EPISODE 12

Matt Sonnen [00:00:00] Welcome back, everybody, to Episode 12 of the COO Roundtable. This episode marks one full year of podcast episodes for us, which I am very proud of for three reasons. Number one, the quality of our guests that we have had the opportunity to interview and the insights they have shared with the RIA industry have been beyond my wildest dreams. The second reason that I’m proud is people are actually listening to a practice management podcast. The feedback has been phenomenal. I’ve had some very nice people tell me how much they enjoy it, how much they’re getting out of it, and that they are sharing it with their coworkers. I honestly didn’t know if this was going to work. So thank you, everyone. From listeners to former guests, you have all made this an incredible experience for all of us at PFI advisors. And number three, I’m proud that we’ve managed to accomplish so much in such a short amount of time. All on top of the fact that one year ago, I don’t think I even knew what a podcast was. So thank you, everyone, especially Anna and Alex on my team, who originally had originally raised the idea of a podcast for us. And in terms of guests, I never thought we’d have the opportunity to interview. Today’s guests are incredible. This is sure to be a deep conversation around the role of the COO and the importance of professional management at RIAs. We are joined today by Karen Novak, the chief operating officer at Pershing Advisors Solutions. Hello, Karen. Thank you for being here.

Karen Novak [00:01:21] Hi Matt, thank you.

Matt Sonnen [00:01:22] And she is joined by the one and only Mr. Mark Tibergien. Welcome, Mark. Thank you so much.

Mark Tibergien [00:01:28] Great to be here. It’s actually, the one and only Karen Novak. I’m glad to be here. Thank you.

Matt Sonnen [00:01:33] So as you all know, Mark is the CEO of Pershing Advisors Solutions. So we have the opportunity to talk with both of them about how they divide and conquer their day-to-day tasks and how they interact as CEO and COO, which will be great. And I’m not sure if he likes it when I say this, but I consider Mark to be the godfather of the professional management concept within the RIA industry. I think it all really started with him. So we have the opportunity go deep on the benefits that professional management can bring to RIAs. And in my mind, the further evolution that still needs to take place in the minds of advisors within our industry. But first, I wanted to start with Karen. Karen, can you tell us what your role as COO of Pershing Advisors Solutions entails? What does your day-to-day look like?

Karen Novak [00:02:14] Well, my overarching responsibility is really running the day-to-day business, ensuring that we’re executing on the strategy that the senior leadership at BNY Mellon Pershing has put forward. And I’m really, really fortunate to have a terrific team that works alongside of me that has overall responsibilities for their particular areas, whether it’s client service, technology, compliance, operations; so that I am not brought into really day-to-day items, so to speak, more escalated issues that would impact our key clients or there might be a regulatory or legal risk issue. Those are the types of things that roll across my desk day-to-day, and that allows me to really focus on things that I enjoy more than the blocking-and-tackling around strategic investments, strategic initiatives, participating in those types of projects. I’m really passionate about the human capital component of our business. I spend a lot of time engaged with our team looking across the organization to ensure we’ve got the right people in the right roles and that we’re investing the right amount of time into growing, motivating, and engaging our team.

Matt Sonnen [00:03:24] Perfect. That’s a great backdrop. And Mark, you obviously speak at many industry events and I’ve seen you get embarrassed and almost frustrated when it takes people 15 minutes to get to go through your long list of accolades and career accomplishments. You’ve done so much for our industry. So I won’t do that today. But I am going to tell you a very short story that I’m guessing you are not familiar with. You may or may not know that Eddie Van Halen was primarily influenced by Eric Clapton. Eric Clapton was the reason he picked up the guitar in the first place. And Eddie’s first bit of fame was the fact that he was the only eighth-grader at school that could play Cream guitar solos note for note. So they used to allow him to play these mini concerts at lunch when he was in middle school. And later on when Van Halen hit it big he was invited to an industry event that he found out Clapton was going be at. So being the true rock star that he was, Eddie proceeded to drink himself into oblivion in anticipation of meeting his guitar hero and the inspiration for his life’s work. He was just too nervous to meet him in person, and he didn’t know how else to cope. So for the hours leading up to the event, he continued to throw back drink after drink. And he says that by the time he met Clapton, he was a complete embarrassment and he regretted the day for many years. I promise you both I am not drunk this morning, but I am beyond excited to have the opportunity to talk to you about professional management. We’ve tried to follow in your enormous footsteps here at PFI advisors and do our part to convince RIA owners that they cannot achieve their organic or inorganic growth goals without proper professional management in place. But no one has done as much in this area as you have. There is a slight chance I may vomit from excitement. I’m just warning you both. But on that note.

