How Great Firms Stay Great While They Scale with Charlie Johnston

Charlie, welcome and thank you so much for spending time with us today.

[00:00:26] Charlie Johnson: Thank you, Doug. Good to see you.

[00:00:27] Doug Heikkinen: You had such big roles in the industry. What was your kind of path to getting there?

[00:00:33] Charlie Johnson: A lot of luck. But the fact is I started out as a producer at Merrill Lynch in Chicago, Wacker and Adams, across from Sears Tower for people familiar with Chicago. And in five years, I had five different branch managers and I thought most of them were average or mediocre. And I thought, well, maybe there's an opportunity in management.

So I went into a management training program with Shearson at the time, Shearson American Express. And that led to a path as a branch manager, which I did in Jacksonville, Florida, which led to a path as a regional sales manager, a regional manager, a divisional director, head of the branch system, and then finally president and CEO over a career.

It was 35, 35 years total.

[00:01:13] Doug Heikkinen: that's a long path and quite a journey.

[00:01:16] Charlie Johnson: Well, it was a lot of moves. My wife wasn't very happy about some of that.

[00:01:20] Doug Heikkinen: So let's talk about Steward Partners. It's grown so rapidly in recent years, consistently ranking among the top RIAs. As a board member, how do you see the board's role in guiding and sustaining this growth trajectory?

[00:01:33] Charlie Johnson: I think any board's role is sort of guardrails. You can't have growth without good business practices and good compliance practices. And I think the whole team gets that and they understand it. But we're there to kind of keep an eye on it and make sure we stay between the guardrails and that we balance growth and revenue growth, which is very important to Steward with good practices.

It's part of the culture of the firm and it actually builds the culture of the firm that you have to balance too. You can't have one without the other.

[00:01:58] Doug Heikkinen: Yeah. And following up on that, they emphasize the best of all worlds model, independence with infrastructure. How does the board help balance entrepreneurial freedom with governance and risk management.

[00:02:10] Charlie Johnson: It's a constant battle. It really is. I mean, as we get bigger, we know that's a big challenge and part of it's structure. We know, that's why we have the divisional presidents that are authorized to make local decisions on behalf of the firm. But it's also about the culture of the place and understanding the balance between the risk and the reward and making sure that we stay on track and, it's a balancing act and we get that question all the time from advisors.

They're fearful that as we grow and get bigger, it's going to be a problem. But it's very much front of mind for the home management team. We talk about it all the time at the board level.

[00:02:42] Doug Heikkinen: So what are the key expectations for board members at Steward Partners, and how do you ensure alignment with the firm's vision and culture, which you kind of started talking about.

[00:02:50] Charlie Johnson: If you're a board member, you better be prepared to roll up your sleeves and work hard.

There's no, this is not a board where you show up once a quarter for a day meeting and you have a board deck a week before you spend an hour on and you come in and listen and don't give feedback. It's not like that at all. We work hard. We're all on multiple committees. I'm involved in the FA Advisory Council, which we meet four times a year and get input from them, and we follow up with the board to make sure some of the issues they bring up get resolved.

We have the same thing with the cams. It's a very active role and if anybody's looking for a cushy seat on a board, this is not the place. We work really hard to make sure we're moving forward.

[00:03:27] Doug Heikkinen: So the board is described as comprising some of the most respected industry leaders. How do you leverage the diverse expertise within the board to address some complex industry challenges?

[00:03:38] Charlie Johnson: It has to be open dialogue, and I think Jim and I have done a good job of that as, as well as Mike McMahon, the chairman. We, I can't think of a board meeting where we didn't have robust discussion about anything that's important to the future of Steward. And we encourage disagreement. You know, I worked, for Sandy Weill way back and one of the things he used to say is, if there's 10 people in a room and you all agree, I don't need all of you.

And so we encourage disagreement, the other point of view. And I think by doing that, it helps you come up with a better decision. And you don't have to all agree. But I think that opposing view to something that we're working on is often insightful to be able to help us make sure we've thought about everything, and that's what we try to do.

[00:04:15] Doug Heikkinen: Jim's energy is fantastic. Have you ever seen anything less from him?

[00:04:19] Charlie Johnson: I call him and Scott Danner Jolt Cola. You remember the cola had twice the sugar, twice the caffeine? They're both Jolt Cola and it's incredible. I mean, you talk about a founder who's had an enormous impact on a place, and that's Jim. Hy too, but Jim's always been at the forefront of recruiting and building the place.

It was his vision with Hy's that got us to where we are. And he's indefatigable, is that the right word? I can't pronounce it, but he's high energy for sure.

[00:04:46] Doug Heikkinen: So the firm has ambitious plans to triple in size over the next five to six years. What strategic priorities is the board focusing on to support this level of expansion?

[00:04:55] Charlie Johnson: A bunch of them, but I would put them in two buckets. One bucket is what I call organic growth. Focusing on existing producers and advisors and what they need to grow their business. Part of that's removing obstacles, might be technology, might be compliance practices, might be just helping them come up with new product ideas that they need to be able to move their business forward.

That's for existing people. The other big component is recruiting and acquisitions, mergers, which has been a big part of the growth over the past couple years. And it's exciting to see because it validates the platform and what Steward's all about. It's a combination of the culture and the focus on growth and trying to help advisors grow.

But it's a set of things that fit into both of those buckets. And the bulk of our board meeting is spent talking about those two things.

