Financial Advisors Can Find Freedom to Focus Through Outsourcing with Barrett Ayers, Matt Sonnen and Rich DeSalvo

The ups and downs of 2020 gave many advisors pause and forced them to really think about the core of their businesses: Who are our ideal clients? What services should we be offering to them? What should we be charging for those services? And what is the most profitable way we can deliver those services to our ideal clients? 

In this episode of Power Your Advice, Adhesion Wealth President, Barrett Ayers, discusses the ins and outs of outsourcing with Matt Sonnen of PFI Advisors and Rich DeSalvo of f3Logic, LLC.  These experts provide their insights on the trends that are driving financial advisors to outsource and how outsourcing can free up advisors to focus on those services that differentiate them.

  • How COVID-19 accelerated advisor acceptance of outsourcing
  • What types of outsourced solutions are gaining popularity 
  • Tips for determining if/when an outsourced provider is a good fit with your firm
  • How outsourcing can benefit your bottom line

Resources:  Adhesion Wealth | PFI Advisors | f3Logic, LLC

Related: What Financial Advisors Should Know About Mergers & Acquisitions Today with Barrett Ayers, Stan Gregor and David DeVoe



Rich DeSalvo, Douglas Heikkinen, Matt Sonnen, Barrett Ayers

Douglas Heikkinen  00:07

Hello and welcome to the Power Your Advice podcast. This is Doug Heikkinen. The power advice podcast is designed to bring you new ideas, why those ideas should be considered and how to implement them into your business. The podcast is brought to you by iris. . .

xyz, the most helpful place advisors can come to to grow their minds and businesses. And today I'm going to again turn over the reins to President of Adhesion wealth Barrett Ayers, who has two fantastic guests talking about the power of outsourcing. Barrett, take it away.

Barrett Ayers  00:38

Fantastic. Thanks again. You're right. This is a really exciting topic. And I appreciate everybody joining us today. First off for introductions. My name is Barrett airs on the president of adhesion. Well, today I have the distinct privilege of facilitating a conversation on topic that I think that is of particular interest to me, I think everybody is going to really enjoy my company adhesion, wealth, wealth works very closely with advisory firms are looking to outsource investment operations. So this topic is really near and dear to me personally. In fact, I was an advisor for many years and through many of those experiences, I came to believe and kind of appreciate that IT outsourcing if done properly, advisors can free themselves up to from the heavy administrative and operational burden, to focus on their clients and building their business. I think one of the key challenges in embracing outsourcing those to understand kind of your core what you do as an advisor. However, defining where an advisor add value these days can be tricky. And I think that's gonna be one of the central themes of our discussion today. And you'll hear that kind of woven through the comments from the panelists. So speaking to panelists, let me introduce them real quickly. So first off, I'd like to choose matsan and Matt is the founder and CEO of EFI. Advisors. His career has traversed Merrill Lynch, luminous capital and focus financial partners, eventually leading to the founding of psi advisors in 2015. Well, he was at luminous Matt served as the CEO and csio, helping navigating the technology and compliance challenges as the firm grew from 1.7 billion in assets to nearly 6 billion in less than five years. So after luminous, Matt served as the VP of strategic operations of focus, working with breakway advisors seeking independence now, as the founder and CEO of HP EFI. Matt works to help advisors achieve financial independence. In fact, psi works closely with many breakaway teams that feel they're already have the scale to start their ra without partnering with the National platforms that are currently out there, so you can understand them. While he's a panelist on this exciting topic today. Next, I've got Richard salvo, who's the CEO and founder of f3. Logic, rich provides leadership for the f3 family of companies. f3 logic offers high level reporting, trading billing, as well as investment research, commentary and true fiduciary services are as we're moving, removing the bureaucracy of larger organization. So f3 logic gives IRS and ra as the middle and backup support they need with the freedom to evolve their professional business structures over time. So concerned industry thought leader rich applies his knowledge and expertise towards delivering a superior advisor experience. And clearly you can understand that why I asked rich to join us on this topic as a panelist today. So like other discussions we've had the format for today's call will be a rapid fire q&a session, I'm going to ask the same questions to both Matt and rich. And let's just go ahead and get started. So Gentlemen, thank you very much for joining us today. I'm gonna start with Matt and see if we can talk a little bit outsourcing, really interest understand the trends. So you know, what trends are driving the tendencies for ra is to outsource to providers, can you provide some insight and thought on that?

