Podcast: How a Barron's Hall of Fame Advisor Acquired His Way to the Top

Mike Langford:

Hi there. It's Mike Langford. Welcome to the Advisor Financing Forum Podcast presented by SkyView Partners. This week on the show, Scott Wetzel and I are joined by Barron's Hall of Fame Advisor, Jon Kuttin of Kuttin Wealth Management. Over the past 20 years, Jon has acquired 35 advisory businesses, and grown his wealth management firm to be among the largest in the country. We're thrilled to have him with us to explore some of the lessons he's learned along the way. You're going to love this episode of the show. Not only is it jam packed with actionable insights for any advisor looking to grow a business via M&A, but you're also going to have some fun with the good natured ribbing Scott and Jon throw each other's way.

Mike Langford:

I don't know how it happened, but I got goated into letting my British accent fly for the first time ever on a podcast. So, if that's not an inspiration to make you subscribe to the show on Apple podcasts, Spotify, Stitcher, YouTube, or your favorite provider, I don't know what is. Of course, please make sure you let us know what you think about the show and the accent on those platforms, or via your favorite social media channel. SkyView Partners is active on LinkedIn, Twitter, Facebook, Instagram, and of course, YouTube. So, let us know what you think.

Mike Langford:

Before we dive into the conversation with Scott and Jon, if you have questions about anything we covered on the podcast, or if you'd like to explore financing options for M&A succession or any other use case, feel free to reach out to the team at SkyView by calling (866) 867-6282, or simply swing by skyview.com, and click that get pre-approved button, or shoot an email to info@skyview.com, and someone will get right back with you. Okay. Are you ready? Let's light this candle.

Mike Langford:

Jon Kuttin, Scott Wetzel, amazing to see both of you gentlemen today. I guess it's afternoon for all of us officially. So, welcome to the Advisor Financing Forum Podcast.

Scott Wetzel:

Well, as always, thanks for having us. Jon, thanks for being on.

Jon Kuttin:

Yeah. Mike, Scott, I can't believe you guys are actually having me as a guest. But I am happy to be here. I'm looking forward to having some fun.

Mike Langford:

Well, believe it because it's happening right now. One of the ways I wanted to kick things off, because you're unique guests, I think we're going to find many guests like you that's unique in many ways. I know that we're going to find many guests like you because you are one of the top advisors in the country, in the United States. You've grown a very big practice. What is really interesting about how you've grown the business is, you've grown partially and maybe a lot through acquisition. I think we have a really interesting topic to dive into that. Maybe we can start with, what are some of the benefits of growing a business through an acquisition strategy versus relying purely on organic growth?

Jon Kuttin:

Yeah, no, great question. I'll tell you, this is going to be fun. Scott and I had this relationship where we like to be very sarcastic with each other. So, it's hard to be on good behavior, but I'm going to try my best then.

Mike Langford:

You just be yourself, Jon.

Scott Wetzel:

No promises, no promises here. I'm just saying that, on that note, though I will say this, I don't know that we've interacted with an advisor ever that knows as much about advisory M&A who's actually an advisor as well. I mean, it's really fun to talk to Jon as much as our time he gives me consistently about really expanding our knowledge based about the business of the business we're in because he's had so much firsthand experience, so really want to have more today, and honestly I appreciate you coming on very much.

Jon Kuttin:

No, you got it. I appreciate it too. I liked that you're being nice early. I'll be good, don't worry. You didn't have to do that, but-

Mike Langford:

Well, those two [inaudible 00:04:03] don't match.

Scott Wetzel:

Just so you know, the t-shirt, it doesn't match. Right now we can [inaudible 00:04:07].

Jon Kuttin:

I do that on purpose, just so you know, that way, I see the hairy chest on your zipper-

Scott Wetzel:

It's my fault?

Jon Kuttin:

It's your fault, yeah. Thanks for that one. But in all seriousness, I'm excited to be here, and appreciate the kind words, Mike. When I think about how to grow a practice, if it's okay, I'll just share a quick story-

Mike Langford:

Yeah, please.

Jon Kuttin:

... about my first acquisition, which tells the whole story from my perspective. So, I'll paint you a picture, go back to 2001. Yes, Scott, I had hair back then, I'll beat you to the punch. I was in the business. I started my financial planning practice in 1994. I had a brief leadership career, and built the business the old fashioned way. We were starting to really grow. I could share with you personally, I have four sons. Back then in 2001, I had two boys, and my wife was, actually it was 2002 as I think about it, so I had two boys and my wife was very pregnant with my third. I had already done one small local acquisition here in Long Island, New York.

Jon Kuttin:

I had an opportunity to buy a business that came across my desk in 2002, it was in New Jersey. So, for those of you from the East Coast, here in the Tri-State Area, I live in Eastern Long Island, Suffolk County. This practice happened to be in New Jersey. In order to get from Suffolk County, New York, to New Jersey, you need to go through the Long Island expressway, either the Belt Parkway to the George Washington Bridge or the Verrazano Bridge, get over that Bridge and then get on 95 South. So, I share that, although about 100 and probably 40 miles away, every bit of three and a half to four and a half hours depending on traffic.

Jon Kuttin:

My wife's got two little boys at home, she's very pregnant with my third son, and I come home excited about buying this practice. So my wife, who is the greatest wife in the world, who's super supportive, tells me to go for it. I'm thinking about it going, man, she's in for it. I'm not going to be home. I'm going to be sitting in traffic, third son's coming, life is already a little hectic. I start to really consider whether or not I should ultimately buy this business. To make a very long story short, it's me and one employee-

Mike Langford:

Everything is possible.

