#FA Success Ep 343: The Evolution Of Super-OSJ Platforms To Support Independent Advisors, With Rita Robbins

Resources Featured In This Episode:

• Rita Robbins
• Affiliated Advisors
• Osaic (Formerly Advisor Group)
• #FA Success Ep 337: Becoming An 'Accidental' Entrepreneur When Independence Isn’t Chosen But Forced By Circumstance, With Danika Waddell
• Lord Abbett
• Mutual Benefit Group
• The Strategic Coach (Dan Sullivan)
• Kitces Report On What Financial Planners Really Do

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Full Transcript:

Michael: Welcome, Rita Robbins, to the "Financial Advisor Success" Podcast.

Rita: Hi, Michael. Thank you so much for having me. I'm really looking forward to talking with you.

Michael: I really appreciate you joining us. And just I'm looking forward to a conversation today around, because I'm think about it at a high level, just all the different ways that advisory firms get...build their support systems to operate as advisory businesses. If you go back to sort of the roots of the industry, it was we all worked for regional and national wire houses that just were you were an employee there, they had all the tools, all the technology, all the systems, all the infrastructure, all the support. You showed up, you got your clients, you sold your stuff, you ate what you killed, and that was the deal. You showed up in their ecosystem and you did your thing.

And then over the past, I don't know, I guess, 30 years or so we've had this evolution towards more independent models of various types. It started with the independent broker-dealer, then it kind of expanded to the independent RIA. And this idea of, "No, no, no. You don't have to have all that overhead that they've got with their beautiful New York offices and down on Wall Street. You can go hang your own shingle and do your own thing." And we've kind of painted this picture of the arc of the growth of independence over the past 30 years.

Except to me, it's always fascinating that when you really drill down how advisory firms work in practice, "Well, I'm an independent, but I'm part of a platform, or a network. And they actually set me up with a lot of my technology and my compliance and some practice management consulting. And it's actually a whole other community of advisors who are like me." And it's like, "Cool. So, really, not actually all alone." And might be independent in owning your firm, but you're not really out on the Western Frontier planting your flag in the wilderness to build this on your own.

And I don't mean to say that in a negative way or to belittle anyone. To me, what's interesting about that is I feel we have sort of glossed over in the growth of the independent movement over the past 20 or 30 years that independents are not quite that independent. Maybe "independent" even is the wrong word. They're not that alone and isolated where you are building everything on your own from scratch. You can if you really want to inflict that upon yourself, but most advisors don't.

And so, I've watched this grow with the RIA side of the world over the past 10, 20 years with all the TAMPs and the networks and the platform businesses. But to me, the irony is they're basically just replicating what independent broker-dealers have been doing for like 30 years with the growth of the Super-OSJ model.

And so, I know you've lived that side of the business. And so, I think I'm just excited to talk about this whole dynamic of the support systems that exist for advisors that, to me, at the end of the day, are remarkably similar, regardless of what channel you're in. That there's things we do as advisors, and then there's things that platforms tend to be pretty good at solving for us.

Rita: Exactly, Michael. It is interesting. When we look back... And I can certainly look back, because Affiliated Advisors will be 30 years old next year. And I think about where this started from and how I started. It was very much these...as you say, the wire houses and, wow, the independent broker-dealers and banks having wealth advisors and insurance companies getting into the game.

It's so interesting how much things have changed and yet, Michael, in some really real ways, as you've pointed out, they've really remarkably stayed the same. Because you can go out there on your own and try to build everything, and try to replicate the services and the support and technology. But there's so much out there so readily available and really priced in such a way that you can be successful at being independent. And yet, this can be a lonely business. And I know that there are so many advisors who really love the idea of the freedom that comes with being independent, and yet they still need to be part of and still want to be part of a community. And I think that's the interesting part of this.

Michael: It reminds me of some friends and family I've had over the years that have built their own house. Right? "I want it exactly the way that I want it. I'm not going to take something that someone else created. I have to go create my own thing." It sounds really cool until you're on the seventh hour of looking at doorknobs and cabinet handles. Because you have to...because when you really build from scratch, every possible imaginable choice has to be decided by you. And there are some folks that do that and love that and thrive in that. And it's their dream to get to pick every possible detail, exactly their specifications. More power to them. But most of us are actually not quite so happy when you get to those moments and start going, "I wish maybe a little bit of this was a little bit more out of the box."

Rita: Well, a little easier. And as you say, the amount of time that has to be devoted to these type of decisions. Advisors who really do want to build from scratch as opposed to taking advantage of all these resources and platforms and availability of support that's out there, I think they find that they're spending a lot more time building a business than actually working with clients. And that is always, to me, the sort of Achilles tendon here. It's spending time with your clients and building your business is very different than working on building the actual infrastructure of your business.

Rita’s Journey Through The Financial Services Industry [09:31]

Michael: So, I think to kick us off, help us understand a little bit more just the Affiliated Advisors business, your platform, and what you do.

Rita: Oh, sure. Well, it's very interesting. As I said, I started this business in 1994. I'd already been in the business for about 15 years. I started off with a firm called EF Hutton and I was an assistant to some brokers, and I just instantly fell in love with the business. And from there, I went to work for actually one of the 1st independent broker-dealers. It was a firm called Nathan & Lewis, and it eventually got purchased by MetLife in the early 2000s. And I was there for a few years, and it was really a huge shift. I had been in wirehouses and now it was like, "Wow." Because people aren't sitting in branch offices in metropolitan areas.

Michael: I was going to say, so, what was the difference at the time? Because we talk about IBDs versus wire houses today. We may come back to that later, with the breakaway movement and that whole dynamic. But take us back 30 years ago. What was the difference between a wirehouse and an independent broker-dealer then?

Rita: Well, it was night and day. There was nothing. There's no part of it that resembled each other. I was used to sitting in a branch office in a very upscale suburban area, Garden City, New York, in a branch office for a major wirehouse that looked sort of like the interior of a bank, right? Wood paneling and advisors. And back then, it was telephones and nobody even had computers. And I was in part of the back office at the time and orders used to come in via pneumatic tubes. And I would type them out and send them down to the floor traders.

It sounds really insane, but that was the way it was. And it was a very strict hierarchy, there was a branch manager and a regional director. And everything was very, very standardized. Everything was very uniform. And I remember if somebody was going to buy a mutual fund, we sort of had to scramble and look for an order ticket. Literally, a piece of paper that came in triplicate. And in the mornings, the confirms would be taken off of a printer after a night shift had punched key cards.

Michael: Yeah.

Rita: And so, it really seems like it was definitely another era or 2 behind us, almost in a prehistoric way. And so, when I met this man who became a huge mentor and supporter for me, Jay Lewis, and he said, "I'm going to start this independent broker-dealer. And this way, financial advisors can have their choice of what they want to sell and who they want to sell it to. And we're going to start off with very simplistic products that will appeal to probably advisors who have grown up in the insurance arena. So, we'll work unit trust and variable annuities and mutual funds." And I remember being a little bit dazed, "What are those things?"

Michael: "So, not stocks?"

Rita: Not stocks.

Michael: "Or bonds? What's left?"

Rita: "What's left? No options?" I started in an era, Michael, where people would bring in coupons from municipal bonds and they would go in these little envelopes with glassine fronts. I was speaking to my children about this a while ago and they looked at me like, "Mom?" People literally took a pair of scissors to a bond and cut off these little one-inch-by-two-inch...

Michael: Yeah. The reason you call the interest rate on a bond a coupon is because you literally pulled out scissors and clipped the interest, like a coupon, off the bond, signed the back like an endorsement, and cashed it at the bank like a check.