Matt Sonnen  03:43

Yes, sir. Thank you for having me. Um, I think the the market dropped and while it was brief, the market dropped. We had in March and April scared a lot of advisors and got them to stop thinking solely of top line revenue, just thinking of where's my next client coming from? and got them focused on bottom line profitability? I remember at that time, you know, everyone rightfully so was very worried about Oh, man, are we gonna have a bunch of layoffs and you know, downsizing, etc. I remember Michael kitsis, had tweeted at that time, he says, the reality is the profit margin of a firm is its first line of defense against against needing to downsize. And and we had that upward sloping market for so long. This was really a wake up call for a lot of advisors. And it naturally has led them to ask the right questions about their business. Who is our ideal client? What services should we be offering that ideal client? What should we be charging for those services? And then the most relevant for our discussion here today? What is the most profitable way I can deliver those services to that ideal client? And this is that age old 8020 analysis that we should all be doing in our businesses on an annual basis, but when things are going good, no one really puts that magnifying glass on their business and ask these questions. But the fact is, for every business 80% of your revenue is coming from 20% of your clients. And the flip side of that is 80 percent of your clients should be evaluated on a regular basis. That market drop really got everyone to take a step back and say, What clients are we working with? Do we enjoy working with these? Are there certain clients that demand services from us that are really outside of our core competency? Is it leading to trade errors? Is it just leading us to buy expensive tools and resources in order to service that client? And so there's, this has many firms looking at 2021? I think they're they're looking at the certain clients, that they're you that they're working with, and and saying, should we just simply stopped doing business with with this segment of clients? Or are there parts of our business that we can handle in house? Are there parts of our business that we should outsource, if we don't have to get rid of the clients altogether? But can we offload some of that work to an outside solution? If we can, we can still provide a profitable way of servicing these clients?

Barrett Ayers  05:55

Fantastic. So you're really talking about is having advisors kind of look introspectively and decide, you know, what is it that's part of your client value proposition? What is you offer as core to your clients? Keeping that in differentiating based on that, and then outsourcing the things that are not core, which I think is a really good message. So rich, from your perspective, what trends are driving our east outsource a bit more?

Rich DeSalvo  06:17

So let me let me take this first of all, thank you for the time, bear and Matt, hello to you as well. Let me start first by calling it the evolution of the financial professional. And I think those that are listening realize mentally we never stop. Am I doing what's right? How do I know what I'm doing? Is it even right? There's a constantly questions going through our minds. And I think what's happening, why people start to see the outsourcing is those questions are starting to become more relevant. It's not just let me go someplace and let somebody tell me what to do. I'm starting to understand I need to have more self reliance, business self reliance in my life, I start to have to ask myself questions. And Matt alluded to it, even before the business model, I'll call it striving for your authentic self. What kind of entrepreneur? Am I? Am I really a risk taker? Am I am I really a big e? Or a little if you would an entrepreneurial scale? What is my definition of success? Is it really okay to work out of my house? Like, can I actually be successful? And do that? Or do I really need that mahogany desk to sit behind the field? Do I really need a corner office to be successful? Well, this is this just my last stop where I am today. I'm currently an IR should I be an RA? Like these are the kind of, I think the natural evolution of an advisor of not standing still. And when they start to go down this path, and really want to become long term business professionals and grow their business. It's not doesn't just mean going from three clients to 30 clients. Now you've got to take on other things relative to our business of middle and back office and compliance work and trading, like, do I have to hire a trader. So now you go from being a wonderful advisor to a business person, which creates a whole new world of an a new way of thinking into that world of evolution as they grow?

Barrett Ayers  08:10

And I suppose with that also comes additional risk, additional expense, which we'll get to in a minute. But I guess how much of this would you say is, you know, a sustainable trend? And I guess, how much of this would you attribute to something like COVID? You know, so as an example, how much how much of this is a is an anomaly that maybe COVID happened reset and recalibrated Fie expectations, and suddenly, you know, when COVID goes away, everything's gonna go back to normal. Can you guys speak for just a minute what you think how big of a factor you think COVID is and the long term impact it will have on outsourcing and rich, maybe if you're okay with this, maybe we'll stay with you. And then we'll switch back to map Okay.

