Three RIAs, three big-time hires and the story of how it all came together

Brooke’s Note: The only task that is harder to manage than finding a job is trying to hire somebody. This truism particularly applies to small businesses where a hire absolutely has to be done right, or else, and where the principal has to draw attention from a pool of attentiveness that is already sorely depleted. This webinar transcript describes making not just a hire, but a pivotal one, and captures a dialogue that I doubt has occurred among three people at such a high level in the RIA game with such a clear willingness to share. The discussion of making a transcendent hire goes to the heart of the issue of the RIA business growing out of its mom-and-pop prototype.

LISA SHIDLER: Greetings everyone and welcome to our Webinar: How RIAs Can Take Their Practice to the Next Level With the Golden Hire. See: RIAs are ready to make the 'golden hire’ and more painlessly add another $1 billion of AUM. We are very pleased to have Fidelity Investments as our sponsor. First I am going to quickly outline our agenda for today. We are going to hear from our expert panelists and each one of them is going to briefly share their experiences of making a golden hire a case study, if you will.

They are going to talk about what worked for them as well as share some of the mistakes they might have made going forward. Then we’re going to have a discussion among all the panelists answering a number of questions. During the entire hour, we do ask as Bob said that you please send in any questions. We want to get you as many questions as we can.

Now I am going to introduce our all-star panel. I am Lisa Shidler and I am moderating the panel. I have been a reporter for 17 years and I have focused exclusively for the financial advisory space for the past eight years.

Marty Bicknell is the chief executive officer of Mariner Holdings, the parent company of Mariner Wealth Advisors and Montage Investments. He serves on the board of directors for all of Mariner Holdings’ subsidiaries. Before he formed the firm in 2006, Marty was a senior vice president of Investment at A.G. Edwards & Sons. While there he [leveraged that of professional financial consultants] in providing customized wealth management solutions for public and private corporations, high-net-worth individuals and their families. Marty has a bachelor’s degree from Pittsburgh State University in Pittsburgh, Kan. Barron’s has ranked Marty and his firm among the top RIAs nationally for the last few years and he has been ranked number one in the state of Kansas from 2009 to 2013.

Our next panelist is Dwight Mikulis. Dwight is one of three senior partners at Pinnacle Advisor Solutions located in Columbia, Md. He has held a certified financial planner designation since 1989 and he has a master’s in finance from Loyola College in Baltimore. Pinnacle began in 1993 and is a wealth management RIA that serves about 850 individual clients and eight RIA firms through Pinnacle Advisors Solutions Division. In total, Pinnacle manages about $1.5 billion in assets and has 37 employees including seven partners. Dwight had spearheaded the last two RIA acquisitions and also serves as the firm’s chief financial officer. He has also served at the national level of the Financial Planning Association with the Chapter Leadership Resource Council. Pinnacle has been recognized numerous times as a leader in the industry most recently received Best Practices Award in September 2013.

And our next panelist is Steve Janachowski. He is co-founder, president and chief executive officer of Brouwer & Janachowski LLC. He is the firm’s chief investment officer and oversees the Investment Committee’s investment research and portfolio management process. Prior to forming Brouwer & Janachowski, Steve was an officer of two New York Stock Exchange member firms. [He began his career with Holt and Collins and then joined Merrill Lynch & Co., both in San Francisco.] Steve is the director of National Advisor’s Trust Company in Overland Park, Kan.. He is co-author of “Mutual Fund Mastery” published by Times Books and has commented on investment strategy of personal finance for several publications including The Wall Street Journal, Barron’s, Forbes, The New York Times, the Los Angeles Times, San Francisco Chronicle Examiner and RIABiz. He is a graduate of the University of Chicago.

Real briefly we want to give you a little bit of information about RIABiz and explain why we thought this was such an important topic. And I am going to hand it over briefly to Brooke Southall, founder of RIABiz to talk about that for a minute. Brooke?

BROOKE SOUTHALL: Yes, thank you, Lisa. Welcome everybody and yes, many of you know us, but we were founded five years ago and our twist to who we are is that we look at this business from the ground up. In other words, from financial advisors who are financial advisors first and then they build a business from there. This contrasts with a world of giant insurance companies and brokerages and banks and the like who become big product companies and then as an after-thought tack on some financial advice.

So as we embark on this webinar I’m very excited because if ever we’ve had a discussion and a quality of panelists that is emblematic of what we try to write about, this is it. You have some of the top firms, all of whom started small and have now worked their way to a size where they are really ready to call themselves large financial companies, a size that has never really existed coming from the bottom up. But there are thresholds that get hit that require special action to create a management that is on a par with the big companies. And that’s what this webinar addresses and we’re calling it a “golden hire” because it can start with very smart personnel move. See: RIAs are ready to make the 'golden hire’ and more painlessly add another $1 billion of AUM.
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I want to add that I am very grateful to Fidelity for taking this on. This is a webinar topic that is not going to attract hundreds of listeners necessarily because it is not a social media or robo or any other hot thing. This is a very important thing for some very important firms — or firms that aspire to be at this point. They entered into this conversation in that spirit. With that I will turn it back over to Lisa.