Jon Kuttin:

... who's going to work for me. Yeah, I can go, I can go. There's-

Scott Wetzel:

But the good news is you only need to ask him three questions the entire segment. This is wonderful, this is outstanding.

Jon Kuttin:

I'll get to the punch line, Mr. Wetzel. You guys did tell me it's a four-hour podcast, so-

Mike Langford:

That's right, that's right.

Jon Kuttin:

I've got a guy whose name is Evan Branfman, who is one of my business partners today, who's probably at the ripe old age of maybe 24, 25 years old at that point. Evan is fully licensed, has never sat in a client meeting other than with me, didn't really know much of what it meant to really be a financial advisor. He was basically my license assistant. I looked at Evan and I thought about buying this business. I had this great idea, I'm going to train Evan. I'm going to teach Evan everything I can in a shorter period of time as I can and go and buy this business. That's what we did.

Jon Kuttin:

At the time, I was working in the mezzanine level of my house. You might call it my basement. We call it the mezzanine because it's very fancy. I spent about three months with Evan getting Evan up to speed, and I threw him to the sharks. We went out, I think it was roughly a 40 or maybe a $50 million acquisition in assets, which back then was a good size business, still a good size business today. To make a very long story short, at 24, 25 years old, guess what? Evan met the clients, they all liked Evan. We had about 98% of the clients retained. He brought on new business. He converted the practice to the fee-base from more of a commission-based business back then. He got referrals, and it worked unbelievably well.

Jon Kuttin:

I share that story, when you think about scalability from the perspective of, that's when I started to understand as an advisor that my job didn't need to be sitting in every single client meeting, and I can actually build a real business. That the hard part for most advisors isn't giving the advice and giving a great client experience, it's actually finding more clients. So, that was the first of now 35 plus acquisitions that we've been able to do over the years. Now to answer your question, Mike, I just wanted to tell that story, I guess.

Mike Langford:

No, I love that story.

Jon Kuttin:

But to answer your question, when you think about it in those terms, you're able to take someone's 20, 30, 40 years worth of hard work, stroke a check, and immediately take on 30, 50, 100, 300, $1 billion, whatever it may be that you're acquiring worth of assets, when you put on your CEO hat, in my opinion, there is no better way to create scale and be able to build a business quickly.

Mike Langford:

I really love this. I'm glad you shared that story. You had not shared that story with me in prep. I'm not sure if you and Scott have ever talked about that in the past. But what I found particularly insightful about hearing you tell that story is that, you talked about making the shift to being a business owner versus being an advisor who owned a practice with a junior advisor guy that worked for you. I think that's an incredibly important step to make when you're thinking of growing through acquisition, or frankly, when you're just thinking of growing even organically. At a certain point in time, every business hits a wall of time and expertise of the founder of that business.

Mike Langford:

You're going to need to bring on other people, and trust those people, and empower those people to do stuff. Also, be humble enough to realize, this guy is better at this stuff than me, or this lady is better at this function than I am, I'm going to let those people roll with it. How much soul searching did you have to do to get to the point where you trusted Evan? You mentioned he was 24, obviously you trusted him in your business. But was there a part of you that had to just, I don't know, work through that person, I have confidence in this guy?

Jon Kuttin:

Yeah, no, great question. I think about as unique ability. Everyone's got a unique ability. When you think about building a business, it's really hard to run business development within a business, run client experience, or indeed portfolio management, risk management, et cetera. I had learned early on to specialize. I think you're exactly right, Mike. When you think about it, I've got a coaching business that coaches a lot of advisors, so I get a lot of interaction with financial advisors. I think there is this ceiling, there's this ceiling when for most advisors, it's somewhere, you work really hard, and you're really good. It's probably around a million, five, maybe 2 million in business. For a lot of advisors, it's that million dollar mark.

Jon Kuttin:

But when you get to a point where you have to decide, do you want to be a practitioner? Meaning, do you want to a high paying job, or what the industry refers to as more of a lifestyle practice? Or you actually want to run ensemble business or a true enterprise? It's a different skillset. I think it's where I find a lot of advisors get stuck is, we're control freaks, no one can do things as well as we all can. You use the S word before, which was scale, when you think about how to scale a business, you got to put on your business owner hat, and you have to think about using people's unique abilities. I look at it this way, depending on your audience here, if you're an advisor that has 30, 40, 50, 100 million of assets, maybe 150, growing through acquisition, is a great thing to do to get you to capacity and maybe be that impetus so that you can start to build more of an ensemble practice, add advisors and things along those lines.

Jon Kuttin:

But once you get to that level of 150, 200 million, you just can't be a solo advisor anymore. You can't grow beyond yourself unless you've got this ultra high net worth business, where you've got 40 clients that represent that $150 million type of business. So, lots of advisors are walking around, I say it all the time, with unbelievably high paying jobs, which is amazing. But if you're the advisor working with each and every one of the clients in your business, it requires you to sit belly to belly or screen to screen with them. You don't really have a business, in my opinion. What you have is a really high paying job. That, for many advisors, is where they should be. For those who want to build a much bigger business and a much more robust net worth, I think you got to put that CEO hat.