Rich DeSalvo  08:47

Sure. I think that COVID has become an accelerator. I think that people working out of the homes and you saw it in everyday life, people starting to start off goodness it started years ago with casual Fridays that people working out of their homes Friday's the trend started. And this just made it easy. So now that it's accelerated and gone a certain way, I actually believe it's going to stay there for the most part and I use the and I don't think travel in the airlines will necessarily that might even be a decade away to see the old ways in terms of how to prospect get on a plane. I think now it's going to be you zoom zoom for two or three times, and then you go for the clothes. I think that's going to be its natural evolution. And then I think also, people are getting more comfortable with doing closing business through zoom. It's now becoming normal. Remember the first time just a few months ago, you all wore your your mask in public? Didn't you feel like everyone was like almost looking at you. Now if you don't, where you look, they look at you, right? It's just becoming the norm. So zoom conversations, doing business through zoom as part of their business and now that the advisors more comfortable with that. I think that the ability to transition they're actually going to be willing to do with to talk to their best clients. necessarily in person, because it's going to be accepted. Yeah, it

Barrett Ayers  10:04

Totally makes sense to agree with you to chuckle at the idea but the mask completely agree. Okay. So Matt, tell me a little bit your thoughts, you know, is COVID making this a long term trend on outsourcing? What is the impact COVID tab on the on outsourcing?

Matt Sonnen  10:20

I think rich nailed that. I think it I think we would have gotten there anyway. But calling it an accelerator, I think is exactly right. I think sending everyone home in March, it forced a lot of Ra owners to get comfortable with not seeing the sausage being made every day. I think mentally, many ri owners realized, wow, things are still getting done around here. We're still being productive. I don't have I don't have to be involved in every decision and part of every conversation. And it may be subconscious more than a conscious shift. But I think that mental shift of I don't have to oversee it in order for it to get done. I think that's going to long term that will lead itself nicely to advisors getting more comfortable with that the whole idea of outsourcing doesn't have to be done right in front of my eyes. Also, I think sending everyone home at the exact same time that clients were demanding more and more hand holding, obviously, you know, like I mentioned, it was it was crazy. The market was behaving crazy at the time, too, that forced a lot of Ra owners to to think more strategically of how they were using their internal internal resources and saying we've got to be more efficient. And so again, that's naturally going to lead our eyes to say, what is the best use of our time? What's the best use of our energy? Can we outsource some of these functions? So as we discussed earlier, this whole COVID ordeal, it's forced a much stronger focus on profitability, scalability. And I think all of that will lead itself to more outsourcing long term.

Barrett Ayers  11:45

So yeah, it's a good point. And I guess longer term, then do you. So this is not a temporary anomaly that right I mean, maybe COVID recalibrated the way we think about outsourcing and making it more acceptable. Maybe it forced our hands a little bit. But so longer term, you both agree. And I'll I guess I'll ask Matt, you specifically this. So longer term, you see this as a as a more sustainable trend of outsourcing and having advisors really focus on their core?

