probably was the biggest surprise. I didn't think it would be so hard to scale up to a point where...I didn't necessarily want or need to make money, but I didn't want to lose money. I didn't take a paycheck for three years. And I think I underestimated how complex the ramp would be because we already had, not a fraction of what we have today, but on a relative basis, a lot of infrastructure for the assets and revenues. I underestimated that. I also wore too many hats. I really wasn't, you know, a CEO. I was doing 19 different things. Maybe today now I do three or four things. But all the hats that you wear when you're launching a small business. And then it takes confidence to fire yourself and hire people because there's a cost. If you don't backfill with more revenue, more assets, more productivity, you go backwards.

Michael: And that's always, I think that challenging balance point that, when you're the business owner at the top, every hire kind of literally comes out of your pocket. Every new hire is a step back that you've got to try and pray and hope that you can make back by growing more revenue. And at least that's somewhat more manageable when the person you hire can bring revenue, which I think why advisory firms virtually always, even if they're hiring associate planners, like, an associate planner who can bring clients, who can get clients. Like, "Sure, we'll hire you with the salary as long as you pay for yourself." Because that makes it easier. The operations, the admin, the infrastructure hires that ultimately you have to do to make a business bigger is, to me, by far the most painful at the owner level because it just comes out of your pocket on the hope and the prayer that this will ultimately make us a better business that will attract more growth in the future and that the revenue will eventually make up for it.

Jeff: Exactly. So yeah, so the ramp was one thing that surprised the heck out of me. I think maybe just the proof of the model surprised me. I mean, I thought people would feel that way, that they wouldn't mind giving up a little, not a lot, but a little bit of comp under a good stewardship to get back a lot for it. And people have proved that out. Every day we have conversations. Our payouts are extraordinarily high but not the highest. So if you see value in what we do in that front, middle, and back office. And that's proved out, people...many, many advisors want that collaboration.

And I guess maybe the last thing, maybe the more interesting one is that bigger and bigger and bigger advisors are leaving. Our average advisor who comes on today is double or triple the size of the average advisor that joined five or six years ago and they still feel that they want and need the support and collaboration.

Maybe last thing is it shocks me at the age that advisors are looking to sell off a small portion of their revenue. Not in their 70s or 60s, but even in their 50s and 40s, a lot of advisors worry that they've got all this value embedded in this asset and all the things that could go wrong to dissipate that value without being thoughtful about that.

Michael: Interesting. So I guess the double-edged sword, a lot of advisors hold on to, you know, the endpoint of the practice longer than most people anticipate. But you're finding they're also willing to take some chips off the table, a partial liquidity event earlier than maybe others have anticipated.

Jeff: Exactly. And I think they're doing it in part to take chips off the table, but in part more because they like the idea of sort of turbocharging a better version of what they have in collaboration with someone who can bring lots of resources to the table. So they're not only taking chips off and protecting the value that they haven't sold, but they think they can create more value in what they haven't sold.

Michael: So the more classic, they sell a portion of their equity to raise capital to grow the business faster.

Jeff: Exactly. And when I think about raising capital, I'm less interested in dollars from a partner than I am ideas, resources, support, you know, it's all the other stuff. Money is fairly readily available in many forms, but it's the collaboration, I think, that a lot of people seem to value. I know I do, and I think others do as well.

How Jeff's Role Has Evolved Through The Years [1:22:14]

Michael: Interesting. Interesting. And so, how has your role evolved? You know, you've mentioned kind of this advisor to CEO dynamic. Like, were you actually an advisor yourself in the firm early on or have you been in a...you know, kind of put yourself in a leadership CEO role throughout?

Jeff: So I've always had a practice and had a successful practice. And my assistant at the time, who was a great, great guy, about a year after we launched, his name was Andrew, he knew that I hadn't taken a paycheck. He said, "Why haven't you gone after your clients?" I said, "Because I don't feel like I can serve two masters well. Not at the level of what I want to do." He said, "How long do you think it's going to be before you can take a check from the firm?" I said, "I don't think it will be soon." He said, "Why don't you go back and grab a piece of your private practice and bring it over?" Which I did. And I still have a practice today, but I don't spend more than a couple hours a week. I'm aligned with a great team in our office for most of it and then a few other advisors that I collaborate with. And I think that's super, super important.