How specific?

Steve Janachowski: If I had
the right person, that could help
catapult the growth, if I get
the wrong person it’s going to
be two years of chaos and
a nightmare.

LISA SHIDLER: Thanks very much. I think we’re ready to get to the meat of the discussion. Marty, I want to hand it over to you because I know you have some good examples and are ready to share your example or your case study of your golden hire.

MARTY BICKNELL: Thanks, Lisa. I have chosen for my case study today a hire by the name of Brian O’Regan. Brian was hired to be our senior vice president of corporate growth. If you think of the situation that we were in, one of our primary objectives or strategic objectives has always been growth, whether that is organic growth or inorganic growth. And we were founded in 2006 and we had eight people and $300 million under management. In 2011, in those five years of existence we grew extremely fast and we grew to a point that we had roughly 150 people and about $8 billion. We had just completed our first acquisition on the wealth side that gave us a national footprint. See: Big Midwestern RIA hires away a Fidelity exec to realize its $50 billion plan.

At that time our asset management division was growing very rapidly and it made our traditional organic growth efforts on the wealth side not really be able to keep up. In order to attempt to bring a little more balance to it we launched an intentional growth strategy focused on inorganic growth through acquisitions and recruiting. So your process in going through this is I knew that we were going to have to kiss a lot of frogs, if you will. We were going to have to talk to a lot of people.

I also knew that if we were going to be aggressive in our efforts we had to have a dedicated leader for this effort. We needed someone who was connected in the industry so that [the hire] would create a flow of opportunities. We needed somebody that understood our culture — the most important piece in quantifying or qualifying a potential new partner firm.

Most importantly we needed somebody that didn’t have an ego. I knew that if I was going to walk into a room and meet somebody for the first time and say, “No, way,” this hire had to be able to not take that personally, and really understand that I was focused on activity, not results.

So, if you think about it, we didn’t have a detailed position description. And we weren’t doing a traditional candidate search. What we did take steps backwards and examined our internal network. We talked to anyone that would listen — which coincidentally led us to Fidelity. Brian was the senior vice president and regional vice president of sales and relationship management. We have always had an excellent relationship with Fidelity. They are a great partner. But Brian was the one who convinced me to leave A.G. Edwards and to form an RIA and start Mariner Wealth Advisors. Through our partnership we had an existing relationship and we just started having conversations. Basically we determined that we had a mutual interest in working together and so we defined what the role would be and really thought about it from what we needed and what Brian’s strengths and abilities were.

As a result, we hired Brian in October of 2011, again to be our senior vice president of corporate growth to drive all growth for Mariner Wealth Advisors. In Brian’s first couple of years at Mariner he was instrumental in identifying lift-outs and acquisitions of wealth management teams and small RIAs but after six successful acquisitions we shifted Brian’s focus to be more about organic growth and partnerships.

Brian was hired in October of ’11 and we had about 160 employees and about $10 billion. During the time since Brian has been hired we’ve grown to 500 people and $35 billion. Brian now runs a team of a dozen people and works very closely with our HR internal recruiting area. I think the biggest learning from that aspect and why I point that out is if you’re going to go through the process not only do you need to find the right golden hire, but you need to be willing to build around that pallet and allow them to add additional people.

Also, we all talk about culture, but that’s obviously very crucial. You have to know what each other wants and what each other needs. I could have easily focused all my attention on leading our inner organic growth effort and hiring Brian wouldn’t have made as much sense. I knew that I needed to focus on our current advisors and current partners — retention is always our number one goal year over year. That made it very significant for us to have a dedicated leader for this.

To me it doesn’t matter if you’re looking to hire for growth or if you’re looking for operations, senior management. At some point most firms hit a point that they have to decide: Do I want to be a practice or do I want to run a business? And running a business means you have to let go and trust. To finish up, I made a conscious decision that it was best for our organization and clients to hire superior talent instead of driving results myself. I had to learn to support others in getting results instead of doing it myself.

Salary quandary

LISA SHIDLER: Marty, thanks very much. I have one quick question. You mentioned that you didn’t really come up with a full candidate description and you didn’t do a full candidate search. Does that feel like that was a huge risk? Have you done that before or do you normally come up with a better description?

MARTY BICKNELL: A large percentage of our hires are what we call opportunistic hires where we are very open in paying attention to the right people at the right time. Not by setting out and saying: We need to fill this hole in our organizational chart. But by saying: This is a talented individual who believes in our strategy, fits our culture. How can we position this individual for success inside our organization?