Rita: Exactly. Exactly.

Michael: And if the bond was good, it cleared. It's fascinating to me just how far the industry has come. But also, the other thing to me that you indirectly highlight in that distinction, that wire houses of the day sold stocks and bonds and options, things traded on the exchange. And independent broker-dealers mostly sold mutual funds and variable annuities and some unit trusts at the time. And just the reason why we originally called them independent broker-dealers, it wasn't actually because you were an independent contractor and the whole 1099 versus employee thing that evolved. It was called an independent broker-dealer because it was independent of an investment banking division in New York City. It meant you didn't underwrite and issue stocks and trade on the floor, actually have your own physical traders on the floor that you sent pneumatic tubes to.

Rita: Right.

Michael: That was the context of what it meant to be independent, was you didn't do that whole Wall Street stocks and bonds thing with all the Wall Street people that you need to do that. You were independent of all that because you were doing these things called mutual funds that had just cropped up.

Rita: You were not even members of the stock exchange. Think about that.

Michael: A broker-dealer that's not a member of a stock exchange? That's like a second-class citizen.

Rita: That was crazy. And it was very interesting because when I went to work at this firm, we really had a really hard time, a really challenging time, convincing advisors that this was a legitimate business model, this was a real thing, this could actually work and it did work. And I remember we would go on the road and talk to advisors. And we started off in smaller metropolitan areas, like in Albany and Syracuse, for instance, in New York, rather than heading downtown to Wall Street.

And it was so interesting to see that sort of light-bulb moment when advisors started to recognize that maybe the constraints that they'd been operating under at these firms and the restrictions that were placed upon them in terms of what they sold and how they sold it and who they sold it to... And, of course, as time went on, it was an issue then as it is now, but I think it became more of a recognition that there were actually some downsides to these big firms that were members of the stock exchange that had been doing business the same way for so long that it was not...they were indistinguishable from each other, other than the reputational risk. And it took a while, I think, for advisors to recognize that there was going to be more freedom, more flexibility, and ultimately a different solution set for their clients.

Michael: So, I know those distinctions today. And we'll, I think, talk more about them when we can move through history, as it were, and get to get to where a lot of this stands today. But I am curious to hear a little bit more of just what it was like then as you're trying to draw the distinction of, "Why would I join Lewis & Co.?" Because Merrill Lynch is a much better-known firm and they trade...they're a member of the exchange, they trade on the floor, they have good traders. "Why would I join you? What do you do again?"

Rita: Well, it's important to remember that that wirehouse advisor was not our target market, that that shift was going to be way too dramatic.

Michael: Okay.

Rita: It was going to be just such a different business model, so alien and foreign that it was never really going to work. So, we targeted advisors who were licensed and working at insurance companies. So, these were typically advisors who had gotten into the business really to sell insurance. And as the insurance companies started to expand their product line, right? Variable annuity...

Michael: They all got into variable annuities in the '80s and '90s. So, they all started registering their reps as, well, dual registrants at the time, which meant state insurance plus a FINRA Series 6. Didn't even need a 7 because they weren't stock brokerage firms, they were doing variable annuities and mutual funds. So, they would get FINRA-licensed and were working in their insurance broker-dealer subsidiary to do the variable annuities while they were doing the rest of their business in traditional life. Those were the folks that you were going after.

Rita: Exactly, exactly. And in some ways, it was really kind of ingenious to start on that trajectory. Because here were people who had really started not being advisors and had started because of the insurance companies' expansion into these profitable sort of "wealth management" products, like variable annuities and variable universal life. And then everybody came to the realization, it didn't take very long, that servicing all of a family's needs that were not just about protection or risk management, but rather that realization of how important a holistic approach to taking care of clients was going to be to the economic health of these insurance companies. And we can look back and see kind of that whole groupthink of how they all started acquiring asset management firms and getting into the mutual fund business and actually the globalization of that whole process. Which we can see as European firms came...have come in and out of the U.S. wealth management market, as well.

So, it was very...it was really very interesting. And we really...I think one of the things that really differentiated our approach as being one of, if not, the first independent broker-dealer was the orientation towards education, to really understanding products and really understanding how they could help or what the downside even was in a way that, for instance, the wire houses might not have emphasized as much. It was a very different business model, a very, very different approach to managing client assets. And in some ways, I think a lot of these advisors went on to be pioneers in the financial planning arena.

Michael: Well, it is worth reflecting. If you look at the roots of financial planning back to the 1970s and 1980s, and where it got going originally, and the early platforms that really championed a more comprehensive approach in a product-driven world, it was life insurance companies. It was IDS, that ultimately became American Express Ameriprise over the years.

Rita: Absolutely.

Michael: And it was Cigna, which then became Sagemark and went the Lincoln route. It was insurance companies that were doing this more holistic approach, you can do more than just sell them the life insurance. If you understand their broader needs and objectives, you can help them across multiple domains. Which then fit well as they were all, as you said, adding broker-dealer subsidiaries and becoming broader in what they did. IDS went from IDS Life to IDS Financial Services. It started there.

So, I guess in that context, to me, it also helps to click and make sense of, so, that's why it was appealing to be recruiting out of insurance companies, because a lot of the more holistic approach was starting to be born of insurance companies. But they were first and foremost product manufacturers. So, they wanted to do more comprehensive planning that led to selling their products. So, when you came as independent broker-dealers, "No, no, no. You can sell any product. We have an open shelf."

Rita: Right. Right.

Michael: "Come work with us. Just do all that planning-centric stuff you're doing, but we'll give you more choices and more flexibility."

Rita: Yes. Much more flexibility, much more choices. And it was also interesting that, in addition to what you've laid out here, I always found that the insurance companies were a lot more interested in educating their advisors about retirement planning, for instance. Obviously, again, leading back to that product manufacturing side. It was very interesting to me to see that, in some ways, the insurance companies really led this dramatic evolution into financial planning and retirement planning. And I don't think many people stop and really think about that, going back, how that trajectory, from probably the companies that we least expected it of, really were the big catalysts.

Michael: Yeah. Fascinating how these things play out when you get 10, 20, 30 years out.

Rita: Absolutely.

How Rita Went From Wholesaler To Starting Her Own OSJ [24:05]

Michael: So, you're building an early independent broker-dealer, recruiting heavily out of insurance channels and the insurance broker-dealers of the era. And was that really the message, was just, "We'll give you a wider range of choices. You'll have a broader shelf with us than what you've got your company"? Was that actually the talking/selling point at the time, or were there other things that you highlighted?

Rita: Well, there were other things, as well. First of all, it was a time when a lot of...there were some economic changes also going on in the sort of career agent model. Which had been a very profitable system of general agents, and then agents underneath them, like these...almost like these fiefdoms, if you will. So, as those models were changing and it was becoming less meaningful from a financial perspective for advisors, a lot of them were leaving the career system at the time, almost paralleling what we're seeing today in terms of advisors at wire houses and banks thinking, "Am I really getting the portion of this revenue that I'm generating that's commensurate with the work I'm doing? Am I paying for overhead that has nothing to do with me?"

So, it was actually the start then of advisors, or agents at the time, starting to take a look and say, "What is in my client's best interest and what's in my best interest?" So, I think it was a combination of factors. And I think not only did we speak to them about this flexibility and the freedom, but also the benefits of kind of having your own business. What do you want to be about? What market is most authentically yours? Where do you feel most comfortable?

And we also took away...there was the pressure of just being focused on selling a very limited number of products. I can't imagine. I can, but I would really hate to really dive too deeply into thinking what it's like to spend 6 or 8 hours on a phone cold-calling to sell life insurance to people. It sounds pretty horrific to me.