So I look at you as a CEO, as a developer of content and products. And by the way, we're very happy and pleased customer of something that you offer, that we stumbled across, AdvicePay. So you're doing all kinds of cool stuff, but I still think that you have to be client-facing to not end up in a glass tower and lose sight of what's happening in that conversation across the conference room table with a client. So I still sit in on client meetings every week. It might only be for an hour or two or three. I've always had a practice. I don't think I can tell people academically how to build a successful business if I didn't on my own. Maybe others could, but I couldn't. So anything I tell or coach an advisor to do, I did. And I grew a fairly sizable practice fairly quickly. But at this stage of the game, you know, I don't spend a lot of time there, but it's a critically important part not to become detached from what our partners are doing every day.

Michael: Yeah, I couldn't agree more. It's the same reason ultimately, you know, I've moved away from direct client relationship management responsibilities over the years, but I've always stayed anchored back to the firm and keep at least some client-facing time with, you know, folks that I've supported for a long time in the firm so that I don't forget what it's like sitting across from a client and what those conversations are like.

What A Typical Week Looks Like For Jeff [1:24:31]

So what does the typical week look like for you at this point?

Jeff: It depends. It goes in fits and spurts. So I'm in a couple months stage now where I'm in a different city every day, five days a week. It's easier to do that as an empty-nester. I wouldn't have done that when my kids were younger. My kids are both, one just graduated and is in the business and one is in college and heading towards the industry. But I'll spend a day in the city and we'll do seven or eight appointments and one to two speaking engagements in probably each one of those locations. So it's not unreasonable to have 20 or 30 appointments a week and maybe 5, 6, 7 speaking engagements when I'm on a 90-day stint like that of traveling day after day.

Michael: That's a bit of a whirlwind. I think it's even more travel than I do, and I barely keep up with what's going on in my travel world.

Jeff: Yeah. So I'm fortunate, right? We've got a great team. I mean, all the things that need to happen day-to-day to make things go well and serve the advisors that we work for, we have an outstanding team in place to do that. And I'm involved and I'm available and I'll pick up the phone 24/7 and return the call of anybody who is trying to reach out. But we have a great team that handles all that blocking and tackling day-to-day.

So I'm trying to do two things really, help the partners who are on board with us strategically. So when we talk about front office, they're running 95% of their front office, that day-to-day experience and seeing the clients, it's that 5%, do they win this firm that they're trying to buy? Do they learn the strategic alliance with a CPA firm or a bank? It's that strategic stuff that moves the needle that myself or people like me are sitting in their conference rooms with them. So I would say that my time is spent helping our partners on things that really matter to their growth and, you know, opening up new offices and helping us find new firms to invest in. That's really where I'm spending the bulk of my time today.

Jeff’s Low Point [1:26:22]

Michael: So looking back, what was the low point for you in the journey?

Jeff: I guess probably being let go from the shop that I was at for 23 years in the way that I was let go. Three years later, I was vindicated in FINRA that said there was not a single thing that was inappropriate. It was more political than anything else.

Michael: Oh, so it came to FINRA arbitration for resolving how you were let go. So this was very not pretty, unfortunately.

Jeff: No, I got thrown out with the assertion of, you know, whatever. And it wasn't financial that I was disturbed, it was really more that my reputation was questioned. And that's why I ended up going into a FINRA arbitration and had a favorable outcome. They said there was no wrongdoing and no impropriety. And again, I look back and I can't tell you the gratitude that I have because I love the life. I started off in college. I might have never left after 23 years. But I think the low point was having gotten fired. The stress it put on me and my family. My wife probably would have liked for me to have been an advisor, which I did effortlessly and extraordinarily profitably, but I wanted to build something. So here I'm taking this difficult path, embroiled in this, you know, the exit and all the stuff surrounding my exit, losing $1 million in there. It was challenging. And still, you have to wake up every day and smile with intensity and tell a story that you believe in. And it was tough.

Michael: How do you power through that? Because that is a difficult thing. Go through that much different stuff. "Hey, I unexpectedly got terminated by my long-term firm while I got kicked out, which is now going to be in FINRA arbitration while I start up a firm that I'm losing $100,000 a month on because it's not ramping up as fast." Like, how exactly do you keep the smile on your face every morning? Are you just wired that way?

Jeff: That's part of it. I would say transparency, conviction, and faith. So the transparency is when I called BDs, I didn't call their recruiters, I called the president of the broker-dealer and said, "Hey, you don't know me. You may or may not know me, but I had a meaningful position for 23 years at a fairly large competitor of yours. I was fired for cause and thrown out a week ago, but if you chat with me, I think you'll find I'm a pretty good guy. I didn't do anything inappropriately. I'm going to build something meaningful. And if you want to be a part of that, I'd like to have a conversation." So probably, I think all but one of these heads of very large BDs called back and said, "Number one, you're a terrible salesman by leading off with, 'I was just fired.'" I said, "It is what it is. I have no shame because I know I didn't do anything inappropriately." So that transparency was important.