Mark Tibergien [00:05:02] Well, that’s an incredible story. I am embarrassed and flattered both by the analogy and I do appreciate the fact that you didn’t get loaded before you came on. Although that would have been a much more interesting podcast, had you.

Matt Sonnen [00:05:20] It’s not easy making these topics interesting for everybody to listen to. So thank you. But this I’m really thrilled. So let’s talk about the importance and uniqueness that can develop between the CEO and the COO. We just had Kelly Cruz on the podcast and she had one of her CEO clients, Jim Regitz was with her and they talked about how Jim’s life changed drastically after bringing in a COO and how he and the COO divide and conquer their day-to-day. You both have been collaborating and leading together for more than 11 years. So I’ll go to Mark first. Can you just explain the benefits, the positive impact that the CEO and COO dynamic can have on the organization?

Mark Tibergien [00:06:02] Well, there are multiple benefits, but not the least of which are the benefits that Karen outlined. Is that running a business is extraordinarily complex and it isn’t something that can be done just part-time. It’s something that really requires a focus, particularly if you intend to create something that’s enduring. So from our standpoint, from the moment that I joined Pershing, I’ve had Karen as a key part of the team. Her predecessor left a short time after I arrived and she moved into the Chief Operating Officer role. And what we were able to do is to clearly define what the expectations and the needs were of both. What was critical is that we had the right kind of rapport and chemistry to make it work, and that we had an understanding of how we would hold each other accountable and we’d understand what each would do. So in my particular case, my job was really to focus on strategy and vision and culture and really create the outline for how this business would grow and be more externally focusing in order to build this business. Where I often say that Karen actually runs the business, she runs the business day-to-day, making sure that the trains run on time, keeping us out of trouble, but also ensuring that people are engaged, that clients are serviced, and that the way in which we do business is done with as few errors as possible.

Matt Sonnen [00:07:25] I think that’s exactly right. I’ve always said the COO’s job is to execute on the CEO’s vision through both people and technology. And we’re going to get into that in a minute about how you balance between the tech side of the position and the people side. But Karen, why don’t you weigh in a little bit on the CEO-COO relationship and dynamic?

Karen Novak [00:07:46] Yeah, I’m glad you mentioned how long Mark and I have been working together because I don’t think many of our competitor firms can make that same claim where their two leaders have been in place working as successfully as we have. So very proud of that fact. And, you know, when you think of any long term relationships, you really look at the core values or characteristics that both parties possess. And Mark touched a little bit on it. I think it’s that mutual respect and admiration that we have for each other, the willingness to learn from each other. It’s very clear where our roles–you know, the defined lines of our roles and responsibilities. Yet we’re not so protectionist or territorialist that we don’t allow one to go into the other area. Always receptive for feedback to receive it and to share it. And I think that that has become the culture of our organization and has really had an incredible impact on the teams that work with us not only the executive leadership team within Pershing Advisor Solutions, but all the employees that we have across the globe. Relationships, I think, such as ours, where we have the type of dynamic and the decision-making approach that we take is a ripple effect to the rest of the organization. And we’ve heard from so many of our clients when they are investing in professional management, adding into their team. It can be a really terrific add. It could be really horrific at the same time, if there’s not a cultural fit and there’s no aligned vision on how we’re going to move the organization forward. So for me, I’ve had a wonderful opportunity to work with Mark. But more what’s been equally rewarding is to be able to share with the rest of the organization and see the rest of our team demonstrate and represent our organization the same way we’re aligned as the heads of the business.

