Though the RIA space continues to grow rapidly, the industry is consolidating. Penny Phillips returns to the podcast to explore how financial professionals can prepare their practices for a shifting industry.

John, it’s interesting. Oftentimes, I’m having discussions with financial professionals about the future of their practice, and they’re finding that they’re becoming spread very thin in terms of as their teams grow. They’re having a hard time spending time on the rainmaking activities, running the business, really being a CEO or COO, you know, thinking about the strategy plan, the business plan, there just aren’t enough hours in the day. And then there’s that thing called a personal life and family. And all of a sudden the stress levels are starting to rise. And I think what’s interesting is having those reflective moments with oneself and thinking about where does the practice really want to go in the future and and how does this look and what are what are my options? And I think oftentimes financial professionals aren’t sure what their options look like in terms of what the succession looks like, what the shape of the team and the practice look like. I don’t know if those conversations are resonating with you or if those are things that are happening in your world. But I know that those are coming up frequently in the discussions that I’m having with financial professionals day in and day out.

Yeah, I think so, Julie, that those discussions are happening often. I see, though, is it financial professionals just aren’t aware of all the different models that might be out there to support the kind of business that they want to develop. So I can remember back you and I had a conversation with Michael Kitsis Oh, I don’t even remember a year or two ago, and he talked about, you know, this concept of being able to design your own practice because there is now capital and organizations and different types of firms out there to support whatever the things are that you really don’t want to do. And I think as our listeners today listen to our conversation that we had with Penny Phillips, they’re going to find that that’s true. And the fact that all that support exists out there means that the real question lies with the financial professional. And I think Penny does a really good job on challenging advisors and financial professionals about how they might need to make some decisions in order to begin filling in the blanks about where we go from here.

I agree. And I think the exciting part is there are options and it is about starting with you and having that reflective moment and thinking about what do I want to do, what are my passions, what are my skill sets, and then how do I how do I create a plan and a process from there? So I wholeheartedly agree that it’s exciting and there are a lot of avenues that financial professionals can take. And it’s all starts with the education. From Penny.

Yeah. Who better to talk about this topic than a woman like Penny Phillips? Given her background and her ongoing experience in working with advisors, financial professionals and their practices? So why don’t you share with our audience a little bit about who Penny Phillips is and what we’re going to talk about today on our podcast?

Absolutely. Penny is the co-founder and president of Journey Strategic Wealth, a $3 billion national registered investment adviser built for advisors seeking independence and hands on practice management support. Penny has spent her career as an industry consultant. She is a sought after industry practice management speaker in the US and Canada. She is a monthly contributor to Wealth Management dot com and runs a YouTube channel called Practice Management with Penny. She was named as one of 23 people who will change the wealth management industry in 2023 by financial planning dot.com.

So, Julie, why don’t we invite everyone to listen to a recent conversation that we had with Penny Phillips about how financial professionals can build and grow resilient financial practices.

Hi, I’m John.

And I’m Julie.

We’re the hosts of the Hartford Funds Human-centric Investing Podcast.

Every other week we’re talking with inspiring thought leaders to hear their best ideas for how you can transform your relationships with your clients.

Let’s go.

Welcome Penny to the Human-centric Investing Podcast. We’re so happy to have you here with us today.

Thanks for having me. Great to be here.

You know, Penny, in conversations that we’ve had, we talked about how quickly the industry has changed and is continuing to change. Where advisors really have flexibility now to kind of design the kind of practice that they really want. And you talk an awful lot about an advisor really having to determine what role they will play in the future of their business. Can you talk to us a little bit about that and and tell us why that’s such an important question for financial professionals to ask ourselves?