Marty Bicknell: The majority of our
higher-level leadership … quite frankly we
do at a relatively modest based
salary.

LISA SHIDLER: That makes sense.

BROOKE SOUTHALL: And you didn’t say too much about how you thought about compensating this person. I don’t expect you to divulge your secret formula but can you give some sense of how you approached that?

MARTY BICKNELL: The majority of our higher-level leadership … quite frankly we do at a relatively modest based salary. Most of the time that depends on the individual’s current situation, but we want to tie everybody in a leadership role into the growth of the organization. For most people it’s tied to the overall revenue growth of the firm with exception of the four people that we refer to as our executive team. Theirs is tied to profitability. But if somebody is out being responsible for hiring, doing acquisitions and recruiting they can’t control that but they can control growth. So I want to focus on revenue and we give them a percentage of growth.

BROOKE SOUTHALL: Got it.

Hiring template

LISA SHIDLER: I want to jump to Dwight. Dwight, I know you have a really interesting situation as well.

DWIGHT MIKULIS: Thank you, Lisa, Bob and Brooke and to the participants on the call. I want to congratulate Marty. It seems like Mariner Holdings has put together a great template of a structure on how to grow in multiple fashions and we didn’t even touch very much on it so far today. I would be remiss if I didn’t say we had a lot of golden hires at Pinnacle Advisory Group and certainly appreciate a tremendous amount of the staff that have been with us for many, many years. But today I am going to concentrate on one that I consider to be a transformational hire, which is our most recent employee and that is our new COO.

This could be very common for many of the participants on the call today, in that if you have not expanded as quickly as Marty’s firm and you are still perhaps one location or a couple of [locations in partner-centric] than many times the next talent hire is going to be someone who is going to take the responsibilities and perhaps the authority from the shoulders of original partners. And that is usually the C-suite or the chief executive officers, the chief operating officers, the chief financial officers, etc. One of the keys things, Lisa, that we had to come to, and “we” is seven partners at Pinnacle Advisory Group; three of them are senior original partners and four minority partners.

One of the key pieces was where in the transformation to Pinnacle Advisory Group was the firm? What’s the growth pattern of the firm from here considering the ages of the senior partners? What kind of person and position did we need? And the conversation was: Is it time to find a chief executive officer? Is it time to find a chief operating officer? What kind of talent will we be looking for? And that comes into the gut check that the senior partners needed to make which was how much responsibility and authority would this new person have? How would they integrate into the executive group? How would they approach the entire firm from our core operations through the advisors; what would that look like?

And a decision was made that we would certainly entertain candidates that had a lot of aspects of skills of a CEO, but that we were looking for more of the talent of what a chief operating officer represented. We were talking on pre-call about what kind of talent pool is out there, there is an amazing talent pool out there and perhaps it’s a shame but one of the reasons is certainly the financial collapse of 2008 and 2009. A lot of good people were pushed out of the financial world especially on the East Coast where we were located.

So when it came time to put together an outreach, we were inundated with candidates that were looking for this type of job for the chief operating officer. We’re going to hear today how Pinnacle Advisory Group and how we looked at this process a little bit differently than how Steve and his firm looked at it for a similar candidate. And I think there are some good insights to be had on both methods that were used for how to fill a COO job.

I would also say that if there is anything specific about our hire other than Social Security number and some other pertinent information, we certainly will be willing to share. We share that through RIABiz through Brooke and through Lisa. The situation was strikingly interesting in that we received over 200 resumes for the COO position. And these were not counting resumes that really had no connection and no skill set to even be considered. As we went through the process we did incorporate outside counsel and outside human resources talent and we weaved it in a very interesting fashion where it went back and forth between outside counsel and internal to the partners and to the executive team. That seemed to work really well and we had a 12-step process for that that I won’t bore people right now, but certainly can cover it at a different time.

This is an ongoing question — the firm is now six months to the day from the arrival of our COO — and the question that will continue is: Do we have just a COO. Do we have a COO in training to be a CEO? How is that going to change? What will happen? What kind of growth is required for that and I will be excited to see how that continues to go on in 2015. I can certainly caution people that if you are hiring a higher-level talent and certainly one that commands compensation in a good fashion that the process is going to be slower than you want. We started thinking of the construct back in October of 2013 and it wasn’t until May of 2014 that our COO finally arrived.

If someone is under duress I would caution them to take the right amount of time. That is really important for some positions like this. We can get into compensation at a future time or in follow-up questions. I do participate in six national studies having to do with compensation of all kinds of positions within firms so we have very, very good data on how to approach the marketplace and how to approach a compensation structure for the COO even though we did not have one before.

In summary, here is a person or a new employee for a firm that is not an equity owner at this time, but has to take the reins and some of the responsibility that were always an equity person’s responsibilities and that would go into the idea of culture that Marty mentioned and without question that is an important piece.