Mark Tibergien [00:09:37] You know, Matt, just a couple of points to add to that, too, is while we have distinct responsibilities in what we do, that it all has to be done in concert. So the whole notion of the music that we create as a business really depends on whether or not we are looking at the same song sheet. And in this case, that’s something that’s mutually developed. Earlier, we talked about the CEO creating the vision that may be partly true, but in reality that’s something that is done in harmony with the rest of the leadership team. The second element of this that’s really critical when we look at success is how do our other leaders emulate what we’re doing that’s working? And how do they provide feedback to us when it’s not working? And critical to that is seeing how each of them will evolve. Both Karen and I have succession plans. We make that a priority at the end of every year, we talk about how we’re progressing on our own continuity plans because that ensures an enduring business here and we have to keep thinking in those terms. We also tend to look outside of our own business to see what kinds of individuals we can bring in to enhance what we’re doing. And those are really critical as we think about the business because the people aspect can never be underestimated. And that is really the lesson for every advisory firm that wants to endure is how they think about creating a business where they are ultimately replaceable. And that may seem like heresy, but it’s a way that both Karen and I view what we’re doing is that we don’t intend to be here for the rest of our lives and the business is going to continue as it has for a couple hundred years. And we want to make sure that we continue to develop people that make sense that way. 

Matt Sonnen [00:11:19] That’s great. That’s a perfect segue into our next question. So as I said, a lot of people assume the COO role is just a technology position, at least the COO role within an RIA. They think it’s just focused on the technology stack and vendor management, really. But in my mind and we’ve talked about this a lot on this podcast, it’s really a people position. So, Karen, can you speak to how you’ve motivated and organized the people that are looking up to you to lead within Pershing Advisor Solutions?

Karen Novak [00:11:47] Matt, I cannot emphasize enough the importance of somebody in a role like mine where the people come first. It’s not enough to just state that as part of my responsibility, it’s even more important to demonstrate that. And I make a point of demonstrating that on a very daily basis. And it’s really part of our vision to be the employer of choice. We want to make sure that we are attracting employees to our organization that want to be here and that we are providing opportunities for their progression professionally and personally, and that we’re committed as an organization to investing in our people. And I joke a lot of times with my team that I am that kind of a COO for the people. That the decisions that I’m taking, some of the quirkiness that I may demonstrate is really around showing the rest of the organization and the team that we have that I am just like they are. My role, my title doesn’t define me. I’m defining who I am. And when I come into the office every single day and just some examples, that’s kind of a quirkiness: we have a number of theme parties every year, Halloween in particular. And there are, I guess, unfortunately, some photos of myself dressed as Madonna from the 80s. Mark and I have actually gone together one year in our black tie with a red carpet theme and we came together in our black tie attire. So I do what I can. I think it’s very important to really be able to personalize the relationship I have with the team here on whatever level that means. And it starts at the onset of bringing employees into the organization. I’ve made a point of making some changes to the employee onboarding so that on that first day our employees feel that they are part of the team. It’s really daunting on that first day when you start work, you’re coming to a new building, you’re meeting a group of new people that have been working together for a long time. So we’ve implemented some steps to reduce that anxiety and create a really wow experience for the employee right out of the gate. I’m involved in that. I’m also involved in a number of skip level meetings, not only with those in the Jersey City office for on-base, but when I travel to our regional offices. I don’t attend meetings on my calendar that are standard meetings. I’m attending skip level meetings with all the employees that we’ve hired in the last period of time since I’ve been there and really hearing from them as to what’s working well, but most importantly, getting to know them on a much more personal level. I say from organizing the team, one of the comments I want to share is our focus on diversity, inclusion, and it is something that is core to our part to how we approach building our team, promoting from within. Proud to share that right now we’ve got 51 percent of our staff are women. 49 percent of them are men. And we’ve made some really great improvements in terms of cultural and ethnic diversity. We’ve got a ways to go, but really proud, proud of the commitment that we’ve made and demonstrated to our teams that this is an important part of growing our business, helping our employees grow their careers and being that employer of choice that its employees want to come to; and they’re motivated and they’re engaged. Helping us to achieve that overall strategic direction.

Mark Tibergien [00:15:33] Yeah, I might add to that, Matt, the diversity and inclusion and equity components of our business have been a critical part that Karen has led in. While it’s true we are 51 percent women. It’s critical to also know that we’re 41 percent people of color. So if you look at the advisory profession, by comparison, the advisory profession is 23 percent women and 8 percent people of color. So in some respects, this is really a template for how people in the advisory business have to be thinking about how do we create diversity, not just for the sake of it, but because it reflects what our industry should be. It’s diversity in perspective, diversity in experience. And frankly, it’s a reflection of the face of the communities that we serve so it becomes core to our business.