Yes, it is the most important practice management question you can ask yourself as an advisor. It literally dictates, prioritizes everything, all of the decisions you then have to make moving forward as a practice owner or leader. I think for a long time we have I say we’ve dictated success for the advisor as an industry. Right. We’ve said to advisors, you are successful if you produce a lot and then transition into the CEO of a business and make a, you know, have billion dollars under management. Right? That’s been our sort of formula. We’ve been saying this to advisors over and over, and I think the pandemic was one of those times that advisors really had a moment to say, What do I really want to build? What can I build, what’s possible? And I think a lot of advisors realize and I know this from my coaching and consulting, a lot of advisors don’t actually want to be the CEO. Like, they want to feel like the CEO, right? They want to own their business. They want to own the client relationships. They want to have equity, but they don’t necessarily want to operate and run a business, but they feel stuck. And I think what I’m out there saying to advisors, not only with with with Journey, but my platform is it’s okay to make the decision about wanting a lifestyle practice or an enterprise or something in the middle. Right. The the important part about making that decision is if you want a lifestyle practice and that’s had a negative connotation in our industry and it shouldn’t lifestyle practice means you are going to be the primary revenue generator you are going to work with, you’re going to run a boutique practice, you’re going to work with a select group of clients that you want. And then at some point in the future, you will sunset and sell your business to an acquirer like Journey. But making that decision relieves some of the pressure of having to figure out how to, you know, build a national presence, add advisors across the country, do all the digital and social marketing. So I’m not saying advisors shouldn’t do that, but I’m saying if you’ve decided that you want a lifestyle practice, just focus on doing what you love. Now, you may not grow as fast, but if you are comfortable with the life that you have in the client you work with, that’s okay. Now, if you make the decision around enterprise, you’re making the decision that at some point you were going to have to step out of both the advisor and Rainmaker role. There is no way to build an enterprise if you are rainmaking. Being the number one advisor leading HR, Leading operations. Being the CIO, it’s impossible. And so a lot of times you can make the decision about whether you want lifestyle, practice or enterprise by thinking about what role do I enjoy playing? What role will i enjoy playing ten, 20 years from now? I tell advisors, think about how old your kids are going to be in ten years. What what relationship do you want with your spouse in ten years that’ll help you determine what role you want to and can play in the business. And once you’ve determined that I always want to be the advisor, I always want to be the business developer because that’s what makes me feel good, then guess what? You’ve just filtered out a lot of options. And, you know, these are the set of decisions that you’re going to be focused on. So really critical to think about that. And by the way, it’s okay to change your mind on it, but critical to think about that, especially as you go into year end planning this year.

And Penny, are those that are those the ends of the spectrum, lifestyle versus enterprise or are there other models we should be thinking about there?

So there’s thousands of models. I tell advisors create the life that you want. There is a firm out there that is designed to help you live that. When I think about advisors who are going independent to talk about the RIA space for a second, that’s my space. It is. You run your own business entirely. You are responsible for everything. And this is different from an advisor at a broker dealer, right? Like in LPL or Raymond James. Like different because they have a backing of a firm. You can go out and completely launch your own thing. Launch your own RIA. The other side of the spectrum is you sell your business and become an employee at a big firm. And just advice or rainmake, right? Just be an advisor. Those are the two ends of the spectrum.

ok.

Totally different. In the middle are all these different options where there’s platforms, there’s aggregators, there’s firms that can give you infrastructure, there’s firms that can give you investments and let you do. So again, most important thing for an advisor to determine what do I enjoy doing, what do I not enjoy doing, what do I imagine myself doing and meeting in the next three, five, ten years?

I think that’s interesting, Penny, how you position the choice and the reflective moment. And I think oftentimes advisers don’t hit the pause button because it’s really hard. Let’s face it, you’re in the middle. You’re running a very busy, successful business. But you really take that moment to think about what what energizes me, what fuels me, what activities do I truly enjoy the most. And I love that forward looking approach, you know, X number of years from now, what will my family situation look like? How old will my kids, if applicable? B You know, what does that look like for me and what role do I really want to be playing? Will I want to be changing the toner in the printer, for example, right? I mean, how how in the weeds of the business will I want to be versus being out prospecting rainmaking all the things that I love. And I think that it’s so interesting to think about having a choice because I think oftentimes advisors are sitting at their desk in the business in the thick of things. And I think oftentimes it doesn’t feel like there is a choice.

correct.