Matt Sonnen  12:11

Yeah, we launched you mentioned in the in the in the intro. Yeah, we launched EFI advisors five years ago. And I've always joked the biggest risk to our business model is will enough advisors across our industry make that mental shift from calling themselves a financial advisor to calling themselves an owner of a financial advisory business? Can we really get them to start thinking of thinking of themselves as owners? And as rich said, this is as accelerated I believe, it's accelerated that that thinking, if they view themselves only as a financial adviser, they're only thinking of marketing again, where am I getting my next client, but if they start thinking of themselves as business owners, they really start focusing on operational efficiencies and scalability and the bottom line profits. as a as a teenager, I idolized Eddie Van Halen, as an adult, I've idolized mark to virgin, because I feel he's been the loudest voice, talking about this move from practices to businesses. And again, he's been talking about it for years and years and years. But But COVID has really I think, accelerated that. He wrote a lot of incredible books. I think he's writing another one right now. But one that I've gravitated towards, is called the enduring advisory firm. And in that book, he talks about building a business that can last it's not just a lifestyle practice that allows you to pay the rent. It's a bigger business than yourself, and it's going to last way beyond you. And he talks about choosing your ideal client. He talks about what services to offer that client how to do those do offer those services profitably. He talks about needing to be scalable, to be scalable. And that scalability comes from actually having a plan and thinking through these things. Not just it's not just a magic number, hey, when we get to x will be scalable. I think this trend is going to continue. The events of 2020 again, accelerated this, but competition is so fierce for clients. I think advisors are really thinking about how do I get a scalable business I think competition for advisors is so fierce, everybody wants to be a buyer right now. But everyone's there's so much competition, I think they're they're realizing if I can't convince a an advisor, that I have a robust infrastructure that I have a scalable business, a profitable business, and they're going to grow faster. If they join us, then if they join someone else, if they can't do that, they're going to lose in the m&a game. The flip side, there's so much money coming into our industry, I think a lot of people are looking to sell their businesses. And they have to realize when you're selling a business, the multiple is applied to the bottom line profits of the business. It's not in the wire house world, it's applied to the top line revenue of your business and you can jump from wire house to wireless but if you're selling a business, you got to think of your bottom line profitability. So for all of these reasons, I think that advisor is gonna be more focused on profits than ever before and outsourcing it clearly has has a component of that

Barrett Ayers  15:00

Yeah, that's a really good point. In fact, we were, we did a survey and work with TD Ameritrade last year, we did a webinar on this really interesting. We, TD pulled a bunch of advisors and they pulled a bunch of clients. And, you know, 71% of the advisors polled so that they thought that, you know, what was central to their value proposition was in house investment management, keeping it all in house. And that's what the clients expected, then you look at the clients and pull the clients, and only 17% of the advisory clients thought that the advisors were doing any sort of investment management in house, they thought Most of it was outsourced. So there's this really interesting disconnect. And I think it does go to march perspective on on EBITDA, and you know, bottom line profitability of an organization. But advisors, in many cases are keeping some of these operational functions in house, not at the benefit of their clients necessarily, in fact, it contradicts some of the expectations of the clients themselves. So really interesting perspective. In fact, I want to switch topics real fast and talk to rich. So outsourcing is a broad spectrum of things, right, I think, you know, most advisors think they can outsource anything from compliance and marketing to Investment Management trading. The stock selection, so there's a whole gamut a whole spectrum of things you can outsource. What areas are you sensing or gaining a little bit more popularity as a relates to outsourcing? Which?

Rich DeSalvo  16:23

I think if I answer that question, I think that the trend first of all trends, we got to be careful with trends, I'm gonna make a comment of some of the things you guys said earlier, and it made me think of when Matt said something, I'll get to your question. But I want to say something here, there's vulnerability and outsourcing, if you're not careful, I want to start there first. And that's because many firms that start this business, they're not really in the business to grow. They're really in the business to grow enough, so somebody will buy them. So be very careful terms of who you pick. So you want to find people that typically have frankly, been bought out already, or they're they are the deep pockets, and they're the acquire of other firms, you don't want to be on the other side of that equation, right? Not the place to base a sudden change and outsourcing. Be very careful when you do due diligence. Number one, because you lose control that way, right? We know none of us want to lose control. And then when it comes to the outsourcing, what I am finding is people are beginning to outsource the things they're learning to keep their egos out of the equation. Remember, ego stands for edge greatness out to you. If you know you're not good at something, don't do it. If you know you're not strong at trading, let somebody else do it. If you've got models, let someone else trade them for you. billing. Billing is a natural conflict of interest. If it's not where you're you're best that let somebody else take care of it. Remember, in the way I would suggest looking backwards, the first thing I would say to someone is let's take your ATV, and let's take your policies and procedures. And let's go through them. Show me how you are going to make sure you comply with all of these, because that's exactly what the auditors are going to do when the SEC comes in. So show me how you're going to get that done. And then they start to realize quickly. Well, I'm going to and this is another fallacy, if you would that I hear about quite often is they think that outsource and they oversimplify it. everyone's the same they commoditize it because it's a logic of convenience, or sometimes and I love custodians, they're important. They're needed. We want them what what they do is they go to the custodian for think that's their solution set. And it's not they're just a cog in the wheel. They're not the wheel. So I think that what's gaining traction is where is it that I know from a risk perspective, I have I can have flaws. Obviously, I mentioned the trading and the billing, and auditing books and records cybersecurity, all these elements of financial planning, all those elements you've got to make sure are taken care of for you. So you actually can go prospect. And as I mentioned earlier, go did go do the things that you were meant to do.