Scott Wetzel:

Yeah. To your point on scale, it's one of the things that we look at in our underwriting. It's not everything, but it's one of the primary things is, really can this advisor scale in this practice with what they're currently doing? What is their plan for it? Things I can think of off the conference is like, do they have a scalable investment policy and procedures? Do they have a scalable service model? Do they have a scalable staff? Scale is really everything. If you want to get to the next level of moving from a financial advisor, which is a great life, great job, to a more true or pure CEO role, where you're probably meeting with clients a lot less, scale is everything to get there, and figuring out how you make everything as efficient as possible. Trust the new place.

Jon Kuttin:

Yeah. Could not agree with you more, Scott. It's hard for advisors to do that, but it's all about systems and processes to ... I've got a separate business outside of my practice, and I've got a coroner in that business, his name is Paul Latham who's in English lad. Paul's got this thing, he calls it vision, plan, and desire. Vision is having a vision of what you want to build. Plan, and the way Paul says it in an English accent that I cannot do, so I will not try to. Any of you guys have a good English accent?

Mike Langford:

I can do one if we've got a few beers-

Jon Kuttin:

Give me-

Mike Langford:

... Jon. That's-

Jon Kuttin:

[crosstalk 00:15:26].

Mike Langford:

What's that?

Jon Kuttin:

Come on, Mike, give me or say write plans in your best English accent.

Mike Langford:

You go to write plan, do you?

Jon Kuttin:

Yes, say one more time.

Mike Langford:

You go to write plan, do you?

Jon Kuttin:

Yes, that was [inaudible 00:15:40] awful. Are you kidding me?

Scott Wetzel:

That was-

Mike Langford:

Are you kidding me?

Jon Kuttin:

[crosstalk 00:15:44].

Mike Langford:

You're absolutely leaving every moment of this conversation in this podcast. You know that, right?

Jon Kuttin:

This guy is amazing. Thank you, [inaudible 00:15:57], little levity there. But wat Paul always said was, have a vision, write plans in that great English accent that you have, Mike, and then he talks about desire, which is the accountability piece. It's something I learned from him, which is, everything that we do in our business to create scalability, is written. So we have a process, or Paul would say a process, for everything in the business. So whether it be to your point, Scott, how we manage client's assets, whether it be the steps that we actually provide to the client to deliver the appropriate client experience, it's all written, it lives in CRM.

Jon Kuttin:

I can have the peace of mind of actually knowing that when we onboard a business and we adapt to our model, which is a whole nother conversation, can't change everything the minute you buy a business, of course, but when we do adapt and make those changes in the future, that we've got the same process being driven in each and every advisor's practice so that I can have the peace of mind of knowing that my clients, the firm's clients, I should say, are being served extremely well. So I think it is really important to build those systems and those processes in a practice.

Scott Wetzel:

Jon, I'd be especially interested in because we're obviously less involved post-closing. To what extent is it difficult when you're talking to prospective sellers, then after the sale that maybe they've been getting a hunch a bunch and picking some stocks, and all of a sudden, you go in with a very defined investment and procedures? That's something you have very clearly defined and negotiated upfront. They look, this is going to change, this is going to go to the mothership's plan. Or do how do you approach that?

Jon Kuttin:

Yeah, another great question. What's really interesting, and here's a tip, I'm sure you both have seen enough of this, there's so many advisors out there that say things like, "No one ever wants to sell to me, everyone's got an inside track on buying this business. I met with a guy or a girl, but he wasn't, or she wasn't a serious buyer." Those are usually the businesses that someone who's got more experience in buying lands. So, my typical cut-in long-winded way of saying, really what we tell the seller is, we're not going to change anything.

Jon Kuttin:

We come into a deal and say, "Whatever you built, Scott, is perfect. It's going to be a big enough change when your clients have to meet me or someone on my team that they're are going to be having a change of advisor. So if you see your clients twice a year, we're going to see them twice a year. If you pick securities stocks or bonds or ETFs or run managed money, or do transactional business, we're going to keep it the same. I give you my word, we're going to keep everything the same. We're not going to change your staff, your service model, everything stays as it is to the real estate that you sit in into the chairs in your conference room. About a year or two down the road, Scott, when we think the time is right, we're going to slowly adapt ways that we think we might be able to enhance the model and the service and the experience that you've given to your client."

Jon Kuttin:

So, I think it's one of the biggest, in my opinion, mistakes that advisors make in trying to ultimately purchase a business is this business is someone's life's work, it's their baby, they don't want to hear, no one wants to hear that their baby is ugly. That baby is beautiful, and you're going to ensure that you'll give those clients that same exact experience, and hopefully you can do it just as well as the person that you're ultimately succeeding. So, if I say some of that for effect if obviously there's some stuff that's just not good from a compliance perspective or an asset management perspective, we would likely in due diligence just pass on that acquisition because we don't want to buy a business that's improperly managed.

Jon Kuttin:

But for the most part, we keep things exactly as they are, that gives the seller a peace of mind. Once he or she exits, then you start to slowly get a feel for the clients as you're building the relationship and start to transition to your systems and process.

Scott Wetzel:

This is where I was hoping we get some of the special sauce because you've obviously been more successful at this than anybody that our firm has work with. That's extremely important when that, and I think that many buyers are missing is really, I mean, putting yourself in this person's shoes, you'll hopefully be there someday. What a lot of buyers try to do is go in and say, "Here, we need to change everything. Can we get rid of your staff? This is all ... But basically you're tell them it's all terrible, all needs to be changed. They're surprised when they don't win the bid, even though they produce the purchase price. So, super smart, makes a ton of sense.