Michael: So, how does this play out? You go work with Jay Lewis to start getting this new independent broker-dealer thing going.

Rita: Yes. So, what happened was I had...when I met Jay, I was in the back office and he said, "I think you'd be good at marketing. Why don't you help us market these financial products?" And I thought, "Well, that's great. I don't really know what a mutual fund is, and I don't think we've ever sold a unit trust, but"...

And so, we really...I used to joke around it was like we were on a tour bus. And in some ways, literally, we would pack up a van on Monday morning and drive to all these communities where we had meetings set up. And I would explain mutual funds and unit trust and variable annuities. And a few years into this, a mutual fund company recognized that they had only been selling to wirehouses and regional firms. But all of a sudden, here's these small, independent broker-dealers that are actually producing a nice amount of sales for them.

So, I was hired by Lord Abbett in 1983, to help them develop everything that...where they had never been before. So, insurance company broker-dealers and these independent broker-dealers, and some of the banks were just starting their programs at the time. And I really loved it. I was one of a handful of women wholesalers in the entire country at the time. And I was the first woman wholesaler at...for Lord Abbett, obviously.

And so, for 10 years, I crisscrossed the country every week speaking to advisors, and independent broker-dealers, insurance company broker-dealers, and bank broker-dealers. And I loved it, I loved working with advisors.

Michael: Very cool. And so, this is wholesaling Lord Abbett funds in the 1980s when we're still very much in the heyday of the stock market. This is "Wall Street greed is good" era.

Rita: Yes, yes. This is Gordon Gekko. And I always...when I talk about marketing with my advisors, I tell them I dressed like the female version of the way men dressed. I had a suit, I wore a white shirt. This was the era where we'd wear sneakers on the subway or flying, and then have to put heels on. So, we were...I was very much, and I think the other women who were wholesalers at the time, I think we were very much...felt like we had to emulate exactly what was going on in the rest of Wall Street.

And what really changed, Michael, what really changed for me, was after this 10-year career where I literally was living in advisors' offices, I had a baby. And my daughter was born in March of 1993. And my entire life shifted. My priorities changed. It was really surprising to me. It was actually...it was shocking to me.

Michael: So, you were not expecting things to shift and change?

Rita: I wasn't. Isn't that crazy? I wasn't.

Michael: Just like, "I'm going to have the baby, and then we'll just get back on the road"?

Rita: "I'll get right back on the road." I really thought that, I did. And obviously, I'd never had a child before. So, I had no experience to draw upon. But I loved what I did. I was passionate about it, it was exciting. I really, really couldn't imagine that there was going to be something or anything that would totally shift my perspective on how I wanted to spend my time and what I loved.

Michael: So, what do you do? So, you're still in Lord Abbett wholesaling.

Rita: Yeah.

Michael: And now realizing you maybe don't actually want to be in Lord Abbett wholesaling.

Rita: Yeah. Well, I will tell you that my first trip... Obviously, you're a wholesaler, you're traveling. My first trip when I came back from maternity leave, my husband took a week off of work. And he and the baby and I went on the road together. And I realized this really isn't going to work for any of us. I couldn't ask my husband to constantly travel on the road with me. And obviously, wholesaling with an infant back in a hotel room wasn't going to work for anyone. And it was very interesting. Because I would say that I was well-known, I was... I wouldn't say high-profile, but certainly people knew who I was, I had been very successful. And I just really wasn't getting any job offers for anything other than wholesaling.

So, I took a few months off to try to figure out what I wanted to do. And I realized I didn't really know what I wanted to do. I knew that I loved working with advisors. I knew that I just spent 10 years and I understood what made advisors successful, I could tell right away when I was in someone's office. Because you have to develop that sense when you're a wholesaler. You could tell right away, or I could tell right away, what...why was this advisor successful versus that advisor not being as successful.

And so, just through kind of a happenstance and a fluke, a company that I did a lot of work with, Mutual Benefit, went out of business at about the same time that I was trying to figure out what to do with my life. And so, the...a lot of people, the head of their retirement planning, the head of their broker-dealer, went to work for an insurance company in Minneapolis called ReliaStar Life. And they called me up and said, "Help us get this broker-dealer off the ground."

And so, I started my OSJ without the real...there were no OSJs then. So, it wasn't as if I had this, "Wow, I'm going to start an OSJ." But rather, I went to work for this company, helping them start up a broker-dealer for a very successful insurance company. But I didn't really want to work for them. I somehow knew that I wanted to, perhaps, control my success, because I had just spent 10 years wholesaling.

So, I was so used to being the one who determined, in a sense, my job security and what I was paid that I didn't want to go backwards. Because to me, and I heard this on a recent podcast with Danika Waddell, who said that safety is depending on herself. And when I heard that, I thought that was exactly how I felt 29 years ago. I wanted to just count on myself.

How Rita Began Affiliated Advisors [34:04]

Michael: So, which to me is just an interesting framing. So, you're...you've been largely on your own in the wholesaling realm. Which is just a lot of on the road, make your results happen, and you can get paid well if you make your results happen, but you kind of live and die by your sword. So, you're living that world. You get an opportunity for a nice employee gig at an absolutely massive, secure, safe, stable insurance company and are going like, "Doesn't actually feel that safe."

Rita: "I don't think so."

Michael: "I think the safe thing would be hanging my own shingle again."

Rita: Exactly. And I know that a lot of people were confused by my choice. And...but I can just tell you it was something that I felt very deeply. I just...I knew I could count on myself. And that was the only thing that I really knew. Plus, I felt this additional pressure and responsibility. I was a mother now, and that really felt enormous to me. And in a good way and in a positive way.

Michael: But I feel like most people are like, "I'm a parent now." Job, stable salary, employee benefits.

Rita: Security.

Michael: Yes. These are the things that at least I find the average person seems to gravitate towards. So, not like, "Hey. I'm a parent now and need to provide for my child. I know. Entrepreneurship. That sounds like a great path."

Rita: Yeah. Well, it didn't feel that way for me. I thought about things like the politics. I had seen, not a lot, but enough of people that I thought really weren't smart, who didn't...weren't very successful at getting ahead. And it felt to me like corporate America was constantly going through restructurings, and then there's mergers and acquisitions. And so, it seemed to me and my, perhaps, skewed view of the world back then, although I still embrace it now, it didn't feel very secure. I knew that I could always...I would always do whatever it took to be successful. That was never the doubt. I just didn't want to have my fate and my future and my financial well-being outside of my control and in someone else's hands.

Michael: Because, for better or worse, the one thing that you get from self-employment is no one can up and fire you one day.

Rita: Exactly. Exactly. There's a lot of other downsides to this that we're both very familiar with.

Michael: Oh, yeah.

Rita: And there's a huge amount of sacrifices and late nights and self-doubts and second-guessing. And there are absolutely some downsides to it. But I always felt like one of the things that enabled me to move forward consistently was a huge amount of denial. So, I was just absolutely able to not think about the risks and the downside. I just didn't think about it.

Michael: So, what exactly then were you going off to do when you ultimately made the decision that you're going down this road?

Rita: So, the deal that I had with this broker-dealer from the insurance company was that I would get a small, a very small, override on all the business that the advisors that I recruited to this broker-dealer did. And I thought, "Wow. I've just spent 10 years living in advisors' offices." I knew I knew a lot of advisors.

And that's exactly how the OSJ started. Was I went and met with all these advisors, of course the ones that I liked the best and the ones that were the most successful, and recruited them to this broker-dealer out of this insurance company in the Midwest. And so, sort of off and running. And because I had spent a decade in their offices, I really did know what they were looking for and I knew what they wanted, and I knew what they needed. And obviously, these things have changed greatly over the last 3 decades. But it's very interesting that I was never a financial advisor, I never had clients. I just always felt like my passion and my calling was to work with advisors.

