Jonathan Rogers and Nirav Batavia are Co-Managing Partners of Forum Financial Management and Co-Directors of Forum’s Investment Committee. Forum is an organization of partners and advisors with a wealth of experience in portfolio management, insurance analysis, and planning for estate, retirement, and income tax.
As Co-Managing Partner, Jonathan guides the executive team responsible for various areas, from advisor support to client services, and spearheads the firm’s growth by recruiting new partners and advisors.
In addition to his roles as Co-Managing Partner and Co-Director, Nirav also serves as the firm’s Chief Technology Officer. Nirav is also the CEO of Owl Technologies, a technology service provider that helps clients experience better and more efficient financial advisory services.
Jonathan and Nirav join me today to discuss the role of technology in developing growth strategies for RIAs. They share how Forum has grown over the years and explain why the firm has recently lowered its minimum asset requirements for clients. They describe the tension between profitability and growth — and how firms can overcome it. They also highlight how they use technology for efficiency, how FinTech companies can bridge the gap in financial advisory technology, and how firms should be set up in order to properly incentivize a new generation of advisors.
“Human connection becomes stronger when advisors can spend all their time not on paperwork but on facing clients because they have data at their fingertips.” – Nirav Batavia
“Rainmaking is the core of value creation for financial advisors. It is the ability to get someone to refer a person over to you. It is what builds a business.” – Jonathan Rogers
This week on The Model FA Podcast:
● What Forum is and how they have grown since 2006
● The ‘three legs to the stool’ approach and the source of Forum’s growth
● Why Forum emphasizes holistic financial planning
● What financial HENRYs are and why Forum wants them
● The natural tension in business between today’s profitability and the ability to grow in the future
● Solving for the lack of profitability in the early years
● The value of working with entrepreneurial advisors
● Leveraging technology for efficiency with an eye to drive down the cost of working with clients
● Why the future of RIAs will see a “bionic” advisor and how it’s different from a “robo” advisor
● What the financial services industry can learn from Silicon Valley
● Developing proactive automation and how AI technology can build a stronger connection between financial advisors and clients
● The importance of open APIs, and what technology companies can do to create seamless tech for the financial services industry
● Walled gardens and the stumbling blocks to using advisor technology
● Bridging the distinction between workflow and workflow automation
● Book: The Great Game of Business: The Only Sensible Way to Run a Company by Jack Stack and Bo Burlingham
● Book: Lock In: A Novel of the Near Future by John Scalzi
● Book: Rocket Fuel: The One Essential Combination That Will Get You More of What You Want from Your Business by Gino Wickman and Mark Winters
● Book: The Wretched of Muirwood by Jeff Wheeler
Our Favorite Quotes:
● “When advisors aren’t incentivized for rainmaking, the veterans in the firm get richer but bring in less revenue from a percentage perspective.” – David DeCelle
● “In many firms, rainmaking is awarded a monetary bonus. That’s where the disconnect in the industry happens, because that simply isn’t rewarding enough.” – Jonathan Rogers
● “Anything an advisor does repetitively that doesn’t use their financial and planning expertise should be automated.” – Nirav Batavia
● “If you allow others to outgrow you, it incentivizes you to continue working hard, helping more people, and bringing in more revenue.” – David DeCelle
Connect with Forum Financial Management:
Connect with Jonathan Rogers:
● Email: [email protected]
Connect with Nirav Batavia:
● Email: [email protected]
About the Model FA Podcast
The Model FA podcast is a show for fiduciary financial advisors. In each episode, our host David DeCelle sits down with industry experts, strategic thinkers, and advisors to explore what it takes to build a successful practice — and have an abundant life in the process. We believe in continuous learning, tactical advice, and strategies that work — no “gotchas” or BS. Join us to hear stories from successful financial advisors, get actionable ideas from experts, and re-discover your drive to build the practice of your dreams.
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President of Model FA, David DeCelle
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Jonathan Rogers 00:05
We tend to work with entrepreneurial advisors, not necessarily in a traditional set. So our advisors, most of them come into our firm as an entrepreneur and build a book of business, sometimes starting from zero revenue. So their compensation is zero in a lot of cases. So that's a reset of framing here, because what that does is that person would have gone and started their own IRA if they hadn't joined forum, right. And so they're doing the same thing inside the forum, they've got a platform already built for them that they don't pay for initially, because they all pay variable costs pretty much. And so they can start building your practice in here with a platform around them, they own their clients. And for that, and when you switch to that business model, just like every entrepreneur out there, starting their business through x, y through working with you guys, it changes the metrics of that small client. Because that small client becomes like a hotel, you've got excess capacity as an advisor.