Matt Sonnen [00:16:31] And obviously, inclusion is all over the headlines right now for our industry. So it’s incredibly important. Another thing you mentioned, Karen, is that onboarding that Day One experience, I do see that as a mistake many RIAs make. They’re very small organizations, like we’re talking 20, 22 people, whatever it may be, everybody’s going a hundred miles an hour. And I just I see it a lot that first day a new employee starts. It’s “well, there’s your desk. Somebody will be by in half an hour after they’ve gone through their morning e-mails and they have a minute to start your training.” But there’s no formal welcome. There’s no formal plan. This is what your first week on the job’s going to look like. We have you working with Susie over here for a couple hours on these things. That’s something that we should do more talking about in terms of that first day experience. I think that is a big missed opportunity. You work so hard to hire the right people and then they go home that first day not feeling great. So, I think that that’s a very important thing that you brought up.

Karen Novak [00:17:34] I think over the past number of years, large organizations like ours, not necessarily advisory firms, but the HR component becomes much more decentralized and we’ve taken the opportunity to capitalize on that. And I’ve become a real stickler that name tags have to be on the desk, desktop, their laptops and computers need to be on the desk, a chair. Sometimes, you know, I’ve heard stories where employees show up and don’t even have a chair at their desk. And we’ve also we’ve instituted a buddy system so that we’ve got somebody within the team in a similar role that is working with this new employee so that they can help them navigate to the firm, take them on a tour of the building. But also, you know, throughout the day, there are questions that are going to come up and the manager is not readily available. So, there is this second individual who can be a support system to help that employee really feel like they’re getting integrated as soon as possible. And we’ve seen incredible benefits out of it. We get terrific feedback from our staff. They’re really pleased with the progress and the outcome.

Mark Tibergien [00:18:46] You know, Matt, and I’d like to inject something with respect to the small business angle. I’ve been in small businesses for much of my career before I sold the firm to Moss Adams and joined Pershing. But the thing that that’s always interesting is how we can use our size as an excuse– either we’re too big or too small. And I think that ultimately, when we look at how important talent is to any organization, part of the philosophy we have to have is that our most valuable employee is as important as our most valuable client. And so, using your analogy of when an adviser from hires somebody and they point out their desk and say “Okay, get to work.” The reality is that they wouldn’t onboard a client that way. So why would they onboard an employee? So clearly, they have the time and the patience to do the right thing for the revenue-paying people. The question is whether they have it for the revenue-generating people and that that becomes a question I think at most firms.

Matt Sonnen [00:19:50] That’s exactly right. I think because the mantra of our industry is clients first, clients first. I think we did not purposefully, but the employee takes a distant second. And it shows sometimes, yes. So on that on that topic, actually, Mark, COOs often fear that RIA owners only value the revenue-generating roles within the organization. And because the COO is not responsible for bringing in clients, they worry that they’re going to be undervalued. What advice do you have for COOs that are trying to combat that notion within our industry?

Mark Tibergien [00:20:25] I think that’s a legitimate concern. It tends to be proven over and over again that without the right culture and the right framework for why somebody who grew up on the advisory side is now hiring a professional manager actually values what the manager does. So, the first thing that I would suggest is before accepting a job, the rules of engagement become clear and the standards of excellence– what’s the definition of success becomes clear. So, in a way, the COO almost has to manage the principles of the firm as well as the other way around to constantly keep focused on what the measure of success is going to be. The second is that there has to be a clear reporting mechanism because I think that advisors who hire professional management tend to look at management as well as administrative staff as a cost to be controlled rather than an investment on which to get a return. And so, it really becomes incumbent upon the COO in this case to continually remind people who are the shareholders of the business how value is demonstrated in each case. So, an example of this would be the metrics that one would use to measure success. As you know, when we published the benchmarking study that is published by InvestmentNews and sponsored by Pershing, that we look at things like revenue per client, revenue per staff, profit per client, profit per staff. So, we’re looking really at six key elements from a broad standpoint. And that is pricing, client mix, service mix, productivity, cost control and growth as key elements of the business. And so you have to take this holistic approach much like you would with a financial planning client that says if we can define the totality of success of this business and how I as a COO and moving it forward, then we have a common ground in which to move forward. If the CEO or the principals of the firm are not willing to agree to what those standards of excellence are and what the benchmarks are, it’s going to be a fairly unfulfilling experience.