Michael: Interesting. And so, the wholesaling route, 10 years of calling on advisors continuously, was what built the foundation for you to say, "I got a pretty darn good understanding of what this looks like and how their businesses work"?

Rita: It was a great, a great, education. It really was.

Michael: So, help me understand just the business model and the platform as you went to start doing this 30 years ago.

Rita: Well, I actually stayed with that broker-dealer for, well, 10 years. And they were eventually acquired by ING. And that started to...it just didn't feel quite as authentic anymore. Again, it was...I think it was part of the product manufacturing side starting to creep into the options that advisors had in terms of what they were offering their clients.

So, in 2004, I left ING with a whole bunch of our advisors, and we moved to Royal Alliance at Advisor Group. So, the things that advisors need as we move forward and through the evolution of this OSJ, they started to look for the things that a broker-dealer just could not provide, no matter how well-funded they were, no matter how large they were. You're going to always need the technology base that's given to you by the...or provided through the broker-dealer. And obviously, there are capital requirements and a compliance exoskeleton. But advisors, I think then and now especially, are looking for so much more than just those kind of platform features that are available and pretty much table stakes across the board.

So, advisors, in our experience, are looking for much more specialized practice management and marketing and a compliance interface so that they could do their business easily and quickly without a lot of burdens. Where are they going for strategic planning and client onboarding? Another area that we find is really important for advisors now, and it's going to become more so because of the demographics, is where are advisors going to find really inorganic succession planning and continuity planning, and how do they get this in a highly individualized, specialized way.

And so, part of what our firm provides for them is this structure, the coaching, the community, and, in some ways, allowing them to grow their businesses by freeing them up because of the things that our firm, in conjunction with our broker-dealer, provide for them.

How Rita Structures Affiliated Advisors’ Business Model [41:56]

Michael: So, help us understand what this looks like from the business model end. So, you're living in a grid world. And just advisors, we really only know the grid from the, "How much are you going to give me?"

Rita: Right, right.

Michael: Higher percentages win. With, I find, just not a lot of context for what the OSJ has to do for...to maintain either the portion that they get or just the platform in the first place. So, help us understand a little bit more just how this breaks down in terms of how you actually got paid as an OSJ and what the costs were that you had to incur to actually do this for advisors.

Rita: That's such a good question. So, I can only speak, obviously, specifically to our OSJ. Because there are now as many models to that as there are for advisors. Right? So, it is a diverse approach. And the way that we look at it is we have 3 avenues of growth, we have 3 growth levers at our OSJ.

1 is, obviously, recruiting. And we are very focused on that. And almost 1/3 of the new advisors that we bring on board are referrals from existing advisors. So, that's very interesting because it used to be that we thought of success as having a very high level of referrals. But, actually, I think firms that have the highest growth rate don't have other avenues to bring in new business other than just referrals.

The 2nd way that we are successful as an OSJ is through organic growth, it's increasing the revenue per advisor. Which is obviously pretty obvious. But the third way, and the way that we've really seen an increase, is inorganic growth. And to give you an example, the last 4 years, we've probably done close to 18 transactions where we've helped advisors sell or advisors buy practices, both within our organization, about half have been within our own group of advisors, and about half we've gone outside to find the right match.

So, recruiting, organic, and inorganic growth are the 3 big levers that we have. And how we've structured our firm... And again, each OSJ will look at this differently. Is we're coming at it from the perspective of how do we allow solo practitioners and emerging teams to be able to spend most amount of time that they can building their business and meeting with clients.

So, we have taken over an increasingly larger portion of that middle and back office in conjunction with the resources of Advisor Group. So, we have, for instance, our own director of compliance who has been in the business for more than 30 years. We have our own operations specialist. So, we have a team, a client service specialist. We have somebody who just is doing sort of general administrative and events for us. And then I have 2 partners, who are pretty new to working with me, although I've known one of them for decades. And so, each of us have a different area of specialization.

So, my partner, Tom Rippberger, has successfully grown several large RIAs. He is a former chief compliance officer actually at ING, their broker-dealer. Although he, fortunately, made some major career shifts. And so, he focuses on mergers and acquisitions and inorganic growth, succession and continuity planning.

And Trisha Qualy, who is the youngest member of our ownership team, she focuses on practice management, obviously technology, transitions, onboarding advisors, and doing so much for our advisors in terms of their business strategy.

Michael: So, from a business end, where does revenue come from for you guys? Is it all the grid? Is your business you live and die by the grid as the advisors take the other end of it, or does that happen in more ways?

Rita: No. We sort of live and die by that grid, so the way you would phrase it. So, we are paid a small override on all the business that's done, whether it's transactional or investment advisory, by Advisor Group. And it's very interesting that we probably...we have about $3.5 half billion dollars AUA. And the majority of that is on an...is done on an investment advisory basis, something that I thought was very important and started to push many years ago.

So, I don't know whether we're ahead of that curve or just about where it is, but I would say that probably 70% of our revenues are generated on an investment advisory basis and 30% are transactional.

Michael: Which simply becomes a function of the underlying revenue of the reps is 70% advisory and 30% transactional. So, that goes up to Advisor Group. They have their grid payout structure. And of the portion that's retained at the Advisor Group level, some of that, a percentage of that, comes to you as the super OSJ that's doing that level of recruiting, management, advisor support, oversight, just all the things that go in the OSJ bucket?

Rita: Exactly, exactly. And it's interesting that when broker-dealers take a look at these OSJ models versus broker-dealers that don't have an OSJ model, even within Advisor Group, the retention and the growth of advisors in an OSJ model is greater than those that are going directly to the firm itself. And we're...I'd like to think that we're doing better than average, but we have doubled our revenue in the last 5 years.

Michael: Interesting.

Rita: So, we've doubled our AUA, we've doubled our revenue. And we were actually flat last year, which is kind of interesting. But I will tell you that there was a really dramatic growth. And the pandemic, I think, has had a huge impact on the independent space, or at least independent broker-dealer space, in ways that I would... Well, I never anticipated being locked up during a pandemic, I don't know how many of us did. But I was really surprised to see the acceleration of the appeal of being independent really, I think, was something that I would never have predicted, Michael. I would never have predicted that so many advisors at wirehouses and banks were so ill-prepared to be able to work remotely. And that light-bulb moment of thinking, "Wow, I'm just as close, maybe closer in some ways, with my client, my laptop here in my dining room, as I was in that big office that I was commuting to for an hour each way every day." So, I think that really accelerated, in that sector of the market, a movement towards working independently.

Michael: Interesting. So, from your end, there has been acceleration in breakaways from wirehouses and banks just since the pandemic as folks realized, "Oh, maybe I actually can work with my client just fine even if I'm not in the lovely branch location with the lovely tables and the mahogany wood and all that." Just the things we get comfortable with and attached to, and sometimes sort of connect to part of our brand and the brand perception, until you're forced not to go to the office for 2 years and you still serve your clients. And you find out nobody left, and you still grew.

Rita: Exactly. It's like, "I'm not wearing a suit and tie anymore, and my clients still think that I'm their trusted advisor and they still listen to what I say." That authority was not really dictated by their surroundings or what they were wearing. And so, actually, it wasn't even after the pandemic, Michael. It was during the pandemic that we had our best recruiting ever from those sources.