David DeCelle 01:01
Welcome Model FA's, I am very excited for our two guests today, we got double the impact, hopefully here and excited to introduce them, they run a successful RA and also have some strong beliefs in the industry as a relates to technology and how firms should be structured for the long term. So for me, I'm David de sel, president of the model FA excited to bring this value to you today. And we have Jonathan Rogers and Nirav Batavia joining us today. So I'll introduce Jonathan first, Jonathan started his career in finance at dimensional fund advisors in 2006. From there, he attended Chicago Booth with the intent of launching an RA focus, CRM and marketing, automation technology. He did some consulting work for a number of our IAS on the technology and investment committee level projects. One of those firms was forum financial, and lo and behold, he ended up joining forum in 2006, when they had about 600 million in a Wham with the plan being to take over operations, build a Tam and eventually step into leading the firm. So Jonathan, welcome to the show.
Jonathan Rogers 02:13
Thank you, David,
David DeCelle 02:14
I'm excited to have you highlight here in a second, the growth that you've experienced, because from 2006, of 600 million to where you guys are at today is pretty impressive. So stay tuned for that. He serves as the co-managing partner of Forum and co director of forums Investment Committee, as well as the Chief Technology Officer for the firm, So, Nirav, welcome.
Nirav Batavia 02:36
David DeCelle 02:37
So Jonathan, I guess for our audience, for everyone who's listening today give us a sense as to who form is, you know, what do you guys managing? How many advisors are you serving? Just give us a general overview. And I'll ask some probing questions along the way,
Jonathan Rogers 02:50
I'll use that kind of background. Thank you for that, to kind of describe who we are today, which is we've grown from a group of about six partners to seven partners when I joined, and now our partnerships about 16 partners. So we continue to add kind of entrepreneurial advisors that grown their own firms and as partners in a lot of cases. And then we've got external advisors and advisors within those partner offices who have about 60 advisors, all of those advisors and partners follow the same investment philosophy. So dimensional fund advisors, Vanguard style investments, really lets us kind of have systematized operations. And that growth has been about how do we get more of these advisors together so that we can scale our businesses alongside each other? And you should be stronger for it? Because we've got a lot of knowledge, obviously, across that partnership group.
David DeCelle 03:34
Awesome. So it's been 15 years or so since 2006. So share with us, you guys started that 600 million. What do you guys managing now, currently, we
Jonathan Rogers 03:44
are at 5.3 billion. As of our latest ATV, we've consistently grown at about 20% per year. And we hope that that kind of continues going forward, we've actually seen that remain somewhat steady to accelerating. So we're really excited about the future. Currently we work with just to give you the rest of the counting stats. Yeah, we're with about 4500 clients across the country.
David DeCelle 04:13
Awesome. Now, what do you credit that growth to? Is it? Has it been all organic? Has it been m&a? Has it been a combination of the two? Where's that growth come from?
Nirav Batavia 04:25
We'd look at it as three legs. Part of it is organic from a new client growth perspective. We aim for about 10% per year. And then from our existing clients, we want our clients continually adding to the portfolio and that's why we really emphasize holistic financial planning and not just being that investment manager where someone is making an allocation to us, right. And what we've seen there is about 5% growth per year and then inorganically, which is mergers into our firm. Other advisors have started their own firm and are hitting growth, the plateaus or realizing they need to hire a lot of staff and start institutionalizing. At the level that they've gotten to a lot of times find it easier to join us. And so that can run anywhere from some years, we have very little activity, to some years, it's been over 15% of our growth. So those tend to be the three major legs of growth that we depend on.