Jon Kuttin:

Yeah. I think just to add to that, Scott, and maybe hit the point even a little bit more, what is that saying? Don't trip over the pennies to get the dollars, is that a saying or I just made that up? Is that a saying?

Scott Wetzel:

You just made it up.

Mike Langford:

It's a saying now.

Jon Kuttin:

Yeah, so please-

Scott Wetzel:

You made that up.

Jon Kuttin:

Yes, by Jon Kuttin on whatever today's date is, yes. When you were talking a minute ago, it just jogged that for me, it's like, you see advisors, and I bid against these advisors sometimes, and it's actually quite fun, where they're talking about something as trivial as the shredding company that's shredding paper, or arguing over 3% in EBITDA where they believe the expenses are too high. The bottom line is, once you acquire the business, it's ultimately yours to make whatever changes that you want. But if you're out there negotiating a deal, and you're nitpicking over small little pieces of it, you've got to look at the transaction and go, what is this transaction, EBITDA, scale, the personnel that we acquire, the human capital and talent?

Jon Kuttin:

What is that worth 10 years, 15 years, 25 years down the road? Is the $50,000 of expenses or the $150,000 of sales price embedded on a 10-year note? Is that really going to change your life? Because I can tell you, it's probably not, if you think of it rationally. But will acquiring 30, 50, 100, 250 500 million, so on, et cetera, of assets going to change the trajectory of your life? In most cases, the latter answer would be yes, and the former answer would be not at all, I'm just being in any way.

Mike Langford:

We're going to dive into, in a second here, the post acquisition work because I'm really, really interested in, how do you go about that process of digesting the new business? As you said, at some point in time, starting to migrate it. What are the things you look for? But I'm absolutely fascinated by the fact that you don't seem to have, and maybe I'm misunderstanding, but you don't seem to have a hard and fast rule like we only acquire businesses that look very, very similar to the we're doing businesses, so there is plug and play as possible into what we're already doing.

Mike Langford:

You seem perfectly comfortable acquiring a business that may have, like you said, some of them are picking individual securities in a portfolio versus working with a model portfolio that may be similar to yours to work in. What is the lens though that you look through? I mean, there must be some lens where you're like, okay, this is what we're looking for. Is it client roster type? Is it geography? Are there certain lenses you look at pre-deal that let this might be a business we'd be interested in?

Scott Wetzel:

If you don't mind, prioritize that list too a bit like, what are the top five? What falls into your top 10? If you don't mind sharing. Great question.

Jon Kuttin:

Yeah, no, absolutely. I think it's a great question. I'll hit it in the order, Mike, that you asked it. In a perfect world, I'm not in my order of priority yet, I'll have to think through that here. But Scott, jeez Scoot. But in a perfect world, yes, of course, we'd love to acquire a practice that looks just like ours that has very similar investment philosophy, service model, does financial planning, pricing is similar, et cetera. So, those are businesses that we would pay a premium for because they are ideal, they're easy tuck-ins, they're easy, simple. We're going to not have to make too many changes. The client experience will remain somewhat consistent.

Jon Kuttin:

From my perspective, the number one piece, if the business comes along with staff members, which most businesses come along with at least a handful. Probably the number one thing that I look at is, what is the human capital that we're going to ultimately acquire is the seller of the business and the employees that work with the seller. Usually if you're aligned from a value's perspective with the seller, generally their employees are going to be aligned as well that's why they've jive together for years. So I'd say the most important piece, if they're staff, is that the staff and you jive from a cultural perspective. They are going to be a good fit because we have a business or two where after post-transaction, we kept the sail around for a bit. We were just like, what did we get ourselves into?

Jon Kuttin:

He or she, in some cases it was he, the case I'm thinking of is not a good fit, he's making my life really stressful over things that aren't important. So, I think first is that cultural fit and being aligned on values. Secondly, for us, historically it's been geography. So currently, not quite as important because we're trying to expand our reach nationally and build different, what we like to call [inaudible 00:26:43] in the different areas, which is a big part of what we do, but you do want to think a bit about geography in today's world post-COVID here, or while we're living through COVID, I guess still. This virtual way of working with video conferencing, et cetera, I think makes that a little bit easier as well. So I think that's an important piece is the geography of it.

Jon Kuttin:

The third I would say that is really important that I didn't always look at, but is quite frankly client age. It has a major impact on value of a business. Also, if the client base is on the older side, which to me is, most client basis, we seem to look at the average age of the client is probably early 60s, is what it looks like, early to mid 60s. I would certainly be more interested in a client base with clients in their 40s or 50s for simple reasons, retention. Or with an older client base, making sure that you've got gen-two children of those clients in the client roster as well, I think is a really, really important piece to the puzzle.

Jon Kuttin:

Then the other thing I'd just share, so I'm just going to give you my top three, those would be my top three, but is, one of the things that we found is the businesses that are run poorly, the businesses that are, it's $100 million business, the seller is 74, he or she should have retired quite frankly five or six or seven or eight years ago. They didn't want to sell, we're attached to the clients, semi-retired on the job, and they're still doing business the old way, more transactionally. So, obviously you pay a lower price multiple for those businesses historically. But the opportunity in those businesses is amazing.