How Affiliated Advisors Attracts Advisors And Clients [51:06]

Michael: So, what's the driver that makes them actually say, "Okay, I'm going to drop and make this switch"? I get them noticing, "Okay, maybe I don't need the wire house the way that I thought I did. Because I'm not wearing the suit and tie, I'm working from home, and my clients are staying." But change is still stressful and not exactly convenient. So, usually, they're still...you have to be going to something to make it worth the switch. So, what were they drawn to to actually say, "I'm going to go through the trouble of this transition"? Is it simply the economics are so much better once you don't have to pay for that overhead that apparently you're not going to use anymore? Was it other factors? What was...what did you actually see as driving the uptick in why they were actually willing to leave and make the transition?

Rita: I think it was several drivers. 1, and there's no getting around this, was technology. Nobody's living in a bubble anymore. And you're online, you're reading, you're seeing this technology that's out there that you can rent, really, right? You can rent fabulous technology. And they're looking at the technology they have. They're looking at how challenging it was to actually get information or have access to information about their clients' accounts during the pandemic. The banks and wire houses weren't used to having advisors in remote locations, like their home offices or their dining rooms. So, technology was definitely part of it.

I think another thing was that intimacy and that closeness that they were able to get Zooming with their clients instead of that coming into the office or being on the phone. So, again, technology-driven.

I think also part of it was this realization that, "Wow, I really don't probably need, I'm not utilizing, but I'm paying for a whole bunch of overhead that is having no impact on my business, on my business growth, or on my clients." They don't care that my dog is barking in the background, for instance, or that I'm homeschooling my child here during this pandemic in a way. In fact, maybe it made it closer.

And I think also there was also a realization that maybe had been brought home in a stronger way that there were some freedoms that they were missing and some flexibility that was definitely off the table that they really had wanted to embrace.

So, also, I think ultimately, people are getting really a lot smarter about being authentically who they are with their clients. What is their practice about? What is the markets that they want to serve? Who are the people that they do their best work for? And I think as they began to recognize, "Maybe I can't be all that I want to be and service the kind of clients that I want to service." And then every year, it gets harder and harder as these hurdles increase because the cost of running these huge global firms increases. I think that just the bottom line is that economically, and then at the end of their career, you can't miss the multiples and the frenzied acquisition activity that's going on in our business. And really, these advisors were completely on the sidelines. And that was never going to be... They were building a business for someone else. And I think that recognition of how much those businesses were actually worth also had an impact on decisions to go independent.

Michael: So, let me ask along those lines though. The... I feel like a lot of the industry discussion these days around business values and the multiples is very specifically focused on the RIA channel. And some of that is just because that's where the media coverage happens to be because it's a little more straightforward to get some of the numbers because you can look up an RIA individually. It's hard to see 1...the size of 1 rep's business when they're on a platform with hundreds of others. But there is, I feel, this perception that the valuations get unlocked. At least the dynamic I hear, it's not valuations get unlocked in the independent channel, it's the valuations get unlocked in the independent RIA channel. And this idea that they're still not fully realizable in the broker-dealer world. But you're...to me, what you're describing here is, "No, no, no. Most of it is just when you transition to anything in the independent platform space, that value opportunity comes to bear."

Rita: We really believe that it does. And I know...because we're part of this industry, and I know that the talk is all about the panacea for many seems to be these...the independent RIA, as if this is the ultimate ideal situation for everyone. And we don't have an independent RIA, and that's been a very, very deliberate business decision not to. And there are several factors here.

One, all businesses are ultimately valued on their cash flow, right? Their revenue, their profitability. And so, it doesn't matter whether you're looking at a car dealership or a technology company or a financial advisor's practice. There are some basic business fundamentals that drive valuations. And that's pretty much true across the board, at least in my experience of working on Wall Street.

So, the fundamentals of driving valuation is always going to be cash flow, profitability, earnings. Right?

Michael: Yeah.

Rita: And, obviously, there are going to be some softer, non-qualitative factors, as well. How...

Michael: Transferability of the business.

Rita: Transferability, duration, growth rates. A whole bunch of... Brand name recognition. There's a whole bunch of things that are going to drive valuations. But when we did the analysis... And both of my partners were very, very successful in the independent RIA space. So, it was not as if we were lacking the expertise for this at all. And it's certainly not that anybody's lacking in the ability to go out and get fabulous technology that can really, really drive profitability and enable these kind of businesses to just flourish and thrive. But when we really did a deep dive on the cost-benefit analysis, honestly, it just...we just realized that it was a different kind of business than what we really wanted to run.

And that's really the surprising thing to us because we're so growth oriented. And we actually did an exercise. So, the 3 of us, Tom, Trisha, and myself, are actually taking a coaching program with Dan Sullivan, this is my second time around. And we did this exercise where we're looking at, "What is your business going to look like at 10X?," it's what it currently is. And when we did this modeling, this financial modeling, and staffing modeling, and all the rest that went along with it, you know what? We realized that wasn't the business we wanted to be in. We didn't want to be staffing up an RIA. We wanted to be delivering services and value and community and coaching to our advisors.

And when we take a look at the scale, we're part of Advisor Group and they have a huge, huge, obviously, scalability of having 12,000, 13,000 advisors. So, when we take a look at what we paid for technology, what the platform costs are, we have 2 clearing firms, so, obviously, trading costs are totally insignificant. We just felt that for ourselves and our advisors, what we would be giving up in terms of our time, what we would be...the kind of business we'd be managing in terms of the size of the team that we would need to be effective and efficient and deliver value just wasn't the answer for us.

Michael: So, can you do a little bit more of that math for me, or just laying out what are the hires, what are the positions? Right? Because there are a lot of advisory firms out there, I find, that think about, "Well, yeah, we could just make our platform bigger and bring other advisors on." Which is a version in the RIA channel of what you live in the Super-OSJ channel, as well.

Rita: Right.

Michael: So, as you looked at this, as someone that's very experienced in building out these platforms for advisors, I'm really curious how you looked at it in vetting an RIA platform offering and saying, "Nope, I don't like the economics." What do you have to hire, what do you have to do that made that not compelling?

Rita: Well, I think part of this, for us, goes back to our values, our passion, and how did we want to spend our time. And, obviously, we're all very driven to be successful and we work very hard and it's very important to us. But I think at some point everybody...or one should stop and say, "What kind of business do I want?" Not just looking at the growth metrics. Yes, we want to be successful. And yes, we want to grow. And yes, we want to be profitable. But when we started to really, really do a deep dive into how much staff are we going to need...

And I don't just mean the things that you can outsource pretty efficiently and...like compliance. But that's something, obviously, you can outsource and have it in-house. That's not going to be a huge cost factor. But where it started, for us, to become less appealing and maybe not really the direction we wanted to go in was the size of the staff that we were going to need to ensure that not only was the compliance done well, but things like, oh my gosh, just making sure that fees are being deducted correctly and performance is great, the reporting on performance is accurate, even though there's lots of technology out there.

And there's just so many functionalities that go along with having an RIA that I think people don't stop and think about it. I think for most people, the thought is, "I'm going to keep 100% of the revenue I generate. And that's going to be so much better than what I'm currently getting now on these grids." But the reality is it doesn't work that way unless you have a lot of scale and you really want to be in the business of managing, for us anyway, a larger team. And that just wasn't where we wanted to go. And all too often, we're finding that people who really don't have a very large amount of assets under management are finding themselves in this, what used to be this, or they believed was this, panacea, this perfect solution, "I'm going to have my own independent RIA." And all of a sudden, they're worried about things that they never had to think about before.

And 1 example, for instance, might be Reg BI. Which thinking that they're being freed from these FINRA regulations, and now all of a sudden, we have Reg BI. And who really has that thought when they get into the RIA business that now their technology needs are not just going to be about things like client reporting and performance reporting and CRMs and all the rest? Now, all of a sudden, it's like, "How am I going to get all these forms out to my clients?"