David DeCelle 05:28
Well, while we're on this topic of growth, one thing that we were talking about when we had our intro call, and Nirav was a lot of the rise in the industry, they'll target, you know, either business owners or pre retirees or folks who have already amassed wealth. And obviously, I think it's a great growth strategy is how the majority of the industry, you know, grows over time. But as we were discussing, there's so many other what are called lottery tickets, right? People who are making some some decent money, maybe they have assets already, maybe they don't, but you never know, like, which one is going to pop off at what time. And what we were discussing was the fact that a lot of our IRAs are either just not interested in those folks, or they're not set up in such a way to be able to handle that additional workload when it may not be as profitable in the early years. But I view it, you know, coming from a baseball background myself, I view it as a farm system, right? And you never know who's gonna make it to the pros, but you got to have, you know, all those farm team members involved as well. So how are you guys thinking through that? And what have you done to solve for the problem of lack of profitability now for the hopes of profitability later?
Nirav Batavia 06:44
It's a fantastic question. I like that baseball analogy. It's a new one I haven't heard. There's a natural tension in business between current profitability, and the ability to grow. And we've seen this in the tech space, the rise of tech over the last 10 or 20 years. But the realization, a lot of tech startups have had his Look, if I'm growing, I need to invest as much into growth as I possibly can. And then down the road, I'm going to be significantly more profitable have significantly more scale. And it's a better value proposition for everyone. The issue is when we start setting minimums in our business and say, you know, we won't work with clients who have less than 500,000, or a million dollars, we're optimizing for profitability now. And that's great. But you're cutting off the ability for the firm, to continue to grow into the next generation, and bring in the next generation of clients. The term you'll hear a lot is Henry's right, higher earning not rich. Now, we want those clients and one of the side stories that we can talk more about is I came into the firm after starting my own ri, and actually what merged my firm in in late 2014. And I had very few stipulations because I loved the way forum did things. One of my stipulations was, we have to get rid of minimums, we cannot have minimums, if we want to build the firm that we envision. And so right now, our stated minimum is 25,000. With a propensity to save. What that means is, it allows our younger advisors to serve their peers, right? And and build that lifetime value. We view this as not a relationship that we're looking at today and measuring that profitability today. But saying, what is that 20 or 30 year lifetime value? If I keep that client, and if they are Henry's, and they are hiring, we want to work with them. And we want to make sure we're around to serve them for the next 30 years. And if we're thinking this way, my guess is a lot of firms in the industry are thinking this way, which leads me to believe that firms that have traditionally had minimums, they may find it harder 1020 years from now to find the clients that they normally would have at the age of 40 or 50, when they finally had the right amount of assets, because firms like ours have gone out and taken them on a lot earlier in the lifecycle. 100% Now
David DeCelle 09:25
how are you solving for the lack of profitability in the beginning years? Is it because obviously you're not making a ton of money off the ATM itself? Are you charging a planning fee? Are you subsidizing so to speak from profitability from other clients and and just making a true bet, like how does that work?
Nirav Batavia 09:42
I'll let Jonathan answer that one.
Jonathan Rogers 09:46
There's a couple parts to it. I think either of us could answer the revenue piece. So in terms of the revenue We do not charge planning fee, and that is also in line with what we were just talking about in terms of growth is if I'm charging basis points I may only charge A small client that has $50,000. With us, that is not going to be very profitable, I can charge them very much. But we're making that bet on the lifetime value of the client. And I can come in and serve that client for a lot less than a subscription based planner would. And so we are fundamentally making that bet on the lifetime value of the client, not just the profitability today. But in order to do that, you have to change the business model to allow for that, as opposed to necessarily just taking it from our profitable clients. And the changes in the business model that our firm has done to allow for that are number one, making operations fundamentally different. So rather than have on that smaller client, a client service person and a paraplanner, and somebody that's trading the portfolio and a portfolio manager, and you have six different people on that team, we've got to get the operations and the scale down to where that advisor can onboard a client from data intake ahead of the client meeting, maybe a couple of hours with the client an hour or two in the back end, writing emails, coordinating the docu signs. But we can automate all the other processes to where we can get that client in and on boarded by that Junior advisor operating alone without any support. But still delivering total financial planning, advising on, you know, the debt advising on estate planning, all of that will be relevant in that client very, very early taxes were to save to employee options, all those things get involved, because we're not taking the advisor out of the picture, we're trying to take all those other operations out of the picture to make it extremely efficient to onboard that client, and then probably have a lower touch count in that client relationship. So we're not going to be meeting with them four times a year, it's going to be more on demand from the client. But we'll check in with them once or twice a year, it's a little bit of a change in service model, but not removing pieces of value from that service model. Okay, so that's, that's the change in operations. And then you also have to change the revenue structure, which is we tend to work with entrepreneurial advisors, not necessarily in a traditional set. So our advisors, most of them come into our firm as an entrepreneur and build a book of business, sometimes starting from zero revenue. So their compensation is zero in a lot of cases. So that's a reset of framing here, because what that does, is that person would have gone and started their own IRA if they hadn't joined for him, right. And so they're doing the same thing inside the forum, they've got a platform already built for them that they don't