Matt Sonnen [00:22:55] I love it. That’s very actionable. Six components that should be brought up in the really in the interview process for the COOs should mention those six components, say, “I have my hands in all six, but I need to know that you guys and girls are going to value this when I get here.” That’s fantastic.

Karen Novak [00:23:11] I think, Matt, I would just add that it’s really important to understand that the risk mitigation, the control environment of an advisory firm and that leadership that a COO can bring to that– while it isn’t a revenue driver, It absolutely can save an expense component of it. It’s an indirect benefit that most CEOs and other professional managers are not thinking about. But without a strong control environment, there’s huge risk for that firm. I think that I would want to avoid.

Mark Tibergien [00:23:41] Yeah, just to add to that, I think actually I was going to react to a point you made earlier is that I think the adviser community mistakenly thinks that the role of the custodian is to provide technology. That is part of enriching the value, but that’s not our primary role. It’s really keeping their client assets safe. So, in that selection, you have to look at what’s the S&P rating of the firm that you’re doing business with? What’s the way in which they’re managing not just their balance sheet, but all the legal liabilities that tend to arise? And I think that this is an area in your own course of work you’re probably seeing an increase is that advisory firms have to recognize that the bigger they become, the larger the target they become. So, it will be important to the not too distant future for advisory firms to be managing their balance sheet and their cash flow as well as their income statement. It will be important for them not to look at compliance as just something that they have to adhere to, but actually anticipate. And so, these risk controls are fundamental to the success of any business. If we look at the companies that were dominant in the 70s in this business and why they disappeared, primarily, it was because of bad management and the failure to pay attention to what the headwinds will be as well as the tailwinds.

Matt Sonnen [00:25:03] That’s great. I’m going to jump– Karen, I was going to ask this later, but Mark just kind of led into it. So beyond just the technology component, it’s becoming increasingly more challenging to differentiate the custodian role within the RIA space. So outside of just that tech component, what other services and benefits does Pershing offer to provide additional value to RIAs?

Karen Novak [00:25:24] Well, Mark was very direct around the primary responsibility of custodian is the safety and security of client assets. It is paramount. A firm like BNY Mellon Pershing being a global custodian for over 230 years, the $3.3 trillion of assets we know brings a tremendous amount of comfort to our advisory clients and ultimately their clients. I think some of the other areas that where we differentiate ourselves in the marketplace is the full capability of the balance sheet that Mark mentioned we introduced. We got a great partnership with the private bank within BNY Mellon and we can extend investment lines of credit and jumbo mortgages to our high-net-worth and ultra-high-net-worth clients. We’ve integrated and enhanced our technology a few years ago to read in the bank custody, a bank custodian into our technology. We know that roughly 20 percent of advisory assets may sit on a bank custody, a bank custodian. And with Pershing being a brokerage custodian, we did it together. The capabilities created a single client experience and a single technology experience through our NetX360 platform, offering our advisors choice, and also an opportunity to potentially market clients that might be working with a local bank and within their area. Also, I think we were very flexible in terms of looking at what the need of our existing clients or prospective clients might be, what is the problem they’re trying to solve for and how we may help them customize a solution. We’re not solely focused on offering proprietary solutions. We’ve got a lot of choice. And I think that that bodes very well with our clients and our clients to allow them to work, to have some choice and align with the advisor relative to their offering choice to their clients.

Matt Sonnen [00:27:21] Great. As you both know, PFI advisors were huge proponents of this concept of professional management in the RIA space. And there are definitely some firms that have C suite executives, but it often feels like we’re still a few years early in this broader movement of the industry at scale accepting and understanding the value of professional management. So, Mark, where do you think we are in this evolution and its acceptance of bringing in non-client-facing professionals to run the day-to-day administration of the firm? Are we still just an industry of salesmen and saleswomen that are sharing resources under one common logo? Or are we really getting to the point of true enterprises emerging in our industry at scale?