Jon Kuttin:

So when we go into those businesses with a system, with a defined client experience, with proper pricing, with investment models, even though the advisor selling the business said something like, "No, you don't understand. My clients are different. They'll never pay fees. They only like stocks. They don't want to see someone more than once a year." But we found pretty much 100% of the time is they were wrong. They weren't very good at what they did. Ultimately when we get in there and we start to run our model, clients started to throw more money at us, and we start to win outside assets. We bought a business that had 80 million, and 18 months later, we had 120 million because they never had the full confidence in that advisor that we acquired system and process, et cetera.

Scott Wetzel:

Yeah. Just to touch on that quick too, that one of the things that we oftentimes hear is the buyers are super concerned about the relationship with the seller, makes sense. As you pointed out, the culture or the attitude of the seller usually percolate to the other members of the team. But we always say, you need to be concerned about your relationship with the seller, but a lot more concerned with your relationship with that staff that you'll be inheriting. So I think amazing point that most people miss it, they go in, I think most buyers come to us and say, "We're going to get rid of everybody."

Scott Wetzel:

Well, seller's have been working with these folks for 20, 30 years possibly. They want to make sure that there's a continuity in their careers, if they're interested. Also, clients don't want that type of disruption either. So exactly to your point, the human capital is huge, and most buyers never think about, what is the human capital you're acquiring?

Jon Kuttin:

Yeah, Scott. Some of the best employees we have in the firm were acquired. You think about what's going on in the industry right now, more advisors are leaving the business and entering the business. We read statistics like that. So, it's really hard to find talent and develop talent. Well, what we've become really good at quite frankly, and we've put a ton of time and energy into it is creating an ecosystem and a culture where we really develop our people and our human capital. So what we find a lot is there are these diamonds in the rough that are working for a practice that have never had real development. So therefore we go in and we find someone who's dramatically underpaid and overqualified for the job that they're doing in the business. It's usually because the advisor who sold us their business couldn't get out of his or her own way, and they didn't want to have that staff person or junior associate, let's say, grow their career path because the seller, his identity was serving those clients. So, I think you're spot on.

Jon Kuttin:

One of the biggest opportunities, and it's just interesting guys, I get excited about it because if you asked me, what attracted me to a business back in 2002 when I started acquiring practices? It was really simple, I just wanted to grow my assets and my revenue, I wanted to grow the business. That was the reason, whether it was a good fit or not, it wasn't really what I was thinking. It was, hey, more revenue, more money. Jon can go buy a big house, buy a big car, do things that Jon wanted to do. So, that was probably in my 30s. But as we've grown, really some of the best benefits of acquiring businesses are the strategic people, and some of the processes, even that you learn, or inherit from the business that you're actually acquiring.

Mike Langford:

This is absolutely one of my favorite topics when it comes to acquisition. Scott always talks about, don't go bargain hunting because first of all, what you think you get a discount on might be not worth trying to get a discount price on. But also, what you feel might be a premium today might not feel a premium a few years from now. You're hitting a why. It is, you're not just buying the business as it is today, you're buying the business in what it can be. So you're buying strategic value. As you mentioned, you're buying talent that you can leverage in new ways, you can open them up, maybe they've been held down in a role, you realize that this person is way more capable than the stuff they're doing.

Mike Langford:

As you also mentioned just because the clients have X amount of assets share of wallet with that advisory practice, does it mean that when you come in you can't expand that share of wallet dramatically without even bringing on any new clients. So there's so much untapped value in some businesses. That's the way you should think about it. Not just acquiring this current cashflow. It's like, no, no, I'm buying a business here that has a lot of other benefits to it. That's fantastic.

Mike Langford:

Let's shift gears into the post acquisition work a little bit here because this is one of the things that we teed up in prep is that, we spend a lot of time on this show talking about preparing the buyer for presenting his or herself best when it comes to trying to acquire another business, or getting all their ducks in a row so that they are qualified to buy a business. But we spent less time talking about, okay, now that the deal's done, how do you go about making sure that business is a success? The post acquisition M&A world looks better than you had hoped. What are some of the key focus areas that you look to after the deal's closed? What are you thinking about, hey, this is my checklist and the things we're going to do now that we've signed the paper?

Jon Kuttin:

Yeah, no, great question. Our kind of process is really simple. A few steps that we take are, number one, by the way, this is not a science, so there's different ways to do it, but what we like to do is, in essence share very little, if it's within the same broker dealer as an example, or same RIA platform, and I can give you the second scenario too, if it's a different platform, but within the same platform, we actually don't want to disclose anything upfront to the client other than we're merging. So we really present it as a merger.

Jon Kuttin:

We don't necessarily, although I think a of advisors when they acquire do this, we don't, a lot of advisors just send the big announcement letter and let the clients know that. We found that that generally creates some level of skepticism from the client because I wouldn't want to, as a client after having a 20 or 30 year relationship with my advisor, get a letter in the mail or an email saying, hey, I just sold my practice to some other firm that you've never met.

Jon Kuttin:

What we do is we make sure that the introductions to as many of the clients as possible. We usually define that as their A$B clients, most advisors have some kind of ABC model. So we make sure that we meet their A&B clients with the advisor present that's selling and someone on my team for that introduction. In some cases, the advisor will go and make phone calls and explain to the client, first, what's going on and then set that ultimate meeting up. So I think that might be the most important part of the process. I learned that the hard way.

Jon Kuttin:

We bought a business years ago, we sent a letter, congratulations. By the time we met clients, 10 or 15% of the clients already had a foot out the door because they weren't happy after having such a trusting relationship with their advisor that he or she, in this case who was ah he, didn't actually give them the decency based on their relationship of communicating. So, that's a really important piece. Then really I've found honesty is the best policy. We generally, as a post-transaction, like to retain the selling advisor for at least nine months, lots of times 12 months or longer. In our perfect world, if I really am aligned with that person and like them, and think that there'll be a good cultural fit, I like him to stay on as long as they'd like in some limited capacity. The reason for that is, 100% ensuring that you're going to not have a trition.