pay for initially, because they all pay variable costs pretty much. And so they can start building your practice in here with a platform around them, they own their clients. And for that, and when you switch to that business model, just like every entrepreneur out there, starting their business through x, y through working with you guys, it changes the metrics of that small client, because that small client becomes like a hotel, but you've got excess capacity as an advisor. And so early on, you should be using that excess capacity wherever you can, with small clients in order to get that client for the lifetime, or to get that clients referrals. Because oftentimes, we're not working with everybody, but we're working with a lot of people. And we're optimizing for somebody that has a propensity to save, or someone who is well connected. And if somebody has no assets, but there either of those two things, I want to work with them. Even if I'm only getting $50 a year from that client initially, I'm glad to get a referral up to their parents or my get referral into their network. And that's that's usually valued at potential referral value is huge to me as a startup advisor. So we want to update this is something I was totally stealing from Neeraj. But we want to optimize not for current profitability. But we want to optimize for network initially.
David DeCelle 13:31
So I'm glad that you brought that up with a word or phrase I use earlier in terms of lottery ticket, right? You can scratch that, and they get an inheritance or a big bonus, or stock options or whatever, and their ATM immediately increases, or you scratch that ticket, and you're introduced to someone in their network and coming from the northwestern model for seven years, which obviously is totally different than the independent space. But it was similar. It was all about client acquisition, rather than just a UTM, or insurance planning because of the fact that, hey, you never know. And I could spend the rest of the call, which I'm not going to the rest of the podcast talking about scenarios where, you know, someone was making no money, but they introduced me to a friend. And they introduced me to a friend and it opened up a whole new network, you know, for me, so I'm glad that you guys are supportive of that, while also of course mitigating your own risk, because of the setup of you know, that that sleeve of entrepreneurial advisors where they're the ones taking on the risk. And I think where a lot of firms like yours do really well is when you have like both of those setups where you have you know that the higher salary, lower incentive advisors who are more so about, you know, client relationship management and retaining the business, but then also the entrepreneur like if you, for example, gave me salary and lowest incentives. That's not going to motivate me at all. But if you say hey, In order to pay your bills, you have to do this these things, that's going to light a fire under my butt. So the fact that, you know, you have both I think is very forward thinking is, especially in the independent space, you had mentioned a lot, Jonathan, about how you're leveraging technology for basically, efficiency purposes to drive down the cost of bringing on and working with a client moving forward. So Nirav, I know you are the CTO, so I'll pivot back over to you. One of the things that you had mentioned, that I wrote down in our intro call was a sentence that was the future is a bionic advisor, not a robo advisor. So you know, robo advisors, just basically all technology. And you're saying that there is some sort of combination here, between the human element, as well as the technology. So do me a favor, just riff on that for a little bit. And I'll ask and poke some questions. And along the way,
Nirav Batavia 15:58
Sure, and, you know, a lot of this comes in my perspective comes from the fact that I've been working in and around startups, and a lot of my clients are winners that run their own startups, for probably the last 12 years. And so when I came into this space, in particular, started my own ra in 2012. And then joined forum in 2014, I realized there was a lot we could learn from basically the Silicon Valley mentality. And a couple of things that Jonathan pointed out, and this goes to that bionic advisor is, you know, getting a lot of the process and getting a lot of the repetitive activities, whether it's account openings, whether it's depositing money into individuals accounts, that shouldn't be really automated, that should be click of a button easy, and an out of the way and an activities that people can do, you know, hundreds of times in our business can do 1000s of times without taking up a lot of man hours. And so that's kind of that first level of automation that we've really worked on. For the past, I would say, five or so years, is anything that an advisor does on a repetitive basis that isn't using their financial expertise and their planning expertise. Let's see what of that we can automate. And that extends into our trading that extends into our back office that extends into the way we think about ourselves as a firm. And then second layer of that, which we're, which is where we're going to that bionic advisor is, how do you start turning that automation proactive. So for example, the simple example I use is one of the first things we ask a lot of our clients to do is set up an emergency fund a checking account, or so forth, so that it's their rainy day fund? Well, if you have that linked up to your CRM, and so forth, the advisor should get alerted if it goes above a certain level, or if it goes below a certain level, so that they can reach out to the client proactively and say, Hey, I noticed you're sitting on a little more cash, should we talk about investing some of this? Or I noticed your cash is running a little bit low? Do we need to send you some Do we need to slow down your deposits and so forth? This helps advisors have better and more valuable communication with their clients, their clients value that? And so that's what we're really focusing on, if I'm looking at the next five years is how do we turn our systems proactive? How do we help advisors serve their clients better, and have to do less thinking, and that's one example. But there are, you know, there's a lot of low hanging fruit that we can start putting in and you start fast forwarding this, and you realize, no, this isn't just AI, and the AI is going to take care of the client and so forth. No, you still have that human connection. In fact, that human connection is stronger, because the advisor doesn't have to spend all their time with paperwork. And with the mechanics of running that advisory relationship, they can spend their time client facing, because they have the alerting they have the data on at their fingertips, they have the key critical items the client needs to talk about. And now that relationship is significantly deeper and better.
