Below is a transcript of an interview Matt and Larissa (Reese) conducted over margaritas in Hermosa Beach, CA on June 20, 2017.

Larissa: So, 20 years in the industry is a long time…How old do you feel?

Matt: Ha ha!  The industry hasn’t worn me down, but our kids have!  We haven’t slept in 4 years!

It’s very interesting starting a company at 40 years old.  “Entrepreneurship” is so hot right now, everyone is talking about it.  The general thought is you can’t be an entrepreneur unless you wear skinny jeans and a beanie, and you’ve raised Venture Capital money.  We are actually building a services business that has revenue and profits.  The tricky part is our standard of living is much different than a 20 year old!  While I never in a million years could do this without the 20 years of experience we have, I also romanticize sometimes that we could be in a position to sleep on the floor of our office and not have responsibilities outside the company.  In the end, though, I wouldn’t have it any other way!

Larissa: What is the craziest thing you’ve seen in 20 years of wealth management?

Matt:  Ooph.  That’s a tough one.  It’s hard to pinpoint just one thing. 

I started in the late ‘90s.  This was when internet stocks were going through the roof.  IPOs were crazy.  Biotech stocks were hot.  It felt like everyone was getting rich. Sometime around 1998 or 1999 I went to one of the advisors in our office and I sincerely asked, “Why would a client own a bond?”  Our UPS driver would ask us for the UPS stock quote every day when he made a delivery.  Internet trading was getting really hot – people were actually quitting their jobs, thinking they could day trade stocks all day from home and get rich. 

The dot com bust was painful, then the real estate/subprime bubble came shortly after that.  I sold my house in 2004 for no other reason than people were talking about real estate in the exact same way they had been talking about internet stocks a few years prior.  Maybe the delivery driver wasn’t asking about real estate, but I had more than one cab driver ask me about “rental properties.”  I had an open house on a Saturday and Sunday, and I sold it above asking price, with multiple competing bids, on the following Tuesday.  People were leaving bottles of wine on my doorstep saying, “We just love your house!  Please choose our offer!”  And my house was a total tear down!

I missed the full repercussions of the ’08 crisis because we launched Luminous Capital in the middle of all that – my head was down trying to figure out the RIA space and how to recreate the same products and services we had always offered clients at Merrill Lynch as an independent firm.  Merrill Lynch agreed to the Bank of America bail out just 4 months after we launched our firm.  Clients thought we had predicted the whole thing, when in reality we had been dreaming about starting our own firm for some time.  I always remember that crisis through the rosy lens of starting our firm, so based on my personal experience I honestly don’t know how bad it actually got.   

The Madoff scandal was December of ’08.  We knew a few people affected by that – I know you did too.

Larissa: Yes, a close friend of mine lost everything.  He had showed me his statements back when I was an AXA financial advisor, and neither my boss nor I could make sense of them.  I kept telling my friend, “Something doesn’t seem right…”  He thought, like many of Madoff’s investors, “Oh, you just aren’t as smart as my guy.  I’m in an elite club that only a few investors have been chosen to be in.  You just can’t figure it out because it is so sophisticated.  I don’t want to ask any questions because he’s doing me a favor and I don’t want to rock the boat.”  That was awful.  He was almost completely wiped out.

Matt: The Y2K craze was nuts.  I was sitting at my desk at Merrill all by myself at 5 am, watching Sydney, Australia ring in the new year as we rolled over from 1999 to 2000, and I remember thinking, “Are planes going to fall out of the sky?”  It sounds so silly now, looking back, but I can remember holding my breath – there was so much hysteria around that!

I was also at my desk, watching live on CNBC as the second plane hit the towers on 9/11.  We had just opened the PBIG office in Century City, moving from a non-descript building in Beverly Hills to the Century City towers.  Shortly after the Pentagon was hit, they evacuated us from those two buildings – no one knew if there would be more attacks nationwide.  Merrill’s headquarters were right across the street from the towers in New York, so we obviously knew a lot of people affected by that.

Larissa: You made the move from the wirehouse world to the RIA space almost 10 years ago.  What do you see as the biggest opportunity for the RIA industry today?

Matt: The fee-only, unconflicted model is clearly “where the puck is headed,” to use the cliché.  The ’08 crisis, while horribly painful, was the best thing to happen to the RIA space.  The industry was already gaining momentum at that point, but that crisis completely destroyed clients’ brand loyalty to the large wirehouses.  When we were explaining “fiduciary” vs. “broker” to clients in ’08, they would cut us off mid-sentence and say, “Oh!  I just saw this on 60 Minutes – these jerks [referring to large financial institutions] are bankrupting the country!  Where do I sign to become a client of your RIA?” 

By 2012, our marketing was still “we’re an RIA, compared to the big bad wirehouses,” and prospects would say, “Oh great!  I’m at an RIA – thanks for reconfirming my decision!”  You could see that assets were already moving in a meaningful way.  The messaging needed to change to, “This is why our RIA is better than other RIAs/this is what makes us unique.”

Technology continues to improve and evolve in our space.  Asset managers all have RIA distribution channels now, so access to investment opportunities is not a problem.  Lending solutions both for clients and for the RIAs themselves continue to improve. 

As successful as the space has been, it’s still relatively small.  There are still more client assets being managed in the traditional channels than by RIAs.  There is still a ton of AUM up for grabs!  I think it will be somewhat of a self-fulfilling prophecy – as more billion-dollar teams make the switch, they will open the eyes of three or four more teams that will say, “Wow!  If the RIA channel can service that team and their sophisticated clients, it can serve us as well!”

Larissa: Especially with so many service providers eager to help them!  On the flip side, what do you see as the biggest threat to the RIA space?