And I love how you framed that. And I think that that reflective moment is just such a powerful conversation with oneself and with one’s team or, you know, the advisors on one’s team, if they build even a small team right now. I just think that that’s such a really interesting way that you position that and I would encourage everyone listening to have that reflective conversation no matter what time of year it is, right, Whether it’s business planning season or not, I think that there’s just so much to be had for where do I want to head with this? What and what steps can be taken today to prepare for that?

That’s right.

And I think maybe that’s where I would ask you, Penny, in your area of expertise, even if an advisor isn’t looking to make a decision today, but they’re going through that reflective process, what are some of those things that you would encourage them to start thinking about in preparation for, you know, the future? Maybe if they’re looking 24 months down the road, you know, how do you kind of see this phase one, Phase two when you’ve worked with other advisors and teams?

Well, you know, the first thing it’s what I alluded to, having a reality check with yourself about what what it is that you really want to build. Forget what the industry says, forget the rankings, forget you know what the industry tells us about who’s successful. Guess what? Success is relative and success should be based on how happy our clients are, by the way, and not how much, you know, some of the best advisors I know are not don’t run huge large businesses and don’t have tremendous say you want, but they’re amazing advisors. So really check with yourself about how you define success as an advisor, Right? What is success mean to you? You end your week and you feel like you had a great week most of the time. By the way, advisors say they had a great week or month or quarter because they helped a lot of people, right? The best advisor in the business will tell you that we helped people, we met new families, We’re helping people solve complex challenges. So, so understand what your success metric is, understand what it is that you imagine yourself building. There are some advisors that will say, I like running something. I want to be the person in charge, right? So you’ve got that part figured out. Now you need to figure out what is it that I’m going to need over the next couple of years to continue to run or build this. And here’s how understanding those steps can help you make a decision. If you are somebody who wants to run a And by the way, most of the advisors I talk to are in transition in some way. They were thinking about leaving their firm. They want to launch. They’re not sure sort of where they’re going to end up. But I say to them, if you want to build an enterprise and you want to buy books a business, right? That’s what I always hear. Like we want to buy, guess what? You need to go to a firm, you need capital, you need to go to a firm that has capital and that has M&A expertise and that can help you sort of craft this business that you want to build. Right? So that filters out a lot of options. If you’re talking to firms or thinking about going out and doing it yourself. If you an advisor that recognizes that you’ve got five, six, seven years left, you want a sunset, but you don’t have a rainmaker to take. Like lot of advisors have built businesses with G2 on their team, G2 advisors, but not necessarily G2 advisors that want to take over the business. Well, guess what? If you’ve realized, like I want to still run lifestyle practice, but now I want to sell, I want to de-risk. Guess what? You have to go to a firm that can accommodate that structure and that can fully support you in finding a successor to take over the business or can acquire your business. So my point in sharing that is when you figure out what it is that you want to build, what are the things you’re going to need? Are you going to need expertise in industry expertise? Not every advisor wants to figure out how to recreate and build a text stack. And evolve a tech stack, right. So whatever it is that you’re going to need to run the business list out all of those things. And it’s almost like a decision tree, right? Those things will help you filter out what your next move is, is your next move. Staying at the firm you’re at, is it buying a book of business internally? Is it hiring somebody? Is it hiring a coach? Is it going to an aggregator? Filter out those options all of a sudden the next couple years seem manageable and the pathway to success is clear.