Patrick Brewer 19:21
Hey, Model FA's. I know you're enjoying this conversation, but I wanted to take a quick break to talk to you about the model FA accelerator. This is a unique collaboration between us and you, where we help you build a financial advising practice that you can be proud of, we focus on the foundational concepts around how to pick a niche or a specialization, how to price your services, how to construct an offer that people are going to buy, and then how to market it and sell it in a way that will get people to sign on the dotted line and become clients of your firm, all while giving you the information to scale and set up workflows and operational processes that will allow you to reclaim your time and build a practice that doesn't run you. So if you'd like to hear more about that, go to www dot model f a.com forward slash accelerator or www dot model FA comm hover over work with us and click on accelerator and hope to see in the program.
David DeCelle 20:11
So as we sit here today, there's a multitude of different technology companies that support us in the various activities that we do. And we'll API together and be able to communicate for what they say, you know, can be a seamless what they say can be a seamless process. Now there's for those of you who are just listening and not watching the videos, there's some smirks going around right now, because as we all know, there's challenges with technology and how well they actually communicate with one another. So that's how we are currently set up. So I guess what are your thoughts as to where the industries specifically the technology industry, for our industry, what should they be doing to make that a more seamless process?
Nirav Batavia 21:02
Number one thing is open API's and not paying lip service to it. A lot of times when we are told with a technology package has an API, it's like, single sign on, that's about it. It, there's no data flow, there's no, there's nothing that is sophisticated behind the scenes that we need. And a lot of our technology investment has been simply to get all of our various aspects of the financial planning relationship talking to each other. So account opening at our custodians and and docu signs and so forth, that should be coming out of the CRM. So that should be simple workflows, the deposits and withdrawals should be hitting the compliance system and should be fully automated, your financial planning software should not need a import that you have to actually manually do from your Performance Reporting System, that should be an auto sync. And that should be that should be regularly updated. So you can say, hey, look what happened in March of 2020. Let's say the market didn't bounce back. And it stayed low for a while. How did that affect retirees? Which retirees Do we have to go back and say, Hey, we might need to look at cutting spending by like, 5%, or so forth, given what's happened in the market, you should be able to do that very quickly, real time. And so the problem in our industry, especially for a lot of the legacy service providers, and performance reporting systems, and so forth, they've historically worked towards walled gardens. And so it, I'll name, the duopoly and so forth, and Tamarack and Ryan that serve a big chunk of RI A's of our size and larger, they bought a lot of these various products, whether it's financial planning software, whether it's other things, but very little of it talks to the outside world. And that makes it very hard to use, it makes it less flexible, it makes it less able to change with what clients need and what advisors need going forward. And, and so that has been a huge stumbling block, as far as using existing adviser tech is simply the lack of alignment with open API's and so forth, that you generally see if you're looking at startup technology and technology coming out of Silicon Valley. And so,
David DeCelle 23:31
So is the solution that someone needs to come in and build an all in solution, or is it that these folks just need to play nicer in the sandbox and allow each other to plug into one another? Like, how do you view that problem being solved?
