Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
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Welcome to Building the Billion Dollar Business, the podcast where we dive deep into the strategies, insights and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics and mindset shifts that set the top 1 % apart from the rest. I'm Ray Schlaffani and I'll be your host.
In today's episode, we're going to discuss when is the right time to hire a CEO. In Ben Horowitz's book, The Hard Thing About Hard Things, one of my favorites, by the way, he says, there's no recipe for really complicated dynamic situations. You know, in financial services, not every owner sets out to be a CEO. In fact, most wealth advisory firm owners stumble into the role by accident, more by necessity than by design.
It's one of those unintended consequences of building a business. As you grow, you realize the need to scale, which means building out your leadership team. But here's the real kicker. When do you step aside and who do you bring in to lead the way? Do you lean in and grow your skills to fit the CEO's shoes or is it time to hire someone born to wear them? For most firms, the founder or controlling owner defaults into the CEO role. At first, it's manageable.
But as operations grow more complex, so do the demands. And before long, your business may need someone who can manage the enterprise while freeing you to focus on what you love, clients and relationships, perhaps even growing the business. Or perhaps your run as CEO in your firm is coming to an end and replacing yourself might be the best move for the firm's continued success. So how do you know when to hire a CEO?
Let's explore the when, the who and how of bringing in professional management armed with the latest insights from the investment news compensation and staffing update, Schwab and Fidelity benchmarking studies. This information will help guide us. I want to help you figure out whether it's time to hire a CEO and how to find the perfect candidate to lead your firm into the future. So identifying the right time, the when.
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There's no one size fits all answer to identifying the right time to onboard professional management. There's no secret sauce. Instead, determining when to hire a CEO will depend on the complexity of your organization and a range of critical metrics, such as revenue thresholds. According to &A guru, Liz Nesvold, most firms typically feel the need to hire a CEO intensify once they surpass 10 million in annual revenue.
AUM milestones. The Schwab benchmarking study shows that firms approaching a billion in AUM often experienced a significant rise in operational complexity requiring dedicated leadership to maintain growth momentum. Employee growth. When your firm reaches around 20 to 25 employees, managing people, operations, and client needs may become excessively time consuming for the founder.
signaling the need for a CEO to oversee business operations. Client expansion and services diversification. As you broaden your service offerings, such as tax planning, legacy planning, and you attract more clients, you'll need to decide whether to focus your limited time on serving clients or managing operations. In the Founders' Dilemmas, Noam Wasserman explores founders' transitions and reveals
that many struggle with letting go even when professional management could benefit the business. He notes, founders who retain control and decision-making powers run a higher risk of losing both control and the value of their firms. This reinforces the idea that knowing when to hire a CEO could be crucial to preserving both growth and control. A recent Fidelity benchmarking study revealed that 83 % of firms with over a billion in assets under management
have introduced professional management roles. This indicates a true trend toward early leadership adoption to sustain growth and avoid bottlenecks. This indicates a trend toward early leadership adoption to sustain growth and avoid bottlenecks. Okay, now let's explore the who, identifying an ideal CEO candidate. Finding that right CEO means looking for a leader with the experience, leadership ability,
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cultural fit and competencies required to guide your firm. However, the demand for this type of high caliber leadership is high. So expect the compensation to be commensurately high. The investment news compensation study from 2021 indicates that CEOs in top performing roles earn an average total compensation of north of $572,000. What skills, experience and traits are most essential you might ask? Well,
Most controlling owners and founders aspire to develop next generation talent to take over the reins, the timing, their skillset, and perhaps even desire of these certain team members may not always align with the demands and the timing of the CEO you require. Often team members were hired for different positions and may not be suited for or interested in CEO responsibilities. Much like the founder or controlling owner currently
found themselves stepping into the role more by necessity than intention. So we've identified seven essential qualities to look for in a CEO who can lead your firm toward its next growth stage while preserving its core values and culture. You might consider looking outside the industry. Many of the best in the business have. When you hear these seven specific competencies, it'll click. First, strategic thinking.
Your CEO must develop and implement long-term growth strategies while keeping the firm competitive. Two, operational expertise. Look for experience in managing compliance and finance and technology, all critical wealth management components, but are also found in other industries. Technology, healthcare. The third competency is this emotional intelligence. It's the EQ. High EQ is essential to effectively lead teams
manage interpersonal conflicts and nurture a collaborative culture. Number four, business development focus. While not every CEO needs to be the quintessential rainmaker, they must understand client acquisition strategies and an ability to align the firm's operations to support lead generation and growth. Number five, collaborative and empowering. The successful CEO empowers your firm's advisors and team members
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to ultimately take ownership of their own roles. Number six, resilient and adaptive. Given our industry's shifting and dynamic landscape, your CEO will need to navigate change while maintaining focus on the firm's goals. And number seven, humble leadership. The right candidate will lead with humility, recognizing the unique contributions of each professional in your firm. As Jim Collins describes in his book, Good to Great,
Level five leaders channel their ego needs away from themselves and into the larger goal of building a great company. This highlights the need for a CEO to drive growth with humility, aligning with the firm's core mission and fostering a collaborative culture. Marshall Goldsmith reminds us in his book, What Got You Here Won't Get You There, successful people become great leaders when they learn to shift from self-centered ambition
to ambition for the cause, the company, the work. Your next CEO should embody this shift, demonstrating the emotional intelligence and resilience needed to lead your team effectively. Okay, where, where do you find the right candidate? There are two primary approaches to sourcing a CEO, promoting from within or hiring externally. Each comes with certain advantages as well as challenges.