So Penn,. Let me switch gears a little bit and talk about the topic of organic growth and where growth is coming from. I think sometimes as financial professionals, we’re bombarded with the latest greatest technique to acquire new clients, right? It’s I’ve got to have a website that’ll make your head spin. I got to host a podcast. I got to do that. I got to write a book, I’ve got to do all this stuff. And eventually, just like, you know, it’s hard to measure return. Where do you see in the practices that you’re working with? Where do you see organic growth coming from?

Believe it or not, this is a hard question to answer because the anecdotal evidence that I have as a consultant and coach for the last 15 years working with literally thousands of advisors is different from what the statistics tell us now, right? Because the statistics are telling us the fastest growing businesses are the 5-10 billion dollar plus. When we’re talking about the independence base. Right, RAs, well, obviously, those are the fastest growing businesses there, the biggest with the most resources. Right. But when you look at where growth is happening, it’s not happening from referrals, Right? It’s happening from search engine optimization, digital content, digital presence, getting people to, you know, putting out a piece of content and getting, you know, getting the bottom of the funnel type stuff, getting the right person at the right time. Right. But when you talk to individual advisors, advisors running independent practices, we’re out there grinding day in and day out. And you ask them how they grew last year, guess what they’re going to tell you? They’re not going to say tik tok, They’re not going to say, I ran a successful ad campaign on Google. They’re going to say referrals. They’re going to say, guess what? We grew last year because people love us. We don’t even ask for referrals. Right. The best in the business will tell you we don’t have to ask anymore. People just refer business to us. And so, again, this comes back to the decision about what do you want to build? If you are comfortable, and I may be the only one saying, I’m not saying don’t have a digital presence, but what I’m saying is it’s okay to not try to become a YouTube star. You know, when when you are not comfortable on video, when you’re reading from a script, it’s it’s awkward for you and the viewer. By the way, it’s okay to rely on what has worked for you up until this point. And again, maybe not a popular opinion, but if you were five years out from retiring and you’ve built a comfortable business for yourself and you love the family type of referral based business you’ve built, it’s okay to still do that until you’re done. Now, if you want to build an enterprise, if you want to grow fast, if you want to grow an enduring practice that will exist after you are gone, then you got to pivot, right? And you got to recognize that you may not be able to grow the business as fast as you would if you were at an institution or an aggregator or a bigger firm that’s helping you drive a lead flow. That’s the name of the game the industry has consolidated. And so what I share with advisors, if you really want to build enterprise, you have to institutionalize client acquisition, which means you either have to teach other advisors to rainmake the way you do. Almost impossible now with the next generation, or you have to go to a firm that is putting millions of dollars into marketing and generating leads by people literally Googling like where I needed a financial planner or an advisor and your name is coming up. It’s really as simple as that. It’s not that simple, though, and you need a lot of money and resources to do that. And so the truth is organic growth is coming from both. But it depends on who you’re asking.

In addition to thinking about growth factors, you know, a lot of the conversations that John and I have with advisors as we’re sitting with them in their offices or on virtual calls is really kind of the existing opportunities in their books and, you know, referrals from existing clients. And, you know, it’s it’s interesting conversations and every advisor has a different philosophy around that. What are your conversations with financial professionals around kind of reintroducing their services and the value they bring to the table and kind of reminding clients about what they do and kind of creating those referral processes. I’m curious, Penny, in your area of expertise, how do you coach advisors to talk about this and to generate those refer-ability moments from kind of the existing great service that they’re delivering?

Yeah, big, big question. And I think that the best in the business have mastered this. They’ve mastered two things the art of constantly reinventing themselves. And I give you I’ll give you this simple example. During the pandemic, as consumers, we received emails from every CEO of every company we’ve ever consumed goods and services from. Like the CEO of Delta is sending us an email and saying, We’re here for you. You’re a valued customer. Here’s what we do. Here’s what we’re doing to make sure that we’re still delivering service, right? The CEO of Verizon, like people we will never meet or know in our lifetime, are reminding us of what the value proposition, how much they care about us and what they do. Advisors don’t do that. I tell advisors the most powerful thing you could do is send a state of the practice, email or letter to clients every single year. Remind them that you’re in business. Get them excited about what you’re building. We’re growing. We’ve added 25 families this year. We’re committed to adding 25 more in the next three. I mean, I’m making this up, but you get the point.

yep.