Barrett Ayers  18:59

That's fantastic. And I guess, Matt, from your perspective, and you're talking with breakaway teams as well. What do you what do you say, I guess to Rich's point, you know, what is it that folks are looking to get rid of? Do they look in the rearview mirror and realize and very good at? What are the tendencies and trends that you're starting to see in terms of gaining popularity?

Matt Sonnen  19:18

Yeah, I think when when especially the breakaway advisor, they're they're leaving that big firm, and they're going into business for themselves. So as they're figuring out who's going to do what around here, they have to ask themselves two important questions. What do I not like doing and what am I really bad at? And and when they ask those two questions, the same enrich mentioned some of these. The same tasks tend to crop up every time. bookkeeping. I don't want to do QuickBooks. I don't want to pay the bills, compliance. I don't you know, I'm just nervous that I don't know enough there. So I want to outsource that. It support you know, who's managing our network who's providing that cybersecurity protection. Who do I call if outlook keeps crashing? on my computer, that sort of thing. Healthcare, I'm a big fan of PPO plans for managing health benefits and payroll and 401k plans for your employees etc. And then on the investment management side, you can kind of break it into three, three pieces. And advisors can pick and choose which of these three, they want to outsource which ones they want to keep. But there's there's just a research component. There's the constructing of the portfolios, maybe I'm outsourcing the researching, but we still want to be the ones building the portfolios ourselves, or maybe you outsource both. And then just the the execution of the models, right, the trading component, it's it's hard to grow the business, if you're tied to the desk all day, watching every tick up and down on your Bloomberg terminal and trying to determine is today the day we sell apple and by Google or whatever it whatever it may be. So I tell advisors all the time, the best way, the best use of your time is to be out of the office meeting with your clients and your prospects. So those are the components that typically crop up when talking with the breakaway advisors.

Barrett Ayers  20:58

Yeah, that makes sense. I think that that goes to support some of the statistics that we found in the survey with TD Ameritrade and that his clients don't even expect to be doing the stuff get away from the Bloomberg put it down. That's not really what you do best. And I think there's a growing support that in the in the investment advisor community so so let's assume for those advisors that are listening in they're they're they're coming to grips with the fact that maybe they need to be outsourcing some things, what are some of the elements that you would consider to be kind of a determining factor in making a good fit with some sort of outsourcing provider and rich? I'm sorry, I'm gonna stay with you on this one. And maybe you give us some thoughts on this, and we'll go over to rich after you're done.

Matt Sonnen  21:41

So I could give a list of you know, these are the questions to ask each and do a due diligence of this provider versus that provider, I'm gonna go I'm gonna go higher level with my answer on this one. I think the key to having a good fit is setting the expectations really early in the relationship and in determining how much work is still going to be required in house when I'm working with this particular vendor. You know, that list I gave of outsourced solutions, I did not have performance reporting on there. But so many advisors say, Well, we've hired you know, Tamarack or or Orion or whatever it may be. We're outsourcing Performance Reporting, we don't have to be involved. Before it's bringing specifically I mean, that's just those that vendor there is just giving your staff and a technology tool to manage the performance reports, the client portal, the billing module, etc. But there's still a ton of work and most our eyes have a dedicated full time employees don't have more than one just dedicated to Performance Reporting. So that in my mind isn't even an outsourced solution. But you know, your bookkeeper is still going to require internal employees to submit expense reports, there's still some work internally when working with an outside bookkeeper, that that PEO that health care provider, they, you know, they're they're handling payroll, they still need somebody internally that's submitting timesheets, and taking, you know, keeping track of vacation days and sick days, etc. So there's still internal work there. In my mind, just getting that that fit with that outsourced provider is really understanding what that provider still needs from you, and then assigning the proper level of internal resources to work with that work with that outside provider.