Jon Kuttin:

I know if XYZ advisor has been around for 25 years and he or she is going to stay connected to my practice, I'd rather pay them a couple of bucks to keep them around as a safety valve so that if a client does get cold feet, that advisor is there to help nurture that relationship, so to speak. Really what we do is we generally, in that 12 months, which is our typical transition period, do at least one, if not two or three interactions with the new advisor from my team and that exiting advisor, and we just really share, depending on what the situation is, if the advisor's planning to leave at the 12 month mark, we'll share that with the client. If they're planning to stick around, we'll share it as just the role change, and he or she is not going anywhere, they're going to be in the periphery. But your new got-to, you want to be clear, otherwise the client will keep calling their previous advisor.

Jon Kuttin:

Jon is you're new guy, so-and-so is no longer, Scott is now in a different role in the organization. He's still around. We really need him, but all calls and questions should ultimately go through Jon. So, probably the most important part, in my opinion, of that process is how you ultimately transition that. Really what we're doing in those meetings is really simple. We're just sharing with the client, and we're providing, first, I should say the sailing advisor with scripting. We don't leave it to them, made that mistake early on, to share with the client what's going on, they will stink at it the first time, you must role play it with them. They will tell you they know what to say, they don't know what to say. Don't start with the highest net worth clients in the practice, start with the highest relationships, is a little tidbit because you go to the highest relationship, that advisor that's selling is going to feel really comfortable. He or she is going to be able to articulate, work out the kinks and what they say.

Jon Kuttin:

What we find is by usually a dozen meetings in, maybe 15 meetings in, the advisor and you are in a good cadence, and you're just free-flowing, and he or she knows how to tell the story, you know how to then tell your end of the story. It works quite smooth. Then it just really changed nothing. Change absolutely nothing. Make that client feel really comfortable. Then usually what we do is we start to install our process. A little thing that we do, which goes a long way. Every time we acquire a practice, we meet a client. That new advisor who met that client for the first time sends a handwritten card. That card says something like, dear Scott, it was an absolute pleasure to meet you today. We're looking forward-

Scott Wetzel:

Never [inaudible 00:40:34], I've never seen it.

Jon Kuttin:

Perhaps you should become a client, Scott, and we'll take it from there. I can set you up.

Scott Wetzel:

Good point too, good point.

Jon Kuttin:

But that handwritten card, very nice to meet you today. I know that Mike has been your advisor for many years. My commitment to you is I'm going to do everything in my power to pick up where Mike left off and be a fantastic successor and give you the same experience that he's been able to give you for all of these years. That's to make sure that that follow through is amazingly good, if that makes sense. Then what's going to happen is the client is still going to call for questions about their account, and needing income, and things along those lines, we now need to train the staff who usually deals with that stuff to make sure that the new advisor is the person returning them back. So these little things that are processing that when you do those things, it really starts to stack the odds in your favor to be more successful.

Scott Wetzel:

I'd also say, the toughest thing is finding practices to purchase and really winning the bid or however you explain it. Really with what you're addressing for prospective sellers upfront is a lot of probably their concerns is, what am I going to say to my clients about this? How am I going to go about this? They might not ever verbalize that or talk to you about that. But you're going in saying like, "Here is the process. Here's a script, put it in your own language. We'd like to use the word merger non-acquisition." Being a financial advisor is a great gig, so you get a lot of advisors that just don't ever want to sell. These are the things that they're concerned about why people aren't able to acquire, but you're really easing their concerns about so many things that prospective buyers never address upfront.

Jon Kuttin:

Yeah. One of the things, Scott, I say about leadership in general is, if you have a plan, people will follow you. The hardest thing is having a plan. Sometimes it's not even a good plan, but just having a plan in place gives the follower a little reassurance. So, I think you're exactly right, I mean, to the point where we've got an example of the announcement letter that we're going to send after we've had the conversations. We offer the seller, hey, when we're done with this, we'd love to throw you a little retirement party. So you want this to be celebrated, not a mic drop. When you have all those tools and you have a process of how to walk people through it, meaning that seller through it, it gives them their comfort level. So I think you're spot on.

Jon Kuttin:

The other thing, I know we're getting probably a little tight on time here, but one of the things that you said, Scott, in a way, I don't want to create more competition because I love buying businesses. But for you, I'll share anything since you're so good to me, Scott, and you never make fun of me or make any remarks or anything like that, but-

Scott Wetzel:

Just got the notch-

Jon Kuttin:

... it's really simple to the listeners out there, if you want to be a buyer, you actually have to really want to buy. I think a lot of buyers find reasons not to do business. It always comes back to one of my mentors talks about comfort and discomfort. You ask yourself the question, what do people choose between taking the step that's comfortable or uncomfortable? 95% of people choose comfort. It's uncomfortable to buy a business. It's uncomfortable to leap into a space that has some risk, that's uncomfortable. If you ask yourself the question you had to choose between being uncomfortable and growth, which would you choose? For most people, the really successful ones, choose getting uncomfortable because you can't get growth without doing things that make you uncomfortable.