Michael: It's an interesting phenomenon to me that... Because I'm trying to think of this from 2 ends. 1, just with any sort of business, although I see it a lot in the independent RIA world right now, there is a point where you're large enough that just you can get to the economies of scale to hire all the staff infrastructure you need to do all the different centralized management and oversight stuff that you need. It's large, it's at least billions, and potentially $10-plus billion, before you really start getting to some of those economies of scale.

There is this certain leanness when you're a pure solo and, for better or worse, your oversight obligation is you. And it's usually pretty easy for you to oversee you, because you deal with that in the mirror every day. But then there's this ginormous space in the middle where it's more than you and less than scale. Which, for a lot of advisors that start growing, kind of you can spend 10, 20, 30 years in your career in that messy middle and not grow out the other side because the number is big, and it keeps getting bigger as the demands rise.

And it just...it all revolves around this phenomenon that when you're multi-advisor and building a firm, it's not enough to just provide like tools and the tech and the platform. You actually have an obligation to oversee. Like if the fee deductions aren't working correctly, that's your liability for the firm. If the reports aren't going out correctly, that's your liability of the firm. If an advisor goes out there and kind of goes rogue and does some not great things for clients, that's not just on the advisor and that's not even just on your firm also because they're affiliated with your firm. It's a whole separate layer of failure to supervise, like compliance exposure and liability.

Which I know the broker-dealer world has always lived. Because FINRA, for better or worse, is pretty visible and out there with their failure to supervise penalties and consequences. You don't see a lot of that in the RIA world, at least not yet. The SEC hasn't been as aggressive in enforcement on that end. But I feel like you're just starting to see it crop up now that they're asking more questions of, "Hey, if you're an RIA with a whole bunch of branch locations, particularly if a branch is basically largely independent advisors who just run out of their own houses, how exactly are you overseeing them when they have all those 'branch locations'?" It's not a word that usually gets used in the RIA world, but that's still how the regulators view it.

And just I am fascinated. Anybody that comes from the BD world, particularly the broker-dealer compliance or OSJ world, has lived supervision and failure to supervise risks. And I just find it often gets glossed over in the RIA world when they start going multi-advisor.

Rita: You are so spot-on with this. It's not just that there's an enormous amount of, maybe, unrecognized liability. But when those liabilities actually occur, when there is a failure to supervise or when you go through an SEC audit and something is discovered that you didn't even know about, boy, Michael, that messy middle, as you call it, that's when it becomes shocking for people.

And we've had instances where we've had people leave independent RIAs, take their FINRA licensing, and come back into an environment where they can focus on growing their business and providing solutions for their clients. Because it will only take one SEC audit. When you're spending months, and it can be months, it's definitely weeks, over your conference table, especially when you're a solo practitioner or a small team, this is incredibly disruptive. And I don't even know how you would have the tools, the resources, or the expertise to really be able to completely stay on top of... It's one thing when you're a solo practitioner, although proving best execution, even as a solo practitioner, probably isn't that easy. But when, as you were saying, there are multiple advisors that you're working with, I just think the complexity is much more than people recognize.

And I believe that the SEC is going to catch up. They will be doing more audits, I think their staff is going to increase. When you look at their priorities and rules that are under consideration, I think we're going to start to see, I won't say exactly maybe in the next 5 years a leveling of the playing field, but I think that there is going to be greater attention paid to this RIA space, independent RIAs. And as that...with anything, that bell-shaped curve, those advisors that are stuck in the middle, it is really, really challenging to move to that end that's really profitable and really efficient. And as I said, we have billions of dollars under management and we just felt it wasn't going to be as profitable, as efficient, or as fulfilling for us as everybody else seemed to believe it is.

Michael: So, is there still a...some corporate RIA under Advisor Group option? Just do...can advisors who are working with you have some pathway to RIA? Or is the whole idea, "No. If you want that, just that's a different thing. We're for the folks that are staying 100% FINRA licensed"?

Rita: Well, about...and I think I said this, about 70% of our revenue comes from investment advisory. So, we do have advisors that... Obviously, all of our advisors are working as investment advisory reps of a corporate RIA and enjoy the scale and pricing of this.

Michael: And that's at the Advisor Group level.

Rita: Exactly. Exactly. They are exploring and there are some options of RIA-only at Advisor Group. And I think that you're going to see more and more broker-dealers. We see this at Commonwealth, some news lately about who Advisor Group and Cetera have hired. So, I think there's this recognition that even on the independent broker-dealer side, much like on the wirehouse side, one size has never fit all. And I think that's kind of the beauty of our business, isn't it? That we're evolving to understand that there are going to be different ways that people want to manage their business, and we can accommodate a variety of successful business models.

What Makes Affiliated Advisors Stand Out From Other Broker-Dealer Networks [1:10:21]

Michael: So, how does a firm like Affiliated position itself out there in just what is still ultimately, I don't have to tell you, just a crowded marketplace of BD platforms, RIA platforms, super OSJs under various BD platforms doing their own things at their own level? Just how do you explain the difference of your platform versus everything else that's out there that advisors might be choosing from?

Rita: In some ways, that challenge for us is no different than it is for their... What's the number now, Michael, 80,000 financial advisors in the United States? Is that number remotely...

Michael: Yeah, or why... Depending on whose numbers you use. Because you get the whole do you discount the BDs, the RIAs, the insurance agents, all the overlap. But yeah. So, you're...most numbers I see, you're probably somewhere in the $100,000 to $200,000 range, just by the time you get all the different overlapping buckets.

Rita: Okay. So, I totally underestimated this. But how do you differentiate your practice and the value that your firm delivers and the solutions that they deliver from everyone else? Because basically, we all have that same product set, right?

Michael: Yeah.

Rita: We have the exact same product set.

Michael: And it's a distinction. Because you go back to the early years, and it wasn't that everybody had the same product set. When insurance company A had their products, insurance company B had their products, insurance company C had their products. And either they differentiated on the strength of their products, literally what they could manufacture, or the early days of IBDs where the differentiator was, "Well, you're not restricted to that platform, you have an open shelf." But that doesn't work when everybody gives out an open shelf. Because now we've all got the same open shelf, that doesn't distinguish anymore.

Rita: Right. It's table stakes. Right? It's just it is. It's accepted as just it's part of what is. Obviously, we all have to have that. So, I think a lot of this comes down to who we are as people, what our values are, what our visions are. And I think everybody's practice, just everyone's practice reflects who they are. Right? Your businesses totally reflect who you are. And that's what's made them so successful. Because you're very clear, very, very clear, about what you value, what you're passionate about, what you stand for, and the people that you want to work with. And I think the same thing is true. We are...love working with solo practitioners. It happens to be a part of the market that's generally overlooked. The way so many advisors say, "Oh, I work with high-net-worth individuals." Well, I don't know how many advisors actually do that versus how many of them say that that's what they want to do.

So, I think...

Michael: It's more... We do a lot of benchmarking data on this. It's a lot more aspirational than in practice, just for most of us. "I work with high-net-worth clients" means "I have a few and I would really like more because they are remunerative and I enjoy working with them, they're good challenges and all that." But if you then turn on some of the numbers of, "Well, how many do you have?," it's like, "Well, I've got 5 big ones, and then 127 in the middle market." That's just really where the bread and butter of most advisors are. The average advisor's client is a $400,000 to $600,000-dollar client. That's where most advisors are by numbers.