BROOKE SOUTHALL: What in a nutshell is the reason that it takes so long?

DWIGHT MIKULIS: Unlike Marty’s situation where they had a pretty good channel to very high, high caliber candidate, we were going the opposite way in that we wanted to canvas the marketplace, find out what talent was out there and then try to apply them to our firm. I can mention to the participants some of the resumes that we saw were absolutely amazing; at least that’s what the resumes looked like. The talent, the background, the experience because again, many, many people in the financial world lost their jobs after the collapse. So there was no lack of people that looked good on paper. The question was going to be in the interviewing process and how you put that together. We did not use a headhunter firm, we used a professional HR firm that assisted us on a fee basis for our integrating our process and what we want to do including case studies. It took a long time because it had to take a long time.

HR or outside firm?

Dwight Mikulis: I don’t see any
point in hiring a COO unless
you plan to grow your firm
and turn it into a business
and then ultimately an enterprise.

BROOKE SOUTHALL: Are you saying that a number of the people were really overqualified?

DWIGHT MIKULIS: It’s a good question. The reason why they may be overqualified is that their existence and their life experience in the business world might have been at a very, very high Wall Street hedge fund level that might not have applied to an independent RIA where I am worried about the next $1.3-million-dollar client that we have to service. It could be that they have great talent and great experience; it would be out of sync with our structure.

BROOKE SOUTHALL: I have heard RIAs say that when they hire advisors some of them don’t like to hire somebody from a wirehouse; they find them to be a little bit tainted. Did you encounter any of that where it seemed to be a bad cultural fit?

DWIGHT MIKULIS: Well, not jumping into Steve and Marty’s camp on talking about culture, because we’re all going to certainly discuss that, but if people would go to the July issue of RIABiz there is a bigger description of the culture background and the historical background of our hire. See: An ex-Lehman exec with a 2008 crash sideline seat becomes Mr. Inside for the TAMP, roll-up and RIA where Michael Kitces is Mr. Outside.

And our COO was at Lehman during the bad days so there was a whole issue of do they have the right concepts, will they fit into a smaller company or a small company? What’s the idea of a large company versus a small company experience? All that came across our desk as we were trying to go through the hiring process.

BROOKE SOUTHALL: Okay.

LISA SHIDLER: Dwight, it sounds like you doing double-duty because you guys were doing your own internal research and the HR firm was doing some other research. Did you feel like that made the process slower? Was there was overlap? How did you work, do both cohesively?

DWIGHT MIKULIS: You’re right and Steve may talk about a different experience on how to control the process when you have less elements involved. It did go slower for us because we were moving information back and forth between the outside counsel and us and making determinations on screens and questions and cast studies and those kinds of pieces. We were trying to use their counts at the right price point for the outside counsel. It might have gone faster if we had just controlled things internally but we felt this was a very important hire for our circumstance and we didn’t have all of the expertise internally as interviewers. So we thought that it would be a great idea to use some of the talent out there.

LISA SHIDLER: That leads us, Steve, right to you. And we would love to hear your situation now.

20 hours per candidate

STEPHEN JANACHOWSKI: Welcome everybody. My situation is there are some similarities between Dwight and Marty so I think actually having the three of us is a good group because of the differences. My firm is about $1.4 billion in assets under management about 500 clients and we have 19 people including partners, we’re the smaller of the firms. We started in ’87 so we didn’t have the explosive growth that Dwight had. We had this slow inorganic growth for many, many years.

About three or four years ago as we were thinking about succession planning for the firm, it was clear that to track and retain some of the top people to grow the firm and create the next management level team, that we needed to be in more of a growth mode.

Also, it was clear that you either need to grow or you need to sell your firm, so I chose that we were going to grow our firm. So the biggest challenge is that we were hitting a ceiling of where I was running the firm but I was really wearing the hat of CEO and COO, chief investment officer and a relationship manager, so too many hats. I found myself stuck in the weeds too often. So for us to get to the next level of growth — I wanted to double our revenues over the next three years — I realized I needed to get out of the weeds and I needed someone to take over the role of all of the operational admin compliance duties that I was getting stuck with.

What I did is I crated a template of all of the aspects of running the firm both on the executive level and on the operational level and divvied that up into two roles so I had a real clear snapshot of what the CEO’s role would be and what the COO’s role would be. I decided I was going to stay on as CEO and I was going to recruit a COO. we’ve used search firms for other hires. In this case though I thought it was such a critical hire if I had the right person, that could help catapult the growth, if I get the wrong person it’s going to be two years of chaos and a nightmare.

I decided that I wanted to go after this process myself since I would be working hand-in-hand with this person. The way I approached is I went through my Rolodex of all the key people that I know who were either entrepreneurs, business owners, or “C” level executives. I put together a personal letter to each of them with the job description and specifically asked for their help. Not if you know somebody, my letter said: I know you know the person I am looking for and I appreciate your assistance in helping me find this person.