Nirav Batavia 23:47
I view it as he again, I use the tech world analogy. There's very few full stack solutions. You know, if you're looking slack is great. For one thing, Salesforce is great for something else, you have all of these little technology packages. But what they've done, if you look at generally technology coming out of Silicon Valley, is they all talk to each other. There's there's clear open API's. There's clear ability to connect, and so forth, and make that all work as a good ecosystem. And then, if there is a jump in technology, where the product comes from nowhere and becomes the leading product, and you need that product in your technology stack, let's talk about zoom. It's really easy to sub it in, right, and say, I can just pick that up. I can API it just like I was using it with whatever legacy provider I was using before that, and I keep marching forward in a very simple, straightforward manner. The issue with walled gardens is it doesn't allow for that. And part of it is yeah, they want to capture you as a client and hold you there for A long period of time. But at some point, there's a level of frustration, what we've actually been noticing is starting to show up in a lot of technologies, surveys, industry technology surveys, that a lot of the legacy providers are getting the lowest ratings. And that's a generational shift as advisors who are in their 20s, and 30s, kind of continue to become larger and larger segments of the business, and their clients start becoming larger and larger segments of the business. It's very possible for these legacy providers to be left behind with that walled garden approach. And I think that's something that the financial industry and financial advisory technology industry could learn a lot from the west coast.
David DeCelle 25:47
I love it.
Jonathan Rogers 25:48
There are obviously, frictions that come in our industry that are natural frictions, like the security of client data, right and right, the risk of fraud. So there are things that should argue against total open open API's on the degree that Silicon Valley is able to implement. But that doesn't mean that we shouldn't be with that with out, you know, if you put in place good identity verification and need to have a, an authority that is signing off on the identity of that client, right, whether that be the custodian or others could act as that authority point, then you should be able to implement the same sort of API systems within our, in our world. It's just that's not how people are approaching it today.
David DeCelle 26:24
I agree. There's So Ryan, man in our team. He's our our CTO. And it's funny, probably like one of the least techie millennials, like I don't know how the API's and the zaps and all those things work. But I'm always amazed by like, what he can come up with and create. So as an example, when we're done recording this podcast, the only thing I need to do once it's done downloading is uploaded to Dropbox. And it creates a workflow in our Monday board, our designer, the podcast production team, the copywriter is the website, people, everyone's notified with what they're tasked to do. And then when everyone submits their work, then I'm notified that things are getting done. And all those things, it doesn't sound like a lot, but we'd probably take me to notify everyone after a podcast, maybe 20 or 30 minutes to get that stuff done. And it's solved by just uploading it. So...
Jonathan Rogers 27:20
Let me bring that over to the tech side, which is nothing new, I was gonna do the same thing. But it one of the key theories of what we have built and why we've invested in how much is near over this 1 million and a half, put it into the technology around our CRM is that we wanted to take maybe there's 15 steps in the process for bringing on a new client, right. And workflow in our industry historically has been assigned 15 steps out automatic, and maybe it's automatically like maybe it's uploading something in Dropbox and 15, things get assigned out, right. But we wanted to get it down to where instead of 15 things being assigned to human beings, we may be assigned three of those steps to human beings, the one, you know, data input is usually one of them, because we're getting something from the client, personally, right. And so we need to communicate what needs to happen. There's some financial planning knowledge that needs to synthesize into that step. Got it. There's another step, which is probably the check to make sure before we send the money to the client, that nothing has changed, because there's usually some trading and other things that need to happen in between. But outside of a couple a few of those steps, can we automate the rest of those steps in between, instead of assigning them out to human beings or simply tracking? And that's the distinction between workflow and workflow automation, that we're trying to kind of bridge the gap on?
David DeCelle 28:31
Yeah, big believer in automating all the non human components to the business.
Jonathan Rogers 28:38
That way, you can see that you need all the API's that Niro was talking about, any two way API's where I can change information in those systems, not just get one way feeds, because a lot of the systems as walled gardens, they're opening up, right, the custodians and these in these major providers are opening up and when they open up, they're like, you can get this piece of data. And maybe you can get this other little piece of data. But oh, no, no, you can't pass that data. Oh, that's fine. Right? Or you can't get to these other pieces of data back in there. We haven't built those connections yet. So it's, it's incremental. And it doesn't allow for that automation of tasks. Because like, for example, like I'll give a tangible example, like change of address, right? When we do our workflow, it's you change it, and that's gonna change in the CRM because you're putting it in CRM, right, but then there's a checkbox for changing it in tamarac for the billing purposes and changing it to the custodian, notifying the centers of influence notifying the clients, right. And so when I click save, it'll pop up the DocuSign paperwork prefilled because that's the way custodians need it right, as opposed to being a little API that directly the custodian. They will load something into an FTP folder for the the Tamarack. That's how I upload that to change the address, right. But I can't just API direct change it right. So as we're figuring out workarounds and solution, yeah, but direct API's would make that so much easier.