Jon Kuttin:

Buying a business is uncomfortable until you do one. Then after you do one, you do your second one, you become a serial buyer like me and you look at it and you go, yeah, it's worth even more. These things are more valuable than the sellers know. That's the secret of this thing, and it's why private equity money, and family office money, and all that money is flowing into the financial services space. Is your mind really consistent cashflow? As long as the person you're buying from can transfer the Goodwill, which is their relationship, that's what you're buying, is that Goodwill, chances are, if you're a good solid advisor, you will have a better process in place to serve those clients than the advisor that you're succeeding. If you don't have a better process in place, my advice is don't be a buyer, go get a better process because what you don't want to do is have a client feel like they were traded down. You want that client to feel like they were traded up.

Jon Kuttin:

If that client has felt like they were traded up, why the heck would they leave you? Why wouldn't they do more business with you? That's the key to this thing. When you could buy a practice and then you can organically grow the relationship, the revenue stream, the asset base, because you are better at running that client experience and that process than your predecessor that you acquired, that's where the return on investment in what you paid for the business goes from an amazing or a good rate of return, let's say, or a great rate of return to an amazing rate of return. Now you're in the private equity space, you're no longer a financial advisor, you're actually investing in financial services practices.

Scott Wetzel:

Super fascinating because you're placing the M&A cart first, but a really key focus on organic growth after the merger, correct. Then I think a lot of people miss that, and we've been able to substantiate. Our banks are obviously very interested in, do these clients actually move? Historically, we've found a lot of data points that showed that 97% of households on average move and these transactions. Actually the retention rate for AUM is 120% 12 months post closing. I think exactly to your point, if you think about it, it's pretty simple. A selling adviser is probably been having a very comfortable lifestyle in the last five to 10 years of their career, and probably hasn't been mining for some of those other outside accounts or beneficiaries. That new buyer comes in and it is a step up in service and everything, and it's enjoyable client experience, they bring more in.

Jon Kuttin:

It's the little nugget that people forget. I couldn't agree with you more. I think again, if you have that good process and you're a little hungrier, then your predecessor, which generally you're going to be after you spent a lot of money, you're going to be in a pretty good spot. Yeah, I would share with you 35 plus acquisitions in, there's not one that I wouldn't have done. Just a couple that were better than others. A couple that were a little stressful times, or didn't love the seller or whatever it may be, but I would do each and every one of them again. They've all been absolutely amazing investments.

Scott Wetzel:

That you've been able to actually substantiate this organic growth and post acquisition. Does that play a part in the purchase price that you're willing to pay compared to your peer group?

Jon Kuttin:

Scott, probably, I would say maybe subconsciously, yes. I mean, I think I value a business for what I believe the business is ultimately worth. There's more to it than just the gross revenue and EBITDA. It's the people, it's the location. It's how strategic it is. But yeah, I would say because I've had so many experiences that we've acquired a business and then watch the business grow, I think I probably factor in if I need to stretch a little bit, I've got enough data points to go, hey, stretching a little bit is still going to be okay. That's probably one of the reasons, I think we win a lot of the opportunities that we've bid on is because we actually get the value of a practice.

Jon Kuttin:

It's that old scenario, everybody thinks their house is worth more than it's actually worth because they pick the wallpaper, and the molding, and the kitchen cabinet color. But just because my wife and I love our yellow cabinets in our kitchen, doesn't mean that the next person who buys our home one day will love them. So, sometimes you just got to see the house for the bones and the location, and all the other things that go with it and go, hey, you know what? I'm not going to get anywhere saying the yellow kitchen is ugly. Let me give them what they think it's actually worth within reason as long as I can still make this a good investment for myself and my business and my family.

Mike Langford:

It perfect. We're getting ready to wrap this thing up here. One of the questions that, and you just teed this up, and I wanted to make sure we covered this. You talked about getting uncomfortable for the buyer. That there's going to be some personal growth they're going to have to go through. One of the things that I, just on the personal level, I've had to come to realize is that everybody feels that way. We all feel occasionally like we get a little imposter syndrome going on there that we don't feel like we know what we're doing. We feel we're not ready, it's human. We're all human beings, we all have those anxieties from time to time. I wonder if you might share, in closing here, a couple of challenges that the buyer should be prepared to overcome, especially if they're a first time buyer, be ready, you're going to feel this, I felt this, you're going to have to go through?

Jon Kuttin:

Yeah. Well, I've got a lot of those, but I'll try to be succinct. I'll do a little shameless selling for you guys, not that I need to, but I will, Scott. The first is, financing is everything. At the end of the day, how you structure the deal, and how you finance the deal is way more important than the dollar amount of the deal. Taxes play a big role. Interest rates play a big role. How long the note is plays a big role. What your attrition clause is, plays a big role. So, there's a lot that goes into the transaction. S, be prepared, get your ducks in a row.

Jon Kuttin:

As an example, again, shameless selling, Scott's got this great piece to his organization where they pre-qualify advisors based on their own book of business as to how much they can borrow and at what rate. When you come in knowing that, you can then go back to your spreadsheet and help cashflow things out like buying a house. If you're pre-qualified and you know where you're at, that seller is that much more likely to ultimately think of you as a real qualified buyer. So there's my shameless selling. I believe in it, otherwise I wouldn't say it.