Rita: So, this...the same thing is true for OSJ models. We're very, very clear about where our market is. We like working with solo practitioners, we love working with emerging teams. Obviously, we want to work with people who reflect our own values and our own vision. Although, 1 thing that is really interesting is that we do want to accommodate what each advisor's vision of success is for them.

And that's really part of what we're all about, which is kind of interesting. Is that we really want to help our advisors build the practices of their dreams. I don't think a lot of people come at it from that perspective. What do you want? What does the future look like for you? And how can we help you get there?

And I think what's very interesting is that we also have a very, perhaps, different idea of what success is. We have 90 advisors. We're small. We don't want to have 900. I'm not saying there's anything wrong with it, it's just not what we want. And perhaps it goes back to that idea about how do we want to spend our time. Is it running a business or working very hands-on, very closely with our advisors?

So, I think we also have a few things that distinguish us as people, leaders, and business owners. And one is that we're very, very devoted to lifelong learning. We really believe in coaching. Not only for ourselves, because obviously that's very important, but for our advisors. So, I think the things that we value, and the services and the experience and the sense of community that we bring to our advisors really helps to differentiate us in the marketplace. We don't want to be all things to all people, and we're definitely not.

So, I think the clearer people are about what they enjoy, the clearer people are about how they're going to define success. And for me personally, it's changed so much over the years. I'd rather do a really great job for some really great advisors than have the biggest OSJ out there.

Michael: So, you had said earlier that 1 of the things you gleaned in your wholesaling days is this perspective on which advisors are actually going to be successful, what drives the success. So, I guess I'm curious now. As you look at that, both then and today, what are the things that you find are actually the success drivers of growth and favorable outcomes for advisors?

Rita: That's such an interesting question. Well, 1 thing I really believe is that this is...in some ways, this profession is so challenging. It can be so difficult, it can be so discouraging. That unless it feels like a true passion or calling, you're not going to be successful. It just takes just way too much energy, time, too much of your heart and your soul. If you don't love it, you're never going to be successful at it.

I think the other thing that's very, very clear to me is that the more that an advisor can truly articulate what their goals are, what they want their practice to look like, what's important to them, what do they stand for, what does their firm represent, what are they trying to deliver to whom and why, without those being...without advisors being really, really clear about that, Michael, I don't know that they can be successful.

Michael: So, the clarity that an advisor has to say, "This is what I'm building. This is what I want it to be. This is going to do...who I'm going to do and do it for," and then speaking about it passionately, that's the one that sets your success meter off, "This one's going to make it"?

Rita: "This one's going to make it." Yes. "This one's going to make it." And that's not to say that these things won't shift and change and morph. Because, obviously, they will. But I think that this is not a business that you can, "It's okay." I've never seen a successful advisor who's like, "Yeah, yeah. This is fine." No, they are driven. They feel a compulsion to help people. They want to make the world a better place. It's very, very obvious to me.

I think the other thing is that when I meet an advisor who really wants to learn, who's really open to learning more, not only about how to provide information and communicate with clients, who wants to learn all about what's going on on cutting edge in terms of planning and taxation and changes that are coming, and really doing a much, much more authentic, thorough, deep dive into a client's entire...and their family's needs and what they want and how to structure this in liaison with other professionals, those are the advisors that are going to be successful. It's the advisor who stays in that same way of doing business that they've always done it, no matter how antiquated it might be, no matter what else is going on in the world about them. They typically are on a road to extinction without even understanding it.

The Surprises And Low Points Rita Encountered On Her Journey [1:19:17]

Michael: So, what surprised you the most on your own journey of building a successful advisor platform in this super OSJ world?

Rita: It's so funny that you ask me that. Because I have a 25-year-old son. And I was speaking to him last night. And I had a situation that didn't work out yesterday and I was really, really disappointed. And he said to me, "Mom, it's kind of amazing to me that you still care so much." At this point in life, I turned 66 last month. And he said, "At this point, I would have thought it was like it didn't matter." I was like, "Oh my gosh, it matters, and it matters so much."

So, I think one of the things that surprises me is that I still really feel like there's so much that I have to learn and there's so much more that I can do. And I'm still so enthusiastic about what I do every day. And I think that, in a way, one of the real surprises to me came three years ago. Well, actually, probably about 5 years ago, when I started to think about my own succession planning. And just have been really blessed and fortunate to find 2 partners who have taught me so much, so much. And so instead of looking at this as this inevitable end to this career that I've loved and this business that I've built, I feel more inspired than ever. And I feel like I have more energy and more enthusiasm than I would ever have expected.

Michael: And so, is that part of what's queuing up for you, is new partners are part of a succession plan pathway for you?

Rita: Absolutely. Absolutely. So, and we're 3 generations, which just happened to work out that way. But I'm really fascinated by how much I've learned from people who are younger than me. So, there are certainly... At my age, I sometimes feel like I'm in the wisdom game. But the truth of the matter is that it's the people who are in their 30s and 40s and 50s that really have the most to teach me going forward than I'll ever learn on my own.

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

Rita: Well, I thought about that and there were actually 2 that kind of vie for the lowest point. The first, the very, very low point, came for...or a very low point came for me when I had a business partner that I realized was embezzling. And it was even worse than I had suspected. And it turned out that he'd been accused of some other criminal activity having to do with finances, and in a very large-scale way.

So, that was absolutely devastating to me, that somebody who had been a dear friend for more than a decade, and finally we merged our businesses. And I'll never forget the moment that I realized that there was something really off with the finances of the firm. So, that was...

Michael: How do you discover that? Just where does that crop up? Because I feel like that's...for almost anyone that's had a business partner that you build with for a while, the trust gets so implicit after a while. It's like I'm not even sure how I would realize it at some point.

Rita: Well, this was really very...it was kind of a fluke. We had an employee who had to go to the emergency room and her health insurance was declined. And I got a call literally around midnight and she was so upset. And I said, "Well, first of all, I'm not sure what's going on. It's midnight, but just get taken care of whatever medical services and attention you need and we'll pay for it." And then the next day I called up the insurance carrier myself instead of going through our administrative officer and they told me that the premiums hadn't been paid on the health insurance policy. And that was...I can still remember what it felt like to recognize that this was the tip of the iceberg.

Michael: So, you go start tracking that down, "Did someone forget to cut a check?" And then you find out...

Rita: Right, right. You think, "Oh, yeah, yeah. It got overlooked."

Michael: "No, it's not"...

Rita: No. It's not that at all. There's huge sums of money missing. And then, yeah. So, that was pretty devastating. And I really wasn't sure how I was going to move forward. I was so paralyzed. I was so... That sense of betrayal was just so horrific that I really... And I will tell you that I think what kept me going was that I felt this obligation to this team that we had. Ultimately, in very short order, we separated out...I separated my business back out from his. And ultimately, that other company is no longer in business and it became a very public problem. Not just with me, but with some municipal pensions. And it was really, really...

Michael: So, there was a lot of missing money from a lot of big things.

Rita: Yeah, big missing money from big things. And yeah, so that was horribly, horribly devastating.

Michael: In retrospect, was there stuff you would have done differently? Or is this one of those you just can't see it coming until it happens?

Rita: Well, in retrospect, and I would just say this. As much as you trust and admire, as friendly as you are, as unimaginable as it could possibly be, I would say trust, but verify. So, have a system where there's an openness or a way of checking finances of your company.

Michael: Yeah. I had talked to a founder, once a serial entrepreneur type, that said basically, no matter the size and stage of his businesses, from pretty small up to quite large where just you have a lot of resources to make choices, he said, "I always 100% of the time outsource all bookkeeping to a CPA firm." And he was like, "Just because it's just another layer of checks and balances that happens." And you may or may not pay them a tiny bit more than what it costs internally. Although, usually, it's not a huge differential. But he just said, "Look, they don't have any skin in the game. Their whole purpose for existing is just to account for things. They're really good at it. And just you remove a certain layer of internal kind of controls and reviews, risks, when there's just an outside CPA who's just going to make sure the math adds up every month to close the books because that's what they do."