Out of 75 people, all very, very high powerful people, I knew I was going to be touching a lot of very, very qualified candidates. And I did, I got a lot of responses. I got 30 resumes that originated from those 75 folks and of those I narrowed that down quickly to 10 candidates that had the background that I needed and then whittled that down to six candidates.

Part of the strategy I used was I learned through a book, which is I think an awesome book called “Top Grading.” It was written by Brad and Jeff Smart, which I encourage anybody to read. Instead of using the typical process of an hour interview with this person, an hour interview with that person I spent lots of time with each of the candidates. Some of these candidates were former CEOs and COOs and some were COOs and the ran the gamut of large financial service companies. I even considered people who were outside the industry if I felt they had the capabilities I needed. Ultimately I was looking for someone who had the experience of working in a larger company but also had worked in a smaller company because there is such a difference in working in a large company where you have five assistants and working in a smaller company where you have no assistants.

I was fortunate in finding a candidate, Peg Pike, who had worked at Arthur Andersen Consulting but then she worked at Fidelity, she worked at some of the other larger firms like Wellington. But then she also worked at a small firm doing a turnaround, which I thought was very interesting. The firm was a little smaller than ours, but she had helped drive that firm to fairly dramatic growth.
The reason I think it was very useful for me to go through this process — I was at the beginning for the quarter when I started this I would say my number one goal in this quarter was to hire a COO and that’s where almost all my energies went. I spent probably 20 hours with each of the six candidates mostly face time and the interviews were long interviews. You learn a lot about people when you’re spending four or five hours with someone as opposed to an hour where you’re barely scraping the surface.

I knew that our culture was going to need the change from what’s a slower growth company to a faster growth company. And so it wasn’t so much I was looking for someone who fit into our culture, but someone who had helped drive our culture to the culture we needed it to be to get it to the growth mode I wanted to get it to.

At the end of the day after interviewing thee folks and spending lots of time with them — it was really insightful because I spent so much time. I got to virtually test-drive thee folks to determine how would I work with this person. I asked them almost every question I could think of that we would run into in running the company together, the types of problems that we would have. And I think in my view no substitute for this particular role for me, anyway. And spending all that personal hands-on time even though it’s arguable that I could have used a search firm to shorten the process for me. I don’t regret the process I went through. I think it was instrumental in finding the top person.

So my COO has been on board now approximately four months. And there is no question in that four-month period I have seen some dramatic changes already in starting to lay the infrastructure that’s going to help support my growth goals. Why don’t I just stop there; I know you have some questions.

LISA SHIDLER: I think that’s incredible the 20 hours you mentioned with each person. Can you give us an example. You flew them into the office. Did they spend a couple of days? Did you go golfing? What did you do during that time?

STEPHEN JANACHOWSKI: I locked them in a conference room and wouldn’t let them go to the bathroom.
we did dinners. We didn’t go golfing. But I spent with each of them on the very first interview was probably four to six hours, the very first interview. What happens when you spend that much time with somebody is people’s guards go down. You get to really know the person. Also I mentioned that book Top Grading — we went through with a fine tooth comb tell me about every little thing you did at these companies. What were your successes? What were your failures? What would your supervisor say about you? And not only did I get to details about what they do and understand what their capabilities were but also how do these people fit as people? Would I get along? This is going to be my right-hand person that I am going to see every day and is going to help me grow the firm. I didn’t want a nasty surprise down the road that I found the wrong person.

Targeted job description

LISA SHIDLER: And it sounds like things have worked out pretty well?

STEPHEN JANACHOWSKI: We’re actually in the process right now of changing our entire infrastructure of software that we use for portfolio trading, our platform, our CRM and so forth. Looking at piece-by-piece what are the various aspects of the firm from an infrastructure standpoint that we need to have in place to drive the growth we’re talking about. Before I even hired the COO I created an org chart for the organization we were going to be in three years. Then I looked at: Okay, what are the roles that I am need to fill to get to that company or that enterprise? And I think it was Marty who said that all of you out there if you’re at the level where you’re practice that you have to make a decision at some point. It’s really a succession planning strategy which is: Are you going to become a business and then ultimately become an enterprise which lives beyond the founders, which requires a tremendous and work to get there, it really does. Or is your succession strategy going to be to sell to another firm?

And our strategy, our growth strategy is actually similar to Marty and Dwight’s in some respects. We have a combination of organic growth with the existing advisors and clients and then inorganic growth in terms of acquisition so we acquired two other RIA firms and my strategy is to continue to acquire firms that don’t have a succession strategy and would be a nice fit into our firm.