Jon Kuttin:

I say the other couple of just pieces that, I think are important is prepare for the buyer to the seller to be a little bit unreasonable. It's their baby, you have to placate them a little bit. It's an emotional decision. Many times they have a spouse at home who's either saying, "Don't sell," or "Sell," or "It's enough," or "Not too much." Be a student of acquisitions and succession planning, help them understand some of the financial benefits of it as well. Then the third piece, I would just say, which I hit before, just expect them to be quite bad in the beginning. Once the transaction occurs and introducing you to clients, and understand that it's going to be up to you to lead a successful transition, don't leave it to them to actually do it.

Scott Wetzel:

Well, and it goes back to your point of being comfortable versus uncomfortable. I assume for most of your sellers, they probably haven't acquired a practice in the past, and they certainly haven't sold their entire practice. So, you're recognizing that you're pushing them outside of their comfort zone. You have a process and procedure in place to make them as comfortable as you possibly can with it. Also, I'm quite shocked by this, kidding, but you're checking your ego at the door, which we find a lot of buyers really struggle with. They come in and say, "This is the way things that we work. This is the way things are going to go. This is what we're post-transaction. This is how the financing is going to work." To your point, they usually go with, what I call a contract for dues, which is the seller's know, it just doesn't get anybody terribly excited. Whereas you're coming in being accommodative, understanding their needs, not changing anything initially, and making them feel comfortable about that level of discomfort they're all anticipating. You're like some Jedi mind trick or something.

Jon Kuttin:

Yeah, it's either that or just being a pushover, I'm not sure. But yes, it's that. What it really is, Scott, I think it's probably a good note to get across or a good point to get across to everyone, it's actually really understanding how beneficial it is to be a buyer. So when you actually understand that, I believe what I'm buying is undervalued even at today's multiples, so therefore the likelihood is, is I'm going to agree to a lot of things. Why do I know that? Because I have the curse of knowledge because I've done it 35 plus times, and I would do them all again. I paid what I paid.

Jon Kuttin:

I don't want to get that out to all the sellers out there, I guess, but as a buyer, if you take the leap and understand the real value of the business, my belief is that you'll be a more successful buyer. You'll have some learnings. Then once you get into that game a little bit, you'll be able to see how to create quantum growth within your business.

Mike Langford:

Fantastic. Well, Jedi master Jon Kuttin. Scott Wetzel, this has been a fantastic conversation. By the way, you just mentioned quantum growth there, you host a podcast as well that people should check out, the Quantum Growth For Advisors Podcast. Is that correct?

Jon Kuttin:

You know the name of it actually? That is the Jedi mind trick, that's it.

Mike Langford:

How I roll is that-

Jon Kuttin:

You-

Mike Langford:

... I come in here ready to rock, dude, this-

Jon Kuttin:

It works. Yeah. We've got a great podcast where one of our episodes had Mr. Wetzel on here as well, which is definitely the highest ranking podcast of all time maybe, of course, of course. But in all seriousness, you have Quantum Growth For Financial Advisors through my consulting company, Kuttin Consulting Group. If anyone ever needs to find me out there, the name of my wealth management practice is Kuttin Wealth Management. As you can probably hear if you're interested in selling, we're interested in acquiring. My consulting company really does a couple things. It helps financial advisors from a growth perspective of how to grow their wealth management practice. We've got a little bit of an expertise obviously in the acquisition space and also in helping advisors understand how to partner with accounting firms, which is a big part of our business model as well.

Mike Langford:

Fantastic. Well, Jon, really, really appreciate your time and your generosity in sharing all of your experience and expertise here. Well, not all of it, but we'll get though a little bit of it in there is wonderful. Thank you, Jon, for joining us.

Jon Kuttin:

That was it, I am done. That's all I got.

Mike Langford:

You just emptied a full magazine of that one.

Scott Wetzel:

I want to say that we could do five of these. Jon doesn't have enough time, but the term unique data gets thrown around a lot in the FinTech world. That was unique data, that was really good stuff. So thank you very much.

Jon Kuttin:

My pleasure. No, thanks for having me as a guest, then it was fun. I hope it was helpful for everyone. If sounded like a pseudo invite maybe to bring you back, so if you ever want me back, I'll seriously consider it, will say.

Scott Wetzel:

Really that was awesome, I learned a lot. Thank you.

Mike Langford:

Perfect. All right. Thanks-

Jon Kuttin:

My pleasure, Scott.

Scott Wetzel:

Okay.

Mike Langford:

Thank you very much for listening to this episode of the Advisor Financing Forum Podcast. It's always a pleasure having you with us. I hope you got a lot out of today's show, and had a little fun along the way as well. Make sure you subscribe to this show on your favorite podcast platform or YouTube, if you haven't done so already. We are working on a ton of great content, and you are not going to want to miss any of it. Huge thanks, of course, to Jon Kuttin of Kuttin Wealth Management for joining Scott and me for this episode. Please do make sure you check out the Quantum Growth For Financial Advisors Podcast when you have a moment. Jon and his co-host, Shennandoah Connor, are absolutely crushing it with the interviews they're doing over on that show. So if you like this podcast, you're absolutely going to like their show.

Mike Langford:

Before I let you go, please feel free to reach out with your questions or suggestions for guests or topics for this show by hitting up SkyView on LinkedIn, Twitter, Facebook, or Instagram, or shoot us an email@podcastatskyview.com. If you want to learn more about your financing options, simply call (866) 867-6282 or email info@skyview.com. Lastly, make sure you're wearing your mask, keeping your distance, and get that vaccine when it's available to your group. This thing is almost over, home stretch. You know what I want to say? Be nice to each other. We will see you next time on the Advisor Financing Forum Podcast. See you. Bye.