Internal candidates, for example, promoting from within offers this continuity as internal candidates will be deeply familiar with your firm's culture and clients. However, depending upon how tightly the founder has held the reins, well, these individuals may lack the operational expertise to scale the business effectively. For those controlling owners and founders, perhaps listening to this episode, think about where you can let go. Think today about the performative opportunities
for internal candidates to showcase their skill set, gain new experiences, and grow their competencies. On the external side, bringing in a CEO from the outside may help introduce new perspectives and operational skills. However, firms seeking to recruit externally typically remain within the financial services industry. Although I did mention before in this episode,
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looking at specific industries where these competencies are transferable is helpful. So it's not just other broker dealers, RIAs or family offices look externally at firms that have grown in size and stature outside the industry, but CEOs that possess that skill set. The latest Schwab benchmarking study notes that 55 % of firms with professional management hire externally.
demonstrating that firms increasingly value fresh leadership from outside their immediate networks. Okay, the how. Structuring an attractive compensation or ownership package. Well, it's essential to attracting top talent. This requires a competitive compensation package aligned with your firm's performance goals and financial capability. According to the Investment News Compensation Study, top performing CEOs earn base salaries and bonuses
tied to firm revenue growth and operational efficiency and profitability. Additionally, long-term incentives such as equity ownership or phantom equity, well, they're essential to aligning the CEO's interests with the firm's future success. Typically, CEO compensation structures include base salary, aligning these base salaries with industry benchmarks, as I mentioned earlier, performance bonuses, bonuses linked to metrics like
AUM growth, revenue growth, new clients, revenue per client, client satisfaction, and profitability to incentivize performance. LTIPS, long-term incentive plans, offer equity stakes or deferred compensation to align CEO's financial success with the firm's growth, profitability, and enterprise value. And trial period for fit. Now this one is really interesting. We've identified this in our research.
consider a two-year trial period for granting full equity ownership to ensure the fit is right for both the firm and for the CEO. The Schwab and Fidelity benchmarking studies found that equity participation and phantom shares are increasingly being leveraged to attract top-tier CEOs, allowing you to offer long-term alignment without immediately diluting ownership. Hiring professional management isn't just a cost.
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It's an investment that will enhance operational efficiency, drive profitability and ensure sustainable growth and allow founders and controlling owners to refocus on what they enjoy most. This effort navigating the CEO transition for sustainable growth should be an exercise in creating great freedom for current owners and develop new future partnerships, but it's pivotal that this decision aligns with your long-term vision for the business.
One of the most difficult decisions a CEO can make is to let go, Ben Horowitz reflects, because it requires us to believe in the future of something we built and entrust it to someone else. Recognizing this as an investment rather than a loss can help founders confidently approach the transition. At some point you acknowledge as a fiduciary that you are simply the custodian of your current business responsible for securing its future.
beyond your role. The right fit will bring strong strategic thinking and planning capabilities, operational expertise, emotional intelligence, and leadership skills to drive growth while preserving the culture that's made you successful. If you generally wish to position your firm for sustained success and increased profitability at some point, you'll have to let go and embrace leadership transition with clarity and purpose.
With each of these episodes, we include a series of coaching questions that are really to serve as a guide to provide thoughtful reflection on your leadership path and readiness for change. Today, there are four coaching questions. The first, what core strengths do you bring to your current role that might limit or enable your firm's next growth phase? Two, how would stepping aside or bringing in a professional CEO enable you to focus more on your
personal and professional goals within the firm? Number three, what specific qualities beyond technical skills do you envision in a CEO who could uphold your firm's culture and vision while steering it toward growth, profitability and endurance? And number four, how would you support a new CEO in making a smooth transition? And what would you need to prepare to let go of to enable their success?
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Consider responsibilities, timing, and evidence of success as you consider letting go. Well, thanks for tuning in and that's a wrap. Until next time, this is Ray Sclafani. Keep building, growing, and striving for greatness. Together, we'll redefine what's possible in the world of wealth management. Be sure to check back for our latest episode and article.
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