LISA SHIDLER: I want to have us jump into the overall discuss so everyone can jump in. And this is something that you did address in making the decision, right? Like how do you know when you reach the critical point of making such a high or low? Was there a tipping point? Were you in the office 15 hours a day? What was it that made you think: Okay, now is the time that we need to do this?

STEPHEN JANACHOWSKI: Well, and I think this may be true for some of the firms out there that are making this jump from a practice to a business and that’s where we were, which is I realized we were running up against a ceiling where I was being dragged into a lot of operational details of running the business hands-on, running the business as opposed to making the strategic decisions. So my role shifted from running the business to leadership, rainmaking and also acquisitions. But I knew we were at the point where we could not grow any further until we changed the organization which is an org chart. It had to become a new company. It was clear to me. If we had kept going along trying to grow, the wheels would have fallen off.

So I think it becomes obvious to everybody where you can’t grow until you change the structure. And I think every firm — and Dwight’s firm has gone through this many, many times and probably Marty’s as well, but Dwight’s especially because of the size they have gone through. You can probably talk about that, Dwight.

BROOKE SOUTHALL: Steve, did you have a very concise job description or did you keep it somewhat flexible and open the way Marty described?

STEPHEN JANACHOWSKI: No, mine was actually very concise. I actually wrote down a laundry list of responsibilities for the person that I knew they would need to be able to cover. And also personality traits as well so it was what their capabilities were as well as personality traits. So it was pretty in-depth.

BROOKE SOUTHALL: Has your hire stayed within that script or has it taken on a life of its own? Now that you have a human being, you have an evolving situation.

STEPHEN JANACHOWSKI: It is interesting; you learn a lot when you spend time with people and you would know this Brooke, what you do this all day long is interview people. I picked up on little things. She described herself as a chaos girl. That she thrived in chaos and could deal with chaos and it didn’t disrupt her. And she did best when she was swimming with one nostril above the water. I thought boy, those were really interesting metaphors. But what was true is that nothing seems to unnerve her at least at this point, not that anything crazy has happened at my company. But I think that there is an underlying sort of calmness that she has in dealing with some of the changes that we are going to have to make at the company.

BROOKE SOUTHALL: It sounds like it has gone pretty much according to plan but you’re learning on the job, too, in terms of having her on board.

STEPHEN JANACHOWSKI: The other key thing, too, with any key hire, is on boarding, spending lots of time. For the first 30 days I met with her at the end of every single day to discuss what she had encountered, what questions she had. I wanted to make sure that I didn’t send her out there and advocate responsibility. At the end of 30 days she said, “I don’t think you need to meet me every day anymore.”

Giving up control

LISA SHIDLER: I want to remind the audience to please continue sending in questions. We already have gotten a couple of questions that I am going to start asking. These are all really good questions. While we are waiting for some more audience questions to come in, I have another opportunity to thank our sponsor. Fidelity Institutional Wealth Services, a leading custodian for registered investment advisors, recently released a book that chronicles the inspiring stories of more than 20 advisors who have taken their businesses from good enough to great. The book shares insights, some steps these firms have taken to move ahead as well as practical do’s and don’ts to help other RIAs as they look to excel in the world of independent advisors. You can download the book at www.thegrader.com. See: Grand thoughts at the NYC Grand Central Hyatt from Fidelity Investments and RIAs.

So one of the audience questions — I think probably anybody can jump on this one: How did you guys give up control to these golden hires? I see advisors struggle with that transition every day. Who wants to jump on that one? Dwight, that might be good for you.

DWIGHT MIKULIS: For us we have three senior partners and we’ve had a little bit of history now doing just that over the last 10 years because we’ve had minority partners buy into the practice since 2002 actually. In each of those instances there was some responsibility shift and authority shift depending on the talents of the new minority partner. But specifically for our current golden hire, for our chief operating officer, this is being defined by our COO’s output, the ability to put together the structure, the connections inside the firm, compensation plans, a lot of different things is making it easier for the senior partners to be able to assess and say: Just because we didn’t create it doesn’t mean it isn’t good because this can be good.

Sometimes it’s a circular issue and that results will determine. We were never a group that had formal votes in our executive group. It was much along the lines of conversation until there was an assumed consensus. But I think Marty knows a lot more about this. I think there is going to be more formality in the future within the executive group on votes that are required and not allow our COO to have a clear, clear position in front of all the partners.

LISA SHIDLER: Marty, this is an issue you may want to jump in on too because the hire you talked about was responsible for growth and that was something you had always overseen. Was that hard to give up that control?

MARTY BICKNELL: Whether it was this hire or several others that we have made, from my perspective it goes back to what has been talked about a couple of times on this call. If you want to make the transition from a practice to a business no one single individual can be in control of all aspects of a true business. You have to be willing to give up control and trust in the people that you’re hiring, and really concentrating on getting results through others.