Conviction, I believed in the model and I believed that we would execute and I believed that we would always be successful. And then without getting quirky, you know, just kind of that personal value system, faith, whatever the case would be, were all super, super important components, and still are today. Those still would be three critically important things today. Transparency in all matters, conviction and belief in what we do, and then just an underlying value system. I think you'll find most successful people probably have some combination, or those would at least be pieces and parts.

Michael: So ironically, even though they told you you were being a terrible salesperson by leading off with the challenge of being fired for cause, that still ultimately actually led you to find a place to land?

Jeff: Absolutely. And there wasn't a single place when I told my story that wasn't willing and accepting to bring me on board before... I mean, obviously, the matter took, you know, years. I mean, the language came out in 30 days, as it needs to. I think it said, "For reasons unrelated to FINRA or compliance," which means it's something personal or otherwise. You know, not one of those firms was uncomfortable. And I still talk about it today readily because I'm not ashamed of it. It is what it is. If you don't talk about it, it looks like people are trying to hide things, and it's just, it is what it is.

Michael: So in terms of the firm, anything that you wish you'd done differently now looking back? One of those, like, what do you know now that you really wish you'd known then when you were getting started, aside from, they never come as quickly as you think they're going to?

Jeff: Yeah, I wish I was smarter. I mean, I didn't know what I didn't know. All the same challenges that a new advisor would have launching their practice, you know, we went through those. We just made stupid decisions, you know, with some of the vendors, with some of the different things that we did. But that being said, no, I think they were all the type of rookie mistakes.

And maybe the one thing that I learned fairly quickly is that when you're in a dynamically growing enterprise, you have to invest ahead of the curve. You don't wait until you're there and then invest. It's too late. You have to invest ahead of the curve with the confidence in yourself that you're going to bring in the business. Because the way we were growing, had we waited, we could have had all kinds of breaks and disruptions. So that confidence to invest ahead of the curve is important. And then team. So if you want people to just smile and nod and say, yes, you should surround yourself with monkeys. If you want people who are going to be intelligent and give you ideas, you've got to listen. So we've got a very bright leadership team. Stock really doesn't matter. I get outvoted often. And if I'm not willing to be outvoted, I should be surrounded by monkeys, not bright, talented people like I'm surrounded with today.

Michael: Yeah. It's one of the things that I know I struggled with in business growth cycle, that comment you made of, you know, when you're a growing enterprise and the importance of investing ahead of the curve. And for years, even as business was growing well, I had this, make hay while the sun shines sort of mentality. Hey, as we're growing, you will absolutely continue to reinvest, you know, and keep trying to support the business and the infrastructure as it's growing. But, you know, I very much had a, like, we'll continue to reinvest as the business grows and, you know, let's just see how it's going. Because you never know if the business is going to pull back. And I never want to be in a position where I've hired people and then have to fire because I overhired too quickly. And so I'd always just run the business fairly conservatively.

And then the growth not only sustained but accelerated, and it buried me. It completely buried me. I've spent probably two or three years across my various businesses, like, rebuilding and deepening bench and infrastructure and trying to get back to the place that I was a few years ago before the growth rate picked up. Because I was so concerned about what happens if the growth stops that I just didn't give nearly enough credence to what happens if it doesn't stop and the compounding continues. Not even just the growth continues, but, like, growth can compound. And I completely misjudged the compounding impact of business and very much learned that lesson the hard way as well.

Jeff: Which is a great problem, but it's still a problem, right? So to your point...

Michael: It's a great problem to have, but it is a problem.

Jeff: Yes. So to your point, the beauty of doing what we do, right, running independent firms, you can have a long-term view. Public companies live in 90-day chunks, right? And they don't make decisions that are necessarily best for the firm long term, they make decisions that reflect most favorably on their equity. On their stock and their performance. So 2014 and 2015 and 2016 were 3 very frustrating years for me. We grew top-line meaningfully. And I wouldn't say that there was no change, but let's just say that the bottom line growth was so modest that we could say is flat. It wasn't flat, but it was almost flat. In 2017 and 2018, our earnings doubled in those 24 months over where we left off at 2016 because all that reinvestment in infrastructure caught on, a little bit of scale added to it and then the profits exploded.

So it's having the ability to invest with a long-term eye, the discipline to continue to execute even when you don't see the immediate results that you're hoping for. And I'm not telling you I wasn't wildly frustrated, I was, I'm like, I'm flying like an idiot. We're growing our revenue like crazy, yet its benefit is not benefiting our shareholders. But I knew we were doing the right things. We stayed the path and we had explosive bottom-line growth in 2017 and 2018. Not because anything changed. We just kind of grew into all that reinvestment in infrastructure. So that patience is important.