Mark Tibergien [00:28:05] I think we’re in the early innings, frankly. It’s a great observation and a tremendous commitment on your part to advance this cause, because it becomes clear that just like we want to encourage individuals to hire financial professionals to guide them in their choices, ultimately, owners of advisory firms will want to defer to professional managers to accomplish the same thing. So, the way I look at it is there’s only roughly, what, 710, 715 RIA firms that are over a billion dollars of assets. So roughly speaking, a billion is 10 million of revenue. And so, the average yield assets is somewhere around 70-80 basis points. So, you can do the math on where that is. And I think there are many firms that don’t feel like they’re at critical mass to afford professional management that might cost them somewhere between $150,000 to $500,000 a year, depending on the scope of the work. I think that we have a long way to go to find firms that are a critical mass that will empower people to do certain things. There are far more firms, however, that have general managers. They may not be chief operating officers, but they are chief implementers, and that is a function that at least is moving in the right direction. I think that as we look out over the next 10 years, more and more advisory firms get into critical mass, more and more principles of firms are trying to make the decision whether they want to be primarily client-facing or do they want to be primarily business-facing. And it is a choice that people have to make if they want to do either one of them well. It doesn’t mean that they have to relinquish a strategic role or even a position on an executive committee or board. But in terms of the actual duties, once you start getting to be a $10 million firm, you seriously have to be thinking about whether you have the right people doing the right things the right way and holding them accountable. And clearly, when you’re above that, there’s no question. If I might add to it, that it seems–you would know better–but it seems that almost every advisory firm is attempting to acquire somebody else or they’re attempting to recruit talent. And I just simply don’t know how you manage the complexity of those processes without having a professional who is responsible not just for the transaction, not just for negotiating the deal, but implementing and integrating the transaction as well. So, that it becomes clear that accountability and responsibility focused on those duties is emerging as firms become bigger. I would also say that that the average advisory firm is growing at a slow organic rate, which means that which typically means that advisory firms don’t have the physical capacity to grow. There may be other factors, but key among them is lacking the physical capacity. So, recognizing that as humans we have a physical limit to the amount of time we can spend on any one thing. Just the practical notion of operating leverage becomes key as they build this concept out.

Matt Sonnen [00:31:37] In terms of the M&A piece that you brought up, we talk about it a lot. We’ve written a lot about it. Where we are right now, there are 50, five-zero buyers for every seller. And if you have 49 other firms competing and giving a presentation to the seller, I just don’t know. And–of course I’m biased–but I don’t know how you win, quote, “win” without having a COO or someone playing that role of, hey, he or she is not client-facing. They are doing nothing but making sure that you and your team, when you join our organization, are going to have the resources that you need to service your clients and prospects. So, I just think that you just can’t be successful in this very competitive buying game right now without someone in that role.

Mark Tibergien [00:32:19] Yeah. If you’re creating a matrix, that one’s advantage seller, isn’t it?

Matt Sonnen [00:32:23] I think so. Yes, absolutely. So, Karen, we talked about it earlier, the people side of your role and how important that is. And I really try to drive that home because I think it gets forgotten. But the fact still remains that a component of the COO’s role involves managing the technology infrastructure in the back office. So, in your mind, where does the custodian fit into that RIA infrastructure?

Karen Novak [00:32:46] Well, there’s no doubt that technology has become such a vital part of our industry, of every business, and really our everyday lives. And it’s a very expensive line item, you know, in a budget, and has an impact to profitability. So when we look at when we work with clients, whether it’s an established client or a firm that’s considering selling independent, and we talked about the small business that create their small businesses, it’s vitally it’s really important to have someone focused on technology. But it isn’t necessarily realistic because there are so many options out there in terms of CRM, portfolio management systems. And so with the custodian has an opportunity to help firm in that decision-making process. And we feel really good about what we’ve done over the last year. We’ve created a new team under Mark’s leadership that Christina Townsend is heading up, and that’s our Platform Strategy Group. And that team is responsible for staying apprised of all the technology development that’s emerging, that aligns with the advisory business, helping our clients and prospective clients understand what capabilities they may need, how the technology aligns with their overall vision and business objectives and helping them build that stack or identify their technology stack that will not only solve their needs for now, but also long into the future. And as a custodian, it’s important to think about or partner with those types of firms, those types of technology firms that are going to align with our clients. And so, we’ve taken a very open architecture approach. We’ve got a large number of integrations with key technology providers, and we’re committed to making that investment year-over-year. And I think that’s another differentiator for our organization, where we are open to integrating with these critical technology vendors and giving our clients choice in terms of where they see their business heading, so that they can they can continue to be successful and be relevant long into the future.