Rita: Absolutely. Absolutely.

Michael: I never particularly thought of it that way. Just to me, even from the business sense, "Well, all right, we can do this externally because it's a little cheaper. But then at some point, maybe it's big enough that we bring the position in. And we can pair it with some other responsibilities and write a job description." And he was just, "No, no, no. This is just a checks and balances thing for your business. Just have someone outside do it." And it was a version of this. I don't know if he'd actually been hit by a fraudulent partner, but it was a version of this, that it's a lot harder for someone to cook the books when there's an outside CPA who's just going to see the math doesn't add up pretty quickly.

Rita: And that's brilliant. And you're right. Typically, people think, "Oh, I'll pair that with a payroll functionality and there you go."

Michael: Yeah, yeah.

Rita: "We've got the better part of a job here."

Michael: Yeah, books, payroll, and benefits is a pretty straightforward hire.

Rita: Pretty straightforward. I'll tell you the other thing. And I really...this was also so devastating. So, during the financial crisis, we...at the time, Advisor Group was owned by AIG. And I literally remember that day. It was September 16th, when the federal government was going to decide whether they were going to bail out AIG. And just think about this. My advisors are already dealing with really probably the most disastrous financial events that they're ever going to experience. Right? And they're looking at clients just getting...their accounts are just decimated. Literally, I had advisors say to me, "Rita, should I be stashing cash under the bed?"

Michael: Yeah. I remember the conversations of people who were literally getting money out of their bank accounts just so that they could be cash in a safe to be liquid in case banking stopped working on Monday. That was a legitimate conversation happening at the time.

Rita: Oh, totally legitimate. And here I am in New York City and you're watching employees crying and boxes in their arms as they're streaming out of Lehman Brothers, right? And Bear Stearns. Just all of it. Remember? All of it. It was really horrific.

So, I remember it was September 16th because it's my son's birthday. And I remember saying, "I can't come home for a couple of hours." Because I just couldn't, I had to be there. And I made this deal with my advisors, "Here's what we're going to do. I'm going to find an option B. Because we might need an option B. You're going to take care of your clients." So, that was one way that at least I was able to keep busy. I spent a lot of time talking with other broker-dealers and where would we go and how would this happen. And it wasn't... What I cared about was, "I need to take care of my advisors while my advisors take care of their clients."

And so that sort of commonality of purpose, "I'm going to take care of them the way I want them to take care of their clients," it kept me moving forward. Because I didn't have the time to let myself melt down. That denial really kicked in and I was just focused on it. And I remember the sense of relief that AIG was going to get bailed out. But what I hadn't known was coming was the enormous backlash and the anger against AIG that we were partially spared from. But I remember saying to my son and my daughter, "Don't use those AIG backpacks anymore." Really, people were that angry, right?

Michael: Yeah.

Rita: So, that was...wow, that was a time I look back and...I guess we all do, and think that is another time when groupthink really not just impacted our industry, but an entire...everyone's lives to a greater or lesser extent, right? Everyone thinking that there was just one way real estate prices could go. Right? And easy, cheap credit.

And so, yeah, I think that has also permanently changed the way I look at things. And I think I've become more conservative and probably not as adventurous or probably risk-averse in some ways than I was before that whole financial crisis. I think I've become a lot more conservative in the way my own personal finances work, what our company's financial picture looks like. And maybe that's not a bad thing.

The Advice Rita Would Give Her Former Self And Younger, Newer Advisors [1:32:04]

Michael: So, what else do you know now you wish you could go back and tell you 10-plus years ago as you're...30-plus years ago is you're first day started looking at this?

Rita: Oh, boy. So, I think I would...I wish I could go back and tell myself not to worry quite so much about everything, that things kind of work out. Because I...during both of those situations that I talked about being very low, the lowest times of my career, I wasn't really sure that they were going to. And they don't always for everyone. But I think that I spent a lot of time worried about things that... Sort of "don't sweat the small stuff." And so much of it is.

So, I wish that I had been a little more relaxed about things and not quite as worried. And I think that maybe goes hand in hand with having a little more confidence that...in myself and my ability to focus and execute, and to not underestimate that hard work and...really does pay off. There's not a lot of people who've really devoted themselves to something that hasn't had it work out, is there? Obviously, someone has to lose an election and businesses do go bankrupt. But I think if you're kind of thoughtful and you're focused, I think I wish I'd been a little easier on myself.

Michael: So, what are the small-stuff things you're trying to de-fret now? I can look up that word.

Rita: Yeah. So, I would not get as caught up in everything that did not work out. That I wouldn't go back and do deep dives about what went wrong. I do like to take things apart and learn, because I think sometimes I learn more from my failures than I do my successes. But I think I wouldn't take it quite as personally. I think sometimes there are just business cycles that are the way they are and there's nothing that we can do about that.

And I think the other thing that I would continue to do, but maybe in a broader, bigger way, is more formally be able to support younger advisors and people that I believe really have a place in our profession and that haven't been able to find entry points. So, I'm not sure exactly what that looks like, but I know that that's the next chapter for me, is how do we get the kind of people that typically we haven't served very well in our profession and that really need to be part of this profession going forward. So, that's something that I'm concerned about and I'm worried about and I'd really like to be more involved with in a larger way.

Michael: So, in that vein, what advice would you give to younger, newer advisors looking to come into the industry today and try to get off on a good foot?

Rita: Okay. So, first, it would be believe in yourself. Believe in yourself and be who you are instead of as I used to feel I had to be this female version of the men that I worked with. Right? So, be who you are, be genuinely who you are. Because that is your...one of your biggest assets. And learn as much as you can from everyone all the time.

And I think the other thing that I was really not as good at as I should have been is ask for help. Ask for help. There's a lot of people out there that really want to support you. There are organizations that really want to help you get to that next level. And whether that's through education or mentoring. Go for additional training, learn everything that you can, and be confident that it's going to work out. Because it will, it absolutely will.

What Success Means To Rita [1:36:20]

Michael: So, as we wrap up, this is a podcast about success. And just one of the themes that comes up is the word "success" means very different things to different people. And so, you've had this wonderful 30-plus year career of building the super OSJ world, and Affiliated is now up to, I think it's, 90 advisors and many billions of dollars. And so the business has certainly gone very well. How do you define success for yourself at this point?

Rita: Well, I'll tell you. I define success by the success that my advisors have. I have been really fortunate to work with advisors for many years. And one of the places that is most rewarding for me is we have several practices where the adult children of the advisors are now involved, and that is incredibly rewarding. Just...it's just absolutely incredibly rewarding.

The other way that I define success, and this might be very simplistic, but I had this goal that I wanted...my husband and I wanted our children to be able to get through college debt-free. And my son graduated a few years ago and that was a huge, huge milestone for me personally. I never went to college and I just felt that this was something that was absolutely essential and that I really wanted for my children. So, for me, it might be simplistic and...but, for me, the success of knowing that my children got great educations and they were able to do without incurring debt.

So, I think that the satisfaction of watching other people succeed is really how I define my own success.

Michael: Well, very cool. Very cool, I love it. Thank you so much, Rita, for joining us on the Financial Advisor Success Podcast.

Rita: Well, Michael, thank you so much for having me on. And I really want to thank you for all the things that you've taught me and so many others in this industry.

Michael: My pleasure. My pleasure. Thank you.

Rita: Thank you.