Barrett Ayers  23:17

Yeah, I love the idea of setting expectations with a provider in advance. And it's funny you say that I, we we hear this from time to time as it relates to billing, folks who want outsourced billing, I think it's completely hands off. In reality, it does require a lot of insight and collaboration with the advisor, right? It's, it's virtually impossible to anticipate all the billing combinations and iterations. And so working closely with advisors, and setting that expectation with any vendor you go with is really, really important, obviously. So I guess, rich, from your perspective, what, what do you think are some keys in determining a good fit?

Rich DeSalvo  23:53

Well, the first thing I like to do is take what you both said, Excuse me, and actually put it in a visual for everybody. Think about it this way, I'm going to take a box and in that box, it's going to be the responsibilities that I'm going to do in my relationship with the vendor. And then I have another box next to it, which is the responsibilities that the vendor said they would do. Now, if you put those two boxes next to each other, there's a gap between the two of them isn't there, that little space that you see in the PowerPoint, the little slide, who's managing the gap, and that's where the problems are. So I when I should draw that and I actually explained let's go where the gap is, because that's where the problems lie when they that's when they say, but I thought you were gonna do that. And the cute phrase I use for that is right. It's the space between the notes that make the song. It's the space between that boxes that causes your problems. So let's fill in the gaps. And something that I have seen with vendors I'll give you two additional points is one is you really want to try to not have a vendor you want to have a partner I know it sounds corny, we've all said the word but I mean find someone that's that understands you Has dehumanized that dehumanizes you that's hungry for your success wants you to succeed, right? You're high fiving each other, they believe in you, and they got your back. Now one of the reasons why reasons I say that last one in particular is when we go out there and we went looking for vendors, something very interesting happened. We talked to some vendors. And we understand that at times, there might be a minimum amount, whether it's an au lm size, or it may be a revenue size. And those that we spoke to were very fair and very manageable saying, look, we have a business to run, we have unamortized expenses, there's a cost to bring you on, let's be fair, and come with a number that works for both of us. And I think that's what a good vendor does. adhesion, that's what you've done. Okay? Unfortunately, there's other vendors out there that are making this up. Now, if you're a minimum that you paid last year was X dollars, let's just call it $100,000. It's a number, what they do is they make the minimum the next year 120,000, the next year 140,000. So really, they're in their contract minimums, actually is a way for them to increase revenues. They're not really your partner. They're just they're just a building agency to take money from you. And here's some support. It's not that's not a vendor, that's someone who actually right, I think, is doing just the contrary, and not really working with you. So that full transparency on pricing, right, and understanding your core values from the ground up as people and as a firm, that's the vendor that you want to find.

Barrett Ayers  26:31

Yeah, that's great. That was really good feedback rich, really, really interesting. I it's hard, though, right? It is hard to get through the marketing and the collateral on the website and really get to the kind of humanistic part of a of a vendor slash partner, right? It does take work, it does take energy to get back there and meet the people who actually drive the business. So it's it's effort, right? It's work out of the gate to get there. So so we're gonna ask one more question. We're gonna wrap it up. But this is really kind of bottom line kind of thing. I guess generally speaking, what do you guys think are the economic benefits and advisor might expect from outsourcing? You know, is there an impact to the firm's bottom line, we talked to that mark to bergeon his perspective on how important profitability EBIT is, but how does how does an advisor expect outsourcing would enhance their business? Whether through you know, erosion of revenue, but you know, a reduction of objects or cogs spending? You know, where am I? where might we draw an advisors eye to start thinking about the economic benefits? And for this, I'm going to, I'm going to start with rich and then we're going to switch over to Matt. Okay. What are your thoughts on?