Critically important. We’ve helped so many people this year. Here are the top five ways we’ve helped family remind people of what you do. So that’s number one. The second thing is always differentiate between wealth management and investment management. The consumer and I’m talking, generally speaking, right in investor’s clients, when they think of financial advisors, still they think about people who invest money in the stock market. They don’t think about financial planning, they don’t think of tax planning. They don’t know what wealth management means. Holistic wealth management and comprehensive financial planning are terms that we have made up for each other. That’s it. The consumer does not understand that. Telling people. Folks. What we do is wealth management. It’s really important for us to take a moment every single year and remind clients of the difference between what we do and what most advisors out there do. Or what digital service providers do. So actually spell that out for them. The last thing I’ll say about referrals. Gosh, I mean, I have seen and this is going back now years and years, but training for advisors around referrals, like I get paid one of three ways and, you know, do you know anyone who could benefit from my services? Advisors always ask me, do people feel awkward when I ask that? And I say, Yes, they do. I don’t know why coaches lie to you. Nobody feels comfortable. Imagine going to a therapist and a therapist saying, You talk about your mom all the time. Like, could she use that? I mean, come on, trying to be vulnerable with somebody. Now, there are certain people in the world who respond to that. If you read any of Malcolm Gladwell’s books, The Tipping Point, Right, all the books he’s written, there are certain people who have that influence or characteristic. There are the people writing Yelp reviews. They’re the people who’ve they’ve got a guy, right? They’ve got the best roofer and the best dentist. They got the best adviser. Everybody has those people in their books of business. Those are the only people who will give you referrals when asked because they want to be part of something. So say to them, We’ve added five families. We want to add three more before year end. We only want them to come from you. That’s how powerful of a force and voice and family you are in our business. They feel excited by that. Everybody else gets turned off. So identify those people and feel free to ask them directly for referrals.

So, Penny, one last question for me. Since I joined the business 35 years ago, I used to be one of the younger generation in the business, and now I’m one of the older.

no you are?

But really, it’s been a topic forever, which is how do we attract and retain young talent? And we’re told young people just aren’t coming into our business. So what do you share with advisors who are kind of looking to build that capability within their practice?

So again, this is one where I’m oh, I feel like we like scaring advisors, like we love as an industry gig, putting this like dire news out that your businesses are going to fold. There’s no what if that’s actually not true? What isn’t coming into the business are advisors who want to be producers. That’s the reality. We have more CFP than we ever did. We have more universities producing, the people want a plan. We don’t have advisors that want to go out and sell product or be ranked on a scale or be comped based on what they eat, what you kill. That’s what we don’t have anymore. Is that a problem? I tend to say no, because the industry consolidate. I mean, is it a problem? Yes, but but the industry will solve for that by consolidating creating these teams and ensembles where we have salaried advisors who can be advisors. Now, will we have a rainmaker problem? Of course. But again, the industry shifting and evolving. So what I’d say is unfortunately we are going to have less and less younger people who want to hunt and remake. That’s for a whole other podcast. Bring me back. I’ll talk all about the generational psychological differences. The truth is we have to let go of our biases about what got us here. I grinded it out. I worked for, you know, I climbed five miles up Kilimanjaro and got this like, it’s irrelevant now.

You’re killed. You’re still on my script there.

