Independent firms face a steep investment hurdle past $5 billion

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 31:37

   What would you rather have? Is that a similar situation here? It is. Yes, it is. And also, there's a natural inflection point that businesses hit, right? So I think you can, and I'll make up the numbers, but just, I think you can scale a wealth business to three or four or five billion dollars with a limited set of services and by limited it's not overly limited but it's wealth advisory and investment services once you start to be to push kind of through that scale threshold clients start to demand more services from you which start to create real um real challenges right let me after real quick is the demand for more services tied to an increase in wealth?

2. 32:18

   It is in many instances, yes, and also expectations of clients grow as the firms continue to grow and evolve. But a lot of it is tied to increase in wealth. Okay, continue. So once you start to hit this inflection point, and then the... The investments that you need to make, so think of it as this, you can grow and scale your business up to a certain level. Let's just say it's $3 or $4 or $5 billion.

3. 32:38

   Then the required investments to get that $3 or $4 or $5 billion business to a $50 billion or $100 billion business require a significant amount of investments. So in my opinion, for many entrepreneurs in the space, that's where the risk-reward trade gets out of balance, right? the incremental risk associated with building all of these services on the hope that the assets will ultimately come in the future creates the imbalance. So for us, someone can continue on that same entrepreneurial journey that they've been on, continue to have a phenomenal wealth creation event for themselves and their families, while immediately benefiting from all of these underlying services that we've already ultimately built together anyway. So literally on day one, instead of say, someone saying, I'm going to stay on my own path, make these investments and,

4. 33:23

   kind of see how it evolves over the next one to two decades, tomorrow I can literally have access to all of these services, extend them to my clients, and continue on that journey myself. So as a result of this, we skew as a business very, very young from a wealth management perspective. So yes, we're doing M&A, but we're not doing M&A to fund effectively retirements. We're doing M&A to bring on partners to continue to grow the business.

5. 33:51

   That's an important distinction. Say more about that. Yeah, so from our industry, I don't know the exact name, but I think the median advisor is probably in the early 60s. Our median partner, so our most senior title, is in their mid-40s, and our median employee age is in their 30s. And so when you look at that and you'd say, well, how did that come to be? A lot of that's deliberate on our part in terms of who we're targeting, but it's also deliberate on the part of the individuals that are joining us because they're joining us with a long runway, right?

6. 34:23

   They want to continue to be owners. They want to continue to operate in what I think is a fun, dynamic, unique environment and spend the next couple of decades collaborating with great clients as we all build the business together. So there's a bit of a self-selection bias that is kind of present both in the structure that we've put in place via the partnership relative to others, and then also in terms of who we're targeting inside of it.