David DeCelle 29:49
Well, hopefully, some of those folks are listening. Some of those folks are going to be guests in the podcast as well. So I'll direct them over here. So to pivot slightly As there's a we love our providers I didn't know. We love this router team are actually great partner. But but but I would also say that if you really love them, you got to give them this feedback and let them know.
Nirav Batavia 30:14
They hear us I can point to an example with a custodian where they built a direct processing to open accounts. The problem is that direct processing currently doesn't allow for account transfers. Well, with new clients, most of the time, you're doing account transfers, right? So now I have to deal with two processes for what's from a user experience standpoint. And that's feedback we're giving them we're like, this doesn't work for us, unless you really think about it from a user perspective.
David DeCelle 30:44
We'll keep pressing. I'm gonna pivot over to to you, Jonathan. So kind of putting you on the spot here. I'm more curious. Because what we're about to talk about, I recently listened to a book that talks all about this, have you ever read by chance the great game of business? I have not. So I think that'd be a really good book for you to check out to a reaffirm some of the things that you're already doing. And be, I think that there's always going to be a nugget or two that you're going to get from an entire book. So it would be worth the time. But one of the things that we had discussed when we had our intro call is how your company is set up. So a lot of our eyes in the industry, you know, the equity is split up between, you know, the executive team, and typically the executive team are the folks who, quite frankly, built the business right from the ground up. And over time, what tends to happen is they transition away from their rainmaking and business development activities and serving their clients. And they transition over to actually running the business. And then you have all these other advisors who are rainmaking and bringing in great revenue. But they're not incentivized from an equity standpoint, per se to do that. So what ends up happening over time, as you had mentioned, is these more, you know, veteran folks in the firm, over time, they're getting richer and richer and richer. However, they're bringing in less and less and less revenue from a percentage perspective as they scale the firm. So I guess with that, whether your beliefs as to how firms should be set up, to properly incentivize a new generation of advisors to continue to really push hard and, you know, bring you guys from 5.3 up to 10 billion over the next five years or so?
Jonathan Rogers 32:34
Fundamentally, within equity structures. And I think you kind of in your question, gave me the answer. So thank you, which is you have people who are rainmaking and you have people who are servicing clients. And there needs to be recognition of those two things, right. And in a lot of firms, the rainmaking is rewarded simply with a monetary bonus, like a one time or a 12 month throwing monetary bonus. And I think that's fundamentally where the disconnect happens in our industry more than anything, because that activity and someone who's really good at that activity, that's not rewarding enough. That person should if they're really good at rainmaking, they should leave that firm and go start their own ra firm or join a firm like forum that rewards that. Because that activity is the core of value creation within financial advice. There's financial planning, there's good knowledge. But that is not the core of building a large organization necessarily. I think it's the rainmaking the ability to get someone to refer a person over to you is what builds a business. And so within the load larger firms where that equity has gotten concentrated in the founder group, I think over time, you'll have a very good organization that provides a great service to the client, and you'll get referrals. But that referral path will stagnate to referrals that are coming for people who just love servicing those clients. And they're very good client service people that aren't motivated, like you said earlier in the podcast about, it's not going to motivate you. So those people that are motivated simply by doing really well by the client will stay in those Client Services roles, and those firms will be fine. But for those individuals who are motivated by, hey, I'm really good at developing business, they're gonna go for a place where they can see that equity compound over time. And what I mean by that is really important, which is that when we're talking about equity and the financial advisor place, if you're talking about au, I'm blessed. So if you're talking about subscription, but if you're talking about any style au model, what you get is you get several different interest rates that are compounding. And we all know how powerful that compounding is because we talk to clients about it all the time. Well, I can compel my business by the rate of growth of the equity markets because my clients are invested by the new client contributions. And by getting new clients, so I stack those it might be 5% and four or 5% and or maybe 10%. If I'm a younger advisor because my clients are saving rapidly and then another 10 or 15%, and I growing that Equity value and the revenue and the profitability by 25 30% 40% per year for those startup advisors, and obviously starting from zero, it's like an infinite