Rich DeSalvo  27:39

Okay, I'll go I'll go quick. And I know some of this actually, Matt does every day. So I think he's gonna have some good stuff for you on this. And he, but let me tell you this, the first of all, like you said earlier, right. $1 saved on my EBITDA or $1 saved on my cash flow. And using today's market valuations $3 earned roughly two and a half $3 earned. That's nice. And understand, too, that a lot of those expenses, right, particularly when it comes to not necessarily bookkeeping, in the like, but in terms of operations and software, a lot of that can be paid at the account level. Right. So actually, I don't have to bear that expense myself. It comes in, in theory out of the yield of the client. So which really can help you absorb some of that pricing and not actually affect your, your net, your free cash flow? That's number one. The other thing people have to realize that just by fundamentally hiring people, you hire four or five people, a staff, you naturally have HR risks, you're not used to thinking about every day, remember that most people had an HR department that did that kind of stuff. Now all said you have to worry about hiring, firing protected class, remember, you even need an employee manual, are you going to offer them a pay raises? What if someone has some what if what if one person is talking to another inappropriately, now you have to worry about lawsuits? What if one of them makes a mistake out of your control, and there's a regulatory error resulting in a fine, which now could result in a headline risk for you as well, you lose control, and even the commitment, although we understood the old days of defined benefit plans, which I'm not suggesting here, but you may have a 401k match, you have the high cost of health care, which is still getting higher HSA fundings, just natural increases of CPE or she did a good job. So it creates a whole new element of work. And remember, vendors aren't looking for Christmas bonuses. Right? vendors aren't looking necessarily at that cola increase. The only way they make money is by bringing you bringing more assets or more business to them to lower their scale and they can make it on the spread. So I this is why outsourcing to me is a very essential part because otherwise it's gonna bring you down a road that you don't necessarily want to be in.

Barrett Ayers  29:54

Yeah, that's, that's really, really insightful. So Matt, let's wrap this up with you. Rick puts a really good point on it. I'd like to get your thoughts on kind of, you know, p&l impact to outsourcing and what kind of how your conversations go with advisors.

Matt Sonnen  30:12

Yeah, this is Rich's answer was was fantastic and and the quote ops guy, you would think I would focus on the expense side, but I'm actually going to come at it from the revenue side. So there's only two ways to improve improve profits, right, you can increase revenues, you can decrease expenses. And with the whole outsourcing thing, again, you wouldn't expect it coming from the ops guy, but I focus on the revenue side and I asked advisors, how much revenue Can you produce, if we've freed up a lot of your time to solely focus on clients and prospects, and I have this discussion with advisors all the time with respect to hiring a CEO. And I know obviously, hiring a CEO is an internal cost, I get it, but it's all about it. At a high level, at the end of the day, it's all about delegating tasks and responsibilities to someone else. So the logic still applies to hiring a CEO or outsourcing certain functions of the investment process, or whatever, whatever it may be. And the advisor say to me all the time, I'm not gonna hire a CEO for 150 or $200,000, whatever the number is, I'm not gonna pay it, they're not worth it. And I always push back and I say you're looking at the cost of their time. But if use you I just listened to you for the last 45 minutes, tell me your God's gift to prospecting. Your sales pipeline is so is so full, I've listened to you talk for the last 45 minutes, are you telling me that if we took 50% of your time, we removed all of the functions of running a business, all of those tasks, you had 50% more of your time to just focus on prospecting, you aren't going to generate $150,000 more of additional revenue, or from the investment management perspective. As I said earlier, if you weren't sitting at your desk watching the the ticks up and down, if you spent 50%, more of your time you remove the investment research from your plate, and you were just focusing on on servicing clients and prospecting, you're telling me you can't generate enough revenue to offset the cost of whatever that outsource provider is. So there clearly is an economic benefit that can be proven on the expense side when evaluating your outsourced solutions. But don't forget the revenue side of the equation as well. Your time is worth more than the time of that your time should be worth more than the time of that outsource provider. So don't forget to factor in that value of your time when you're making this cost benefit analysis.

Barrett Ayers  32:24

It's fantastic. That's what I'm hoping to hear. So, gentlemen, we really, really stimulating conversation today. I could not have enjoyed the conversation more and I'm certain that our listeners will enjoy it as well. In fact, I think we've given our listeners plenty of food for thought on this particular topic for the day. So we're gonna wrap this up and thank everybody for joining us and thanks, rich. Thanks. Thanks, Matt. And with that, we'll go ahead and hand it back over to Doug to wrap it up.

Douglas Heikkinen

Thanks so much. Great conversation everybody are, I'm sure our listeners are going to glean a ton from this for everyone at Iris media, our production team, this is Doug Heikkinen. Thank you for joining us.


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