Dwight is talking about decision-making and votes and in that aspect we run an extremely flat organization. People are in charge of functions and all those individuals sit at a level level, if that makes sense. We all sit around a table and discuss things and collaborate on things. But there is no real formal voting process. We’ve never needed it. If you think about the pace in which we added things, it has never been a constraint for us to have that open collaboration process.

BROOKE SOUTHALL: Lisa, you said at the outset that we might cover not only what went right, but what didn’t go right. Were there some mistakes that you made in retrospect that were simply things that perhaps were more difficult than might have been anticipated in diving into this process?

DWIGHT MIKULIS: Just quickly on our end, we did take a little bit of a different tack from Marty and Steve in that we canvassed the broader scope of resumes out there so I almost felt like I had a lot of luxury of choice and I wasn’t aligned with any one particular candidate. But one of our partners fell in love with a resume and the person that was represented behind that and it did lengthen our process because we went out of our way to accommodate time constraints and logistics constraints for this particular candidate when in retrospect until you really had a chance to talk with them like Steve had for many, many hours they are just candidates, they are not part of your firm yet. So it ruffled my thought process that we were spending a little more time than I would have desired on somebody that was not part of the firm and there were many, many more opportunities out there.

MARTY BICKNELL: Just to jump in on that. We have made a few mistakes in the hiring process of hiring a couple of candidates that weren’t either the cultural fit or weren’t as described. But I will tell you the majority of, I don’t know if I would call them mistakes, but as much as the initial role and responsibility that we placed some individuals in were wrong. But because they believed in the model, they were the right cultural fits, and they were open to it we ended up finding the right spot for them.

BROOKE SOUTHALL: Okay.

MARTY BICKNELL: And when you’re a growing organization, you have the opportunity to do that. There is always somewhere that there is help needed.

BROOKE SOUTHALL: That makes sense to me. As an admirer of Bill Belichick, if somebody doesn’t work out at quarterback he makes them a punt returner.

MARTY BICKNELL: That’s something that we always done. You think about the college draft. Instead of drafting for position, we really do draft for the best player available.

BROOKE SOUTHALL: Yeah.

Populated candidate field

DWIGHT MIKULIS: I think Marty has a little bit of luxury when it comes to that because of the growth of the organization and a lot of opportunities as a smaller firm we were hiring a multiple $100,000-plus position. It came to that hopefully that person has got to be the right person because we really don’t have a lot of opportunity at stratosphere compensation levels.

BROOKE SOUTHALL: Right. And I don’t know if we mentioned it over the call, but we mentioned it in the pre-call, Marty you mentioned that you currently have 150 job openings right now?

MARTY BICKNELL: Correct.

BROOKE SOUTHALL: So there is a very wide range of opportunity. A lot of those are probably very similar positions.

MARTY BICKNELL: Correct.

BROOKE SOUTHALL: But they also run a gamut across the board.

MARTY BICKNELL: A hundred of them are advisors.

BROOKE SOUTHALL: Okay.

LISA SHIDLER: Steve, what about for you? Was there anything that you would have done differently or any mistakes you can share?

STEPHEN JANACHOWSKI: Yeah, it wasn’t in this hire but in previous hires that led to my thinking about doing this hire. In previous hires I have made mistakes in picking someone who is not a good cultural fit. And it became obvious because you get turbulence in the office when you pick someone who just doesn’t fit in with the culture. And the other mistake that I have made in the past especially with more senior hires is falling in love with a resume, you mentioned that term.

I’ve fallen in love with resumes, also. People who have done what I needed to do in previous positions, but then when it came to it what I didn’t know was how motivated were they to do it again. That was critical. So I have hired people to do what I needed in previous senior positions and then they were not motivated and juiced to actually go to the next level of where I wanted to go. I think that’s one of the key takeaways which I didn’t mention in this particular process. Not only was I looking for someone who could do what I needed help, create the culture that I wanted, but also was passionately onboard with growing the company. I felt that they had to be passionately onboard. I couldn’t be the only one driving the growth.

LISA SHIDLER: Since we’re getting close to the end, we have another audience question: Steve and Dwight you both spoke about chief operating officers, so the question is: What’s the era of the breakaway chief operating officer all about and why now?

Who needs a COO?

DWIGHT MIKULIS: So Lisa the question is: Why does it seem like the COO is the bright job right now in the RIA industry?

LISA SHIDLER: Yes.

DWIGHT MIKULIS: I am not sure what Steve is going to say after me, but I think it’s an easier position to hire to rather than jumping over that and hiring a CEO to take away much critical authority from whoever created the company. What do you think, Steve?

STEPHEN JANACHOWSKI: I think that the people who founded the firm tend to be more entrepreneurial and the COO position is not generally the entrepreneurial person but really a systems person. So if you still have people driving the growth as entrepreneurial partners or co-founders of the firm they really need someone to get them out of running the business and so I think it’s a really popular position especially for those firms that are making that change from practice to a business. You absolutely have to have someone who can run your company. You need a professional operator.