Matt Sonnen [00:35:15] Christina is great. I’ve met her a couple of times. I had the opportunity to sit on a panel with her about technology. I saw her present last week in your offices and I really like her. I’m very impressed. So, you guys– it was a fantastic hire on your part.

Mark Tibergien [00:35:27] In fact she just got recognized today as one of the women to watch by InvestmentNews. So, we’re very proud of her.

Matt Sonnen [00:35:33] That’s awesome.

Karen Novak [00:35:34] And then one other thing I would add about the role of the custodian in terms of technology is the scalability versus custom work. I think that that tends to be underestimated, especially when there are teams that are in the wirehouse that are contemplating leaving the wirehouse. So, the opportunity to take advantage of the scale that an organization, a custodian like BNY Mellon Pershing can provide really is an opportunity to help firms start on the right foot with not a very heavy expense line.

Matt Sonnen [00:36:08] I think that’s exactly right. Well, as you both know, I could talk to you for hours on end about this stuff. But I want to be respectful of your time. So, I’m just going to throw out one more question—Karen, we’ll go to you first and then we’ll let Mark wrap it up. What high-level advice do you have for RIAs? Either a breakaway that the new isn’t newly went independent or long-established firms?

Karen Novak [00:36:32] I think it’s important to have a vision. Have a business objective, which most established firms do. But the question is, do those firms go back and evaluate their vision and their business objectives and adjust accordingly? I think that’s important to do and to have the partners aligned with that approach, be open to questioning the decisions that may have been made at the onset where firms start. Obviously, with success these firms will grow some sort of multiple and business objective and vision they need to shift. So, reevaluate, adjust, and be willing to acknowledge that maybe you got it wrong and you have to therefore make the change.

Mark Tibergien [00:37:14] Well, there are so many things that are happening in the business. The beauty is that there is an oversupply of clients and an undersupply of people to provide advice. But it doesn’t mean that mediocrity is going to sustain a firm for the long-term. So, I think to Karen’s point, when we look at the advisory firms that we’re serving, I think those that are the most successful have a clear idea of who their optimal client is and they build an experience around their optimal client. So, as an example, in the old days we used to speak lovingly of the 80/20 rule, where 80 percent of the business came from 20 percent of the clients. The reality is that should be reversed. I mean, why would you have 80 percent of clients you don’t want? So, if you think in terms of the 20/80 rule in defining your optimal client around that, that becomes critical. And when you do that, then it becomes quite clear what kind of structure, what kind of infrastructure you’re going to need to drive a better outcome. So, as an example, if you’re focused on retirement plans on one hand or ultra-high-net-worth individuals on the other. That just gives you an idea that the nature or the way in which you’re going to structure your business would depend. And that’s a stark contrast that tells you–the technology you’d use, the people you’d hire, the reporting process, the procurement process would all differ in that case. The third, which I would say is ultimately critical that we’ve talked about before, is we are experiencing an acute talent shortage. And it’s not just the diversity challenge, it’s the age challenge. My humble opinion is that the dominant firms for the next five years will be those that position themselves as employers of choice, where the best talent say, “that’s where I want to be” and where they have a career path and opportunity to be a principal or an owner in the firm and where they can actually define what success will look like as part of a team, not just operating as part of a book.

Matt Sonnen [00:39:14] Fantastic. I’m such a nerd with this stuff, it is just so exciting for me. This has been such a thrill. I somehow got through it without vomiting, so, thank you both for your patience with me and for the wisdom that you’ve shared with our listeners. I really can’t thank you both enough. 

Mark Tibergien [00:39:31] Thank you, Matt, it’s been a pleasure.

Karen Novak [00:39:32] Thank you.

Matt Sonnen [00:39:32] Thanks. Well, listeners, I’ve always said that I would retire as a podcast host if we ever had the opportunity to have Mark on as a guest. But I am having way too much fun doing this, so I promise we will have another episode coming in January. Thank you all for listening and continuing to promote the importance of professional management within the RIA industry. And we will talk to you soon. Thank you.