Michael: Yeah, Angie Herbers, fantastic practice management consultant, has this analogy of talking about this like the slingshot effect, where, literally, if you imagine holding a slingshot, like, you cannot fire the slingshot forward until you pull it back. And the further you pull it back, the more you can propel it forward. But it literally doesn't work if you don't grab it and pull it back at some point.

Jeff: Did anyone ever tell you you should have a talk show? You've got a lot of great analogies, a lot of great visual explanations.

Michael: I just hear them from people and think they're awesome and try to repeat them and not screw them up.

Jeff: No, it's a great point. But it's painful, right? It's painful when you're making those investments then you're not seeing the benefits. But if it's a well-founded plan and you're disciplined and you execute, to your point, you usually reap those rewards. Not necessarily always on the timeframe that you want, but it happens.

What Comes Next For Stratos Wealth Partners [1:35:30]

Michael: So then, what comes next for Stratos?

Jeff: Well, I think...are you hiring any interns at your firm or no?

Michael: For our advisory firm, no. For XY Planning Network, we're actually trying to work on building out an intern program now and figure out how to structure that.

Jeff: I think I would like to be your intern.

Michael: No, all right, come visit us. Come hang out.

Jeff: Absolutely. I don't know if you saw the movie with Anne Hathaway and Robert De Niro where the old guy was working with a young gal?

Michael: Yes. Well, Mark Tibergien put this whole, like, reverse mentoring thing on the map, right? Like, what does that look like? Although I'm not actually sure we're that far apart.

Jeff: Either that or you're just aging better.

Michael: Oh, man, I'm trying. I'm trying. It gets harder as we go.

Jeff: You know, it's continuing to execute on what brought us to the dance, which is our platform business. Growing and scaling up and executing well on the asset management side, and then being a thoughtful partner to folks that are thinking about succession, monetization, and growth. And to your point, continuing to do that more effectively and more efficiently through the use of good technologies and building out platforms to create not only efficiency for us but for our partners. It's just, it's not that complicated, right? If you ask a client, "What do you need and what do you value?" They'll tell you. If you deliver it, you secure a long-term client. And I like the analogy you make between what we do as an enterprise versus what advisors do for their clients. If we listen to our partners, which we have, and we value the fact that we...I see myself as their employee, our folks are their employees, they're not our employees, if we listen, they'll tell us, and if we execute, we're going to continue to grow a good business. So I feel super grateful. Super grateful.

Michael: So then, what keeps you up at night? You know, what's the risk of something not going the way you expect? Like, is it firm-level? Is it industry trends?

Jeff: You know, I should have something thoughtful to say, but I don't. I'm not super worried about those things. I think that while we may not be, you know, the most provocative thought leader in the industry, I think we're reasonably well informed and have a good pulse. What keeps me up frankly is the notion of how to make sure that the folks who have entrusted and partnered with us are continuing to have levels of success and satisfaction that they want and need, and to make sure that we're running the business and growing in a way that they're proud to be affiliated. Those are the things that I think about.

The reason that I don't take more time off or slow down or ease back the pace is I want to remain committed. And when I'm not the hardest working person in our shop then I'll step down and let somebody else run it. I feel a debt of obligation to the folks who have partnered. So what keeps me up at night is, how can we be there for them and deliver to them and be the partner that they count on us to be for them?

Michael: You know, there's a point in businesses as they grow where just, I mean, I guess, like, the Silicon Valley term is you have product-market fit. Like, I know we produce a thing that's valuable, I know people buy it, I know we can do it profitably, and you get into what I call the don't screw it up phase. Like, you've got a good thing. You've got to figure out how to keep doing it at more size and more scale and maintain the service and maintain the quality. And, you know, it's still an execution challenge to do it bigger and bigger for more and more people while, you know, getting benefit from being bigger as opposed to the infamous, you know, losing personal quality or service or touch as you get bigger. But, you know, it kind of sounds like you're in the don't screw it up phase. Like, you've just got to keep making it bigger and make sure you keep executing what you're doing. It sounds like that's the [inaudible 01:39:11].

Jeff: And that don't screw it up phase can be a dangerous one, right? Because you have to continually...so I want to say this, you have to continually challenge yourself and say, "Is what we are doing relevant in the same way that it was?" It's this concept of Ctrl-Alt-Del. If our firm as Stratos Wealth Holdings did not exist today and we wiped the slate clean, how much of what we've historically done would we continue to do and what would we do differently? Because I think that's the challenge. That's where you can become irrelevant. When you just sort of accept the fact that what you're doing and the way you're doing it as appropriate.

