Episode 31: $30B RIA Platform Co-Founder Scott Colangelo on why Collaboration is the Future of Growth in Financial Services
Subscribe to Billion Dollar Backstory on Apple Podcasts, Google Podcasts, Spotify, or wherever you listen to podcasts.
Ever wondered how the giants in financial advisory scale? Today, join Stacy and Scott Colangelo, Chairman and Managing Partner of Prime Capital Investment, a $30B powerhouse, for an exclusive look behind the scenes.
Listen in as they discuss:
His backstory – what he learned about from watching his dad succeed in financial management after starting from ground zero
How your ego can stifle your boutique’s success
Collaboration strategies that could 10X your RIA’s potential.
The role of products in organic growth
…and so much more.
About Scott Colangelo:
Scott Colangelo is the Chairman and Managing Partner of Prime Capital Investment Advisors (PCIA), and the creator of Qualified Plan Advisors (QPA). Forward-thinking in the financial business, Scott is responsible for the strategy and growth of these companies.
When Scott’s not working hard for his clients and team, he is spending time traveling with his family. “The concept of work-life balance, unfortunately, doesn’t happen often enough in our business. But our team approach provides a support system that allows us time to be with our families.”
Scott holds a Bachelor of Science degree in finance with a minor in marketing from Kansas State University, as well as FINRA Series 7, 63, and 66 registrations. In his own words, his two hobbies are basketball and golf, “although I’m not very good at either.”
TRANSCRIPT
Below is an AI-generated transcript and therefore it may contain errors.
Scott Colangelo: [00:00:00] I think that the next stage for this industry to excel is going to be collaboration, because if not, the big investment banks will just come in. And heck, I know of two investment banks right now that have pools of money and they're buying RIAs.
Stacy Havener: Hey, my name is Stacey Havener. I'm obsessed with startups, stories, and sales.
Stacy Havener: Storytelling has fueled my success as a female founder in the toughest boys club, Wall Street. I've raised over 8 billion that has led to 30 billion in follow on assets for investment boutiques. You could say against the odds. Yeah, understatement. I share stories of the people behind the portfolios while teaching you how to use story to shape outcomes.
Stacy Havener: It's real talk here. Money, authenticity, growth. Setbacks, sales and marketing are all topics we discuss. Think of this as the capital raising class you wish you had in college mixed with happy hour. Pull up a seat, grab your notebook, [00:01:00] and get ready to be inspired and challenged while you learn. This is the Billion Dollar Backstory podcast.
Stacy Havener: Systemize the predictable so you can humanize the exceptional. That quote from Gino Wickman summarizes today's episode. It's a behind the scenes look at one of the most successful financial advisory firms out there. And it's also a masterclass into building a successful business as an entrepreneur.
Stacy Havener: Scott Colangelo, chairman and co founder of Prime Capital Investment Advisors and Qualified Plan Advisors, a 30 billion financial advisory platform, will share his story today, and it will inspire you. Check out his roots. His journey and his game changing mindset as he continues to build and grow, Scott and his team challenged the status quo.
Stacy Havener: They do things that [00:02:00] many advisors are afraid to do or don't have the time to bother with or don't have the passion. To embrace rebels often have big hearts and put their people first, Scott will challenge you to think differently about service and scale. He'll challenge you to redefine conflicts and competition, and he'll invite us to join him in this next era of financial services collaboration.
Stacy Havener: I'm here for it. And I have a feeling you will be too. Let's dive in. Meet my friend, Scott Colangelo. Hello, everyone. Thanks for being here, Scott. Thank you so much for joining us today. I often say on these podcasts, it's such a joy for me to have conversations with my friends and then basically let all our listener friends join in as flies on the wall.
Stacy Havener: And that's really the vibe I want us to have [00:03:00] today. So thank you very much for being here. Can we start with my favorite thing, which is your backstory. And I was lucky to have you share some of that with me when we were together at the summit and it was really, really special and really inspiring. So I'm going to let you take it as far back as you want.
Stacy Havener: Um, but. How did you get where you are today? What was that journey like for you?
Scott Colangelo: Um, it's funny cause this is my 30th year in the business. So, um, it's been a long journey, a long journey. I grew up in Connecticut and. We really struggled, you know, financially, uh, my dad sold tires for a company called nickels tire.
Scott Colangelo: And he was pretty young. He was just, wasn't, I don't think he was happy. You know what I mean? Obviously great dad and everything, but, and, um, he decided to get into the financial industry and started with nationwide insurance and just basically selling life insurance and in his first. Year finished number one in the country out of like 2000 new agents.
Scott Colangelo: [00:04:00] And then the next year finished number one in the country for all agents, even experienced ones. So he just excelled in the space and, um, it was mainly states like life insurance, mutual funds, annuities, and PNC. I would, as I got older, it changed our lives financially. Um, you know, a lot of good things started to happen.
Scott Colangelo: And then he went to. I moved us to New Hampshire, they gave him a management role and he was there for a while until we got out of college and he said it was the worst decision he ever made because he decided to got in management and limited his income, but wanted the security for us because we didn't have financial security before when I graduated college, he told me I'm buying.
Scott Colangelo: He bought a firm, a small one, and then grew it. And, you know, and when I got out of college, I'd go back and work with them a little bit. It was just fascinating to me. He would have customers come in and they would just give him a big hug. They'd go in his office. I could hear them in there for an hour, hour and a half laughing, you know, having a good time to come out, hug them again, they'd leave.