You know, John, I’m sorry, but it’s you have to be open to the fact that the younger generation advisor is not going to have to grind as hard as you will. And we’ll probably own your business one day. And there going to be a salary plus bonus employee. That’s how we bring more people into the business. It’s okay to get what you want, have your cake and eat it too. Advisors hate that, but it’s the reality and flexibility. You know, I’m a I’m a millennial by age, but think more like a Gen Z. Gen X and baby boomer. Maybe because I’m first generation, but I’ve seen it myself. Flexibility, work life balance. That’s the name of the game now. And that’s that’s unfortunately or fortunately, how we attract younger talent.

Well, Penny, you’ve given us so much to think about, and hopefully our listeners are inspired by all of your words of wisdom. And I agree. I can’t tell you how many times a day I say what got us to here probably isn’t what’s going to get us there. So I think we’re of a similar mindset. But thank you again for for all of these ideas. And again, I think that the exciting part is that financial professionals have the opportunity to have a reflective moment and really think about where they want to head in the future of their business, their practice and leveraging their strengths, their skill sets and saying, What do I really want this to be going forward? And I think that that’s a really helpful opportunity. So thank you again for all of the advice. And now if you’re willing, because this is the Human-centric Investing podcast, we would love to take you through our lightning round of questions to learn a little bit more about you, the human side of Penny. So if you’re really we’d love to go to that.

Let’s go to that. Let’s do it.

Perfect. Thank you. Here we go. When you were a kid, what did you want to be when you grew up?

Everything. An archeologist, an investment banker. You know, an astronaut. Like everything. Everything? Yeah.

Are you a morning person or a night owl?

Oh, no, no.

I don’t know how I’ve somehow been successful in this business, but I’m not a morning person.

That’s torture.

Let’s see if you could travel the world for free. Where would you go first?

Hmm.

This is a good one. I. Where would I go first? Okay. My bucket. I have Kenya and Morocco are on my bucket list right now. So I do that. And then I’d go to Greece. I go to see my family.

You would say Greece. Just because I was you.

I just got back. That’s why I am tan. But I go back. Yeah, sure. Yeah.

Leaving out any specifics? What’s the worst job you’ve ever had?

Oh, like I’m not. I don’t want to say this. I can’t talk about it, but I.

Listen, it’s.

I’ve. I’ve always worked in this business. I’ve had good experiences and bad experiences, and I’ll leave it at that.

Sounds good.

Would you rather travel to the past or to the future?

For someone with anxiety, this is a terrible question. I, you know, go to the past and change something I said in the fourth grade so it wouldn’t keep me up at night is probably what I’d say.

You know.

I think I know the answer, but I have to ask it. Are you an introvert or an extrovert?

I you know, somebody once told me I’m like an inch this introverted extrovert. I don’t think you can say I’m anywhere introverted, though. Judging by how I talk on these podcasts.

I would have be my guess...have to say

I’m an extrovert.

Yeah, I am.

Do you have a favorite sports team?

The New York Knicks. Big time. Yeah.

My last question paper to do list or digital.

Oh my gosh. Paper to do list all day. All the books. Yeah. Yeah. Go digital for me, isn’t it?

Isn’t it so nice just to cross things off fields it feels so good.

We can get into the psychology around what that does to the brain. But it’s. Yeah, it’s a real thing.

You ever add the things that haven’t even been on there that you did just so you can cross them off? That’s my.

One. Julie We should talk offline because what I do, all of that.

My husband will look over and he’s like, You’re adding things to the list just so you can cross them off aren’t you?

And I’m like, OH Yeah, you know, I am.

we’ve got to get both of you some therapy, right?

Oh, big time. Oh, no. There’s not enough money in the world.

There’s not.

Listen, we’re. We’re doing just fine John okay we’re fine.

Well, thank you again, Penny, for joining us today on the Human-centric Investing podcast. We can’t tell you how much we enjoyed your insights and thoughts. And for our listeners to learn more about how Journey supports independent advisors, you can visit Journey S.W. Advisor dot com. You can also find Penny on YouTube under her channel practice management with Penny or on LinkedIn or Twitter. Thank you again for being here with us today.

Thanks for having me.

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