[00:05:40] Doug Heikkinen: So you've attracted some significant outside investment and expanded its service offerings through this. How does the board evaluate new growth opportunities versus maintaining the firm's core values and client service standards?

[00:05:52] Charlie Johnson: It's actually easier than it sounds because it comes back to culture. And if you have an outside investor that wants to come into Steward, but they don't align with the way we think about the business and our business practices, we don't need the capital. We're in an enviable position. We don't need it, so we don't need them, but if they align, they fit with what we're trying to do then we will take it. It's a easy decision because it's pretty easy to sift that out over time. Same thing with recruits and acquisitions. If you have somebody whose business practices don't fit, you can't just see that on paper by looking at compliance records and looking at their book of business.

You gotta sit down with the people and you gotta get to know them, and you got to get to know how they think about their business. And so that takes work. But it's actually easier than it sounds on the surface. It's just digging deep and making sure it's a great fit.

[00:06:38] Doug Heikkinen: As someone who oversaw one of the largest mergers in brokerage history, what parallels or differences do you see in the current evolution of the investment advisory space?

[00:06:47] Charlie Johnson: I don't think there'll ever be a merger that size. I mean, that's been the biggest merger ever done in wealth management. I don't see anything out there that would replicate that. It's just not there.

However, what the similarity is, is there's literally thousands of opportunities to acquire smaller firms and independent broker dealers. And it's coming from two sides. Now. When Steward started, most of it came from what I call the disintermediation away from major wirehouses into the independence channel, and we were a great choice for advisors like that.

But what we're seeing more recently is people who tried independence, who went out and started their own firm. And as they get closer to retirement, maybe they don't want the headaches of running the firm. They're really good at dealing with clients and working with clients that's their passion, that's why they got in the business, and they're kind of fed up with compliance.

They're kind of fed up with dealing with HR issues. They're kind of fed up with all the interruptions that come in the day-to-day running of a business. And they like the Steward model because of independence, because of the partnership sense, because of equity. But in large part because it relieves them a lot of the burden of the day-to-day function of being a manager and an advisor.

It's a tough job.

[00:07:49] Doug Heikkinen: Yeah. Looking ahead, what do you see as the biggest opportunities and risk for Steward Partners and the broader wealth management industry for the next decade?

[00:07:57] Charlie Johnson: I got involved in Steward and two other independent firms because, you know, as a head of Smith Barney and then Morgan Stanley's Wealth Management, when we saw people leave to go independent, we'd kind of shake our head and say, what are they thinking?

But when you go to the other side and you see the opportunity, there's an enormous opportunity. And if you looked at it as a nine inning ball game, I think we're in the second or third inning of the disintermediation away from wirehouses to this space. And that's the opportunity. It's a huge opportunity.

And more and more we're seeing people, whether it's wirehouse or independants, that are interested because of their ages, a demographic play as well. And if you look at the average age of advisors, whether they're independent or advisors in a wirehouse, they're at a point where they're thinking about, not just current income, but wealth creation.

They like the fact that we have equity. And again, they like the fact that Steward takes care of a lot of the issues of running the business on a day-to-day basis. The risk to Steward is what we've already talked about, which is as we get bigger and grow, maintaining that culture of accessibility, availability, listening to advisors, I think becomes more and more of a challenge.

But if you don't think about it, you're not gonna get there. If you think about it constantly, you'll get, it may not be perfect, but you're gonna get there.

[00:09:09] Doug Heikkinen: I know we're here at Steward Partners, but there's really no right answer between wirehouse and independent if the end result is the client is getting great service and great advice.

[00:09:19] Charlie Johnson: Yep. That's absolutely true. And it's all about choice. What works best for you? Some people like the comfort of a large wirehouse and accept some of the challenges that come with that. And some people like independence, but there's challenges that come with that as well. And, I think Steward has done the best job of any independent channel of combining the best of both worlds, and that's why we've been such an attractive choice for a lot of producers.

[00:09:44] Doug Heikkinen: Alright, last one for you. Reflecting on your 35 plus years in wealth management, what accomplishment are you most proud of and how do you hope to influence Steward Partner's legacy as a board member?

[00:09:54] Charlie Johnson: I think what I, one of the things I've learned is there's two ways to build or run a firm. One way is top down, which is actually a lot easier because all the decisions are made in the ivory tower and it all flows downhill.

And, in that scenario, the firm typically doesn't really care that much about what the people that interact with the clients think, which I think is a horrible mistake. The other option is bottom up. And, if you think about it, if you're in the ivory tower and maybe you did run a book like I did 30, 40 years ago, or maybe you never ran a book, how can you possibly know what the trends are in the industry unless you're dealing with someone listening to somebody that deals with every single day that would be a producer or their assistant.

And I prided myself at Smith Barney on making sure we always listened. And I can tell you that some of the best things that we ever implemented there, came from input that we got from the field. People that saw something coming that became mainstream five or 10 years down the road that we could incorporate into making everybody's life easier.

And that's exactly what Steward does. I'd like to think they adopted that from the Smith Barney model. I think that's true, but I can't really confirm that. But I see it every day and I think it's a huge difference for us.

[00:11:02] Doug Heikkinen: Charlie, thank you so much for joining us. It's been quite a pleasure.

[00:11:05] Charlie Johnson: Glad to do it. Thank you very much.

[00:11:07] Doug Heikkinen: To learn more about Steward Partners, please visit stewardpartners.com. We are on all the social media platforms @Advisorpedia. Please give us a follow. For our producer Tory Miller and everyone at Advisorpedia, thank you so much for listening.