Matt: Organic growth, without a doubt.  The typical RIA’s business development strategy is, “The phone rings once in a while, and we try to answer it by the second ring.”  Some RIAs say, “We treat our clients like family and we assume/hope/pray that they will tell their friends about us,” but they aren’t doing anything to remind clients to introduce their friends.  The best referral strategy I’ve ever seen is when, at the end of a client meeting, the advisor says, “We’ve done our homework – here is a list of people you know…we’re going to reach out to each of them and use your name as a reference, is that okay with you?”  By framing the conversation that way, the advisor takes all the work from the client and made it easy for them to simply say “yes.”

Other firms say, “We aren’t growing organically, so let’s go acquire another firm and pick up assets that way.”  They forget to look at the organic growth of the firm they are acquiring – they are only focused on the big headline AUM number.  I think they are in for a rude awakening when they pay top dollar for a firm that has simply ridden the market’s upward trajectory the past few years.

Larissa: Do you think robo advisors pose a threat to human advisors?

Matt: Will they threaten the overall industry?  No, I don’t think so.  Will they pose a threat to the subset of advisors that are still positioning themselves as asset managers and trying to sell the performance of their managed portfolio?  I think so.

I say it all the time – United Capital, better than anyone, has the messaging right for the future of our industry.  It’s all about “life planning.”  Clients don’t care about their performance relative to a benchmark anymore.  What they are willing to pay for is peace of mind that their finances are in order and they will be able to meet their goals.  Can they retire?  Can they send their kids to college?  Can they afford the European vacation next summer?  Clients aren’t going to be high-fiving their advisor if the market is down 6% and their portfolio is down 4%.

I also don’t think clients are asking to manage their own portfolio through an iPhone app.  They are demanding that their advisors’ services be offered in an electronic way – they want to be able to pull up their balances on their phone; they want to be able to deposit checks by taking a picture with their phone; they want to conduct a quarterly review with their advisor via webcam rather than driving to the advisor’s office; if they do meet in person, they want the advisor presenting on an iPad rather than with a 1-inch thick bound PowerPoint presentation.  But I truly believe clients want the peace of mind that a dedicated professional is managing their wealth and is looking for asymmetric risk opportunities.  The client wants some level of downside protection with some level of upside potential.  Do they know how to verbalize that?  I don’t think so.  Are they willing and able to research a dozen or more robo portfolios to determine which one provides them the most safety with the most return potential?  Probably not.  They want a human being they trust to look them in the eyes and say, “You are taken care of.”

Larissa: What advice would you give yourself 20 years ago, as you were starting your career?

Matt: I have a tricky answer, because I think much of my success has been predicated on my attention to detail and never letting small things slip through the cracks…but at the same time, I feel I could have accomplished much more, much faster, had I not been crippled by perfectionism.  “Done is better than perfect.”  Or as Gary Vaynerchuk so eloquently states all the time, “99% of ‘stuff’ doesn’t matter.”

There’s a tricky balance – obviously, you cannot have typos in your emails to clients or you can’t accidentally buy 100,000 shares when you mean to buy 100,000 dollars of a security.  Being detail-oriented is critically important.  But at a high level, the “window dressing” doesn’t matter.  Your exact word choice isn’t as important, as long as the general message is conveyed correctly.  I’ve spent way too much time in the fetal position afraid to try things because I didn’t know how to make them perfect, rather than just trying, failing a little, adjusting, and trying again until I got it right.

Larissa: What was your proudest professional accomplishment over the past 20 years?

Matt:  You’d think it was the launching of PFI Advisors, but I don’t think our vision has come to fruition yet.  Our proudest PFI moment is still to come…

Larissa: …I’ll second that!…

Matt:  …Driving home at midnight on the 405 freeway on May 9th, 2008, the day we launched Luminous Capital… that was a big moment.  I had absolutely no idea what I was doing for the months leading up to that moment, and it didn’t blow up in my face that day [laughter]!  All the employees had agreed to join after learning of the new firm, the people responsible for our benefits were arriving in 7 hours to walk everyone through healthcare packages, the computers were working, the initial client conversations had gone well and the custodial paperwork was already heading out the door…it was a very proud moment for me.

The second closest moment to that was walking in the snow down Third Avenue in New York City on my way to my first day at Focus Financial Partners.  I was intimidated both by the city and by my new coworkers, but at the same time, I knew I belonged.  Focus is an amazing company with incredible people – I learned a ton there and enjoyed every minute.

Larissa: One final question, before we order our next round of drinks…Where do you see the RIA industry headed in the next 20 years?

Matt:  I really don’t know.  Sometimes I worry that at the rate we are going, in 20 years, advisors will be paying clients for the opportunity to manage their assets!  I’m joking, of course!

In the shorter term, I think $10 billion AUM is the new $1 billion.  Firms like Aspiriant, Mercer, Savant, and Tiedemann are very well positioned. 

People across the industry have paid us a huge compliment by saying, “You built PFI Advisors’ model because you knew which way the industry was headed,” but you and I aren’t that smart!  No offense, Honey!

Larissa: Speak for yourself! [Laughter]

Matt:  We just listened to what advisors were asking for – transition services without equity give up or a multi-year basis point service contract – and said, “Yeah, we can build that for you!”

I don’t know where the industry is headed, beyond the fact that client assets should continue to flow to the RIA model and RIAs themselves will continue to evolve from “practices” to “businesses” as they aim to support more and more clients.  Beyond that, I just hope to continue to listen to advisors and adjust to their needs!

Now let’s order some more guacamole!

Larissa Marcontell Sonnen is the Co-Founder and COO of PFI Advisors


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