Ctrl-Alt-Del, clean the slate. Yes, we'd be doing some of the things that we used to do, we'd be doing some new things. We might be doing some of those old things differently with evolution and technology and everything else. So the risk is, you know, don't screw it up, but also, don't be afraid to hit those three keys and say, "If I had a clean slate, how much of what I'm doing is as relevant as it was 24 months or 48 months ago." I think that's a risk.

Michael: We had Joe Duran on the show a little ways back, episode 100, and, you know, he made this comment that, I think it was every two years, he pulls his executive team together for a day and basically gives them the task of, "Pretend you were starting a brand new firm and had the resources you need, what would you do to disrupt our business as it exists today? Like, if you could make our perfect competitor, like, you know, the competitor that would perfectly disrupt our business, what would you do? What would you make?" And they identify that as their greatest weakness, and then they go do it to themselves before someone figures it out and does it to them anyways.

Jeff: Yeah, that's provocative thinking, right? It's just, you know, yes, don't screw it up, but, and the part of not screwing it up is challenging the relevance of what you've done. And are you still doing it the right way and should you be doing other things to remain relevant?

How Jeff Defines Success [1:41:03]

Michael: So as we wrap up, this is a podcast around success, and one of the things we always observe is just that word "success" means different things to different people, sometimes different things to us as we go through stages in our own lives. So, you know, you've built this incredibly successful business with Stratos and 300 advisors and $13-plus billion under advisement, but at the personal level for you now, how do you define success for yourself?

Jeff: The same way I've always defined it. The same way I've always defined it. It's the satisfaction of interpersonal relations, and it's people. I live incredibly, incredibly modestly based on what I've been fortunate to have built. It's people that drive me. It has always been people. If engaging in deep relationships with people has helped drive our business then I'm a benefactor of that.

So this is totally off-topic, but I was driving home Sunday, this past Sunday, and I saw this little guy and he's carrying these two bags. And I've seen him in the past, but it was raining. So I stopped by and picked him up. He's from Hong Kong. He's probably 70 years old. Worked in the same factory for a long time. I'm driving to the airport on Tuesday morning, his name is Paul, he lives maybe a couple of streets away. He rents a room from someone in our development. I pick him up, and I'm a little bit late for my flight, but I drive him and I'm catching more of his story. Those types of interactions are more stimulating to me than opening a new office, is kind of these random interactions with real people that drive me, that stimulate me, that motivate me.

I do what I do in our business because I'm able to do it, not because it's what I find the most moving or impactful. And I'm not going to get off-topic, but I can tell you it's random interactions with people day-to-day that have nothing to do with our business that I find most fulfilling and that I'd like to continue to have opportunities to do more of. Because we're on a treadmill. You know, it's just, you're running super hard. So if we grow to $20 billion or $25 billion, whatever that number happens to be, in the next 3 to 5 years, that's great. For me, there's something more from a personal level that I'm looking forward to feel fulfilled and satisfied. I mean, you know, the numbers really don't matter much at some point, but that human interaction to me stimulates me tremendously.

So I always tell people when they think about success, it's not necessarily money, it's not necessarily income, it's impact. There are lots of things you could do that are really impactful that may not create a ton of wealth but could be wildly satisfying. And I've always relished those things far more than money, which is probably why I live the way that I do. I'm motivated. I work like an animal, but it's more because of what I can do with some of the funds that I build more than a lifestyle that I'm trying to achieve for myself.

And I'll say this last thing, you know, understanding wealth and passing on values. I don't know what your background is, but I'm guessing you've created a level of success way beyond what you grew up with, and passing those values on to the next generation so that they don't feel entitled, so that they're motivated, so that they can be their best selves, that's huge. I define success by seeing my kids have a work ethic and an understanding of values and money and everything else far more than hitting $25 billion. I mean, I don't want to say who cares, but I kind of feel like, who cares? The latter, seeing your family healthy, successful, well adjusted, to me, that's success. Interacting with people who have nothing to do to help your business in a real way, that's fulfillment. So that's a little personal, but that's what's on my mind.

Michael: I love it. I love it. And, you know, as you said, one of the virtues that comes from building business aside from, you know, some financial success that may accrue is you also just get more resources to do more of the impact things you want to do in the first place.

Jeff: Exactly. Exactly.

Michael: Well, very cool. I look forward to seeing how that evolves and what you do with your, I guess, impact dollars as it were over the coming years with the firm. Thank you, Jeff, for joining us on the "Financial Advisor Success" podcast.