BROOKE SOUTHALL: And I think Marty would probably say if you hire a CEO and you don’t give them the right authority, compensation, etc., then it’s just going to fail.

LISA SHIDLER: Marty?

MARTY BICKNELL: I think that’s true in all leadership positions.

BROOKE SOUTHALL: It sounds like what’s inherent in the audience question was why does this seem to be — it took me five minutes to think of you three guys. And I know of others who are making these hires. It seems like there is something in the air that is making this happen on a fairly frequent basis in this industry right now.

DWIGHT MIKULIS: I think your RIABiz statistics said that 47% of a billion dollar-plus firms have a COO in place. Which means that 53%, if it’s correct, do not still, which means there is an enormous ground swell of excellent firms that are looking at this issue right now. And of the 47% that have it in place, some of it may be partially in place meaning a lot lies on the shoulders of a Marty or a Steve or a Dwight which is a part-time job when they are doing other things. None of us, I don’t believe, interviewed for COO jobs back in the day when we were creating firms. We interviewed to be finders of clients, to be RIAs and to deliver service to clients. But none of us were COO or CEO candidates.

BROOKE SOUTHALL: Right, right.

LISA SHIDLER: But surely something has changed in the industry that now we’re having so many.

BROOKE SOUTHALL: More big firms and more awareness of the opportunity to hire a COO, presumably.

DWIGHT MIKULIS: There is another thing, too, Brooke. If you think about the demographics of the RIA industry we are reaching a point you have a lot of people who started these firms who are in their 50 and 60s and as I mentioned earlier they either have to make the decision they are going to sell their firm if that’s the succession strategy or they have to grow their firm. So I don’t see any point in hiring a COO unless you plan to grow your firm and turn it into a business and then ultimately an enterprise.

BROOKE SOUTHALL: Agreed.

DWIGHT MIKULIS: I think that’s what’s actually happening here and they made the decision to grow their firm. But it happens, too, because somebody who is an entrepreneur thinks that they are going to live forever. And at some point reality hits and they think: Holy crap, I’m not going to live forever, and what’s my succession strategy? I don’t have one. I better come up with one and I think that starts the search. First the soul-searching of: Am I going to become a business of what is my succession strategy? If it is a business, they’re eventually going to figure it out. They need to COO.

BROOKE SOUTHALL: Right.

LISA SHIDLER: Unfortunately we’re coming to the end of time. I would love it if each of you could talk about the take-away for the audience. What are the couple of things that you think everyone should do in a similar situation to make that hire successful?

Resume love

STEPHEN JANACHOWSKI: I will jump in first and I will say the first thing that I think you need to do is be brutally honest about what is your business and where is your business in its life cycle and where do you want it to go because you can’t know where to go, unless you first know where you are. And then you have to make a decision if you’re — for example — if you are a practice and you want to become a business that is going to tell you a lot right there and you will make some distinctions. But if you don’t ask that question of where are you and where do you want to go, you’re not going to be making intelligent decisions.

DWIGHT MIKULIS: I would add into the thought process to make sure that the various stakeholders of the firm, this is whether you’re an equity owner or you happen to be in-line management or some other responsible position, that they get some input into what kind of authority or responsibility the new position would have because if people are surprised later on that will not be good.

MARTY BICKNELL: I would say that I think most firms that would be considering golden hire if you will, I’m sure most of them have a financial model that they are run their business to, key performance indicators, if you will. In my mind they have to be willing to make a decision, to make an investment in the future, and be willing to go backwards before it pays off. So, as I said before, really focusing on the activities you’re trying to drive to versus short-term results. It’s got to be long-term focus with the decision.

BROOKE SOUTHALL: I heard from each of you that where you can go wrong is in making a bad cultural decision, falling in love with a resume. A resume does not have culture, it has qualifications on paper. And we throw around the grand wisdom about culture when we talk about mergers as well. Is there anything that can be said about assessing somebody’s cultural fit other than sitting down with them for six hours and getting a feel for it?

DWIGHT MIKULIS: Depending on what people’s perception is we did use a predictive index in part of our interviewing process. And we used it on the senior partners to get an idea of what we actually look like as a group, and then to the final candidates and how they might match up to that index.

BROOKE SOUTHALL: Okay.

MARTY BICKNELL: We tried everything. Frankly the only way I know how to do it is get face-to-face with them and spend as much time as it takes.

BROOKE SOUTHALL: Right.

LISA SHIDLER: Unfortunately we’ve run out of time. This has been a wonderful conversation and discussion. I want to thank our panelists again for taking this time and giving us some insight. And again on behalf of RIABiz, I want to thank Fidelity Investments for being our sponsor. I am going to hand it over to Bob Hanson to conclude today’s webinar.