growth rate. Right, right. But still, once you're, you know, if I if I can add 10 million a year, and we charge significantly below 1%, usually, but if we just simplified it 10 million $100,000, right, and I'm taking home 75,000 of those dollars to my pocket, right, I've got some infrastructure costs in that $75,000. And if you want to scale it up to 15 million a year, because that's what equates to your gross revenue, schedule, fine, you're taking home $75,000. Well, that grows to $85,000 fruit as a market. And then we add another $75,000. Well, now I'm in 150,000 165,000, whenever I add that up to next time, both those grow, and I add another 35,000, you see where very quickly you get from me, I'm gonna make less than that first year by a lot. The second year, probably, I'm still making less the third year, I'm probably breaking even if I'm pretty good at business development. And I'm really good at business development, breaking even in the first year, I'm able to bring some clients with my prior firm, being respectful of non solicit noncompetes, but not too respectful, right, you want to do it appropriately, but not not get the business. So you bring over some clients from that era for the left. And then you also are able to compound that business, because you're doing the business development, you can get to three, four or 500,000 of compensation. And then at some point, you got to start spending that compensation to invest in people underneath and to support you to take over some of those smaller clients. But I mean, you look at that growth path for somebody that can do that with business development. There's no way there's thinking that other All right.
David DeCelle 36:39
So as you go ahead, yeah,
Nirav Batavia 36:41
and I was just gonna follow up on that. He didn't mention the second carrot, which is partnership in our firm, and partnership gets you access to additional revenue streams, you get a seat at the table, you know, you are an important decision maker within our firm. And our partnership structure is unusual that there's no buy in to our partnership. Why? Because again, our revenues align with our ownership percentage. So our ownership percentage within our firm, and we kind of view it, we call it in the firm, collaborative capitalism, our ownership percentage floats on a quarterly basis, and it floats with the revenues, proportion of revenues you bring in, in comparison to the entire partner pool. And so that's fantastic for next generation advisors, because there's no buyout of senior equity, then is basically this anchor around your neck for the next 10 years. Right, I came into the firm in 2014, they made me a partner in 2015. And I was a 2% partner in the firm. Now my client book of business has grown larger than faster than the actual firm growth. And so currently, I'm about an 8% partner, in the firm, I didn't have to outlay any money, I didn't have to do any of that. And then on the backside, it makes it very easy for partners to retire as well, right? Because as they get closer and closer to retirement, they may move some of their business to younger advisors, their participating percentage, their partner percentage just goes down over time, and they ride off into the sunset.
Jonathan Rogers 38:27
And to be clear that they get compensated for that transition, right. So one of the things we do is we use that equity structure where we attribute ownership kind of the clients and we have lots of teams within our organization that are working on clients together. But we attribute that ownership. And we pass that ownership and compensate that retiring partner. So you might have one partner, for example, I've got a partner right now that's brought in three advisors to work with. And she's working with those partners, and maybe half their compensation is going to come from client servicing those clients that they are eventually buying from her. And then they're going to build their own direct book of business alongside that, right. So you get both of these things working, where you're doing the succession planning for your internal people, but you're not filling up capacity of each junior person, you're effectively seeding that new entrepreneur. And so you're working with these people, you're seeding that new entrepreneur, they're building their own books, direct books of business alongside it. And you get a very kind of cumulative process if you do that, right. And the seeding of au m a closing the loop with an earlier conversation is less important than the seeding of network. So if I buy if I'm a new advisor, and I buy 20 clients from an advisor who needs to reduce capacity and what what have you, it's less about that, hmm, yes, I'm going to get compensated and I earn some money, but that buyout is going to take about seven years in our internal structure. But I get access to that network. And I now have more referral sources and to clarify for a lot of times for you know, 123 years before that they've been working as a team together on that client. Yeah. Right. So you get the team structure and does that junior person really steps into the primary role. We do a buyout on that client and they become the primary and the senior person steps away and hopefully goes and gets more larger clients. It's also a way for the senior person to craft their book of business because they can work on the smaller clients getting those off to other Junior advisors and continue to develop and cultivate their own but the business so, yeah.
David DeCelle 40:20