Scott Colangelo: I remember asking him one time, like, what are you doing? [00:05:00] They're actually working, you know, and you guys just like playing cards and laughing, and he said, you know, once you earn their trust. And they, you know, they inherently trust you, he said, it's, it's really just a, it's a relationship and they, they don't really need to hear that much about, you know, how you shopped at what you did, all that, because one, he's doing the best that he can for him because he's an ethical guy and has integrity and to, you know, it was just really that they just wanted guidance and reinsurance and know that they had someone that cared about them.
Scott Colangelo: And I just thought it was such a fascinating thing. So he wanted me to take over that when I graduated. I didn't want to, I don't know if it caused tension. I mean, it was, I think there was disappointment, you know, but I didn't want to, because I saw him go from nothing and build a really successful company.
Scott Colangelo: And for me to just have, have it handed to me, I just couldn't digest that. And so I really wanted to start my own thing. So I came out, I moved back to the Kansas city area. Cause I went to Kansas state university, had a good friend there. We both started and got [00:06:00] jobs at ever Jones. It was there for a couple of years.
Scott Colangelo: They were very, I have nothing but great things to say about them. Their training was fantastic, high quality people, a lot of integrity. Um, and then, uh, went to a small firm that was mainly did insurance and estate planning, so that was really insurance, but they wanted to start an investment division, so me and Tim Hakes, who's my.
Scott Colangelo: Partner prime capital did that and, uh, kind of grew it. It just, you know, we started to grow, we grew it to about 2. 8 billion in 2017. We bought out the majority owner at that time, Tim and I each own 10%. And from 2017 to the end of the last year, grew it to about 30 billion and have a great CEO that we hired from Lockton, if you know who Lockton is, um, and really freed up the ability for Tim and I to focus on other things.
Scott Colangelo: And Glenn, you know. Raised our standards, got high quality people in, you know, has a plan. I mean, when he, the last, when he got to Lofton, they had about 300 [00:07:00] million or so of revenue, I believe, I mean, maybe not a hundred percent saying this accurately just going off of memory, but, and a few hundred employees.
Scott Colangelo: He grew into a couple of billion in revenue and 8, 000 employees and a hundred offices worldwide. And the last year he was there, they won J. D. Powers and associates best company to work for in 29 cities globally. So it's not just getting big. It's, it's maintaining quality and, and having an engaged team.
Scott Colangelo: That's sort of all rowing in the same direction. So the final thing I'll tell you is probably the proudest thing that we've done is we had made a promise to all the advisors when we bought the company, we'd get them ownership. In 2021, we ended up borrowing a bunch of money, giving it to the advisors that could buy shares from us.
Scott Colangelo: And as of right now, we have over 100 owners. We're probably the largest advisor owned organization in the RIA space today. And a lot of that's credit to Glenn. A lot of it's a credit to the advisors we have. I mean, we have just have great [00:08:00] people. We have a no jerk rule. That's not the term we use, but I'll use it on your body.
Scott Colangelo: We have a no ego rule. You come in the office and we do board meetings or we do management meetings. We remind everyone, leave your, leave your ego at the door. That includes me. That includes Glenn. That sometimes that means you're going to get criticized. So what? Yeah. And so that's the journey. That's kind of where we're at today.
Stacy Havener: I love that. I have so many questions. Um, so I want to go back to your dad for a second because. I loved what you shared about how he built the business, which was really people first, right? I mean, you, even in just that little anecdote you shared with us, you could see that he put his clients first, not the products.
Stacy Havener: And I love that you wanted to kind of forge your own path and build the way that he built. So the question I have for you is, Do you think that you gravitated to the same style where you had watched him for so many years? So when it was your turn to build, were you also kind of [00:09:00] doing this people first mentality?
Stacy Havener: And how have you been able to keep that as big as you've grown?
Scott Colangelo: Yeah, that's a really good question. Um, yeah, I think our styles are similar, very much relationship first, you know, when you get in the investment world. And the competitive nature of our space, as you know, better than most, you have to have exceptional technical knowledge to differentiate yourself.
Scott Colangelo: I think there's a lot of people that get the business circuit of relationships and don't focus on the technical side and how to, you know, cause you can find ways to shave expenses off, find better yield. There's, I mean, if you really look like you're doing with your managers, you really look, there's value out there, but you have to dig and find it and continue to grow.
Scott Colangelo: I guess your mind in this space. So, but I would say that definitely, I think I handle my clients the same way. You're right. As it grows, how do you keep those same relationships? I've had to have very honest conversation with clients and slowly shave off clients and give them to other people that I thought were great.
Scott Colangelo: And I [00:10:00] tried to match them up with the right people and introduced them and handled it the right way. It didn't just slowly, you know, you don't just ignore clients because you don't have time for them. And all of them are still, I think all of them are still clients. I still sit and I'll pop in and say hi when I see them and stuff like that.
Scott Colangelo: But I, I was honest with them. I'm like, my role is changing. We're growing. I care so much about you guys that you deserve a high level of service. And I'm, I just don't have the time to handle the same number of clients I've had before. So I have about seven wealth clients and probably man six or 700 million.
Scott Colangelo: And then I have. About seven retirement clients, maybe more, maybe 10 ish and just probably about a billion and a half there. So, but it's super manageable. Glenn runs the company, our CEO. He's fantastic. So I've been able to maintain the level of service with a select handful of clients. Do both. You can't still have 200 clients and, and move up market.
Scott Colangelo: So yeah, it's definitely
Stacy Havener: changed. Yeah. And you know, I think you hit [00:11:00] on something really interesting there, which is, and I want to unpack this with you a bit because as you build, so like when you and Tim first took the majority stake and kind of were building your practice, it's very much founder led, right?
Stacy Havener: You're very involved. You're the ones with the clients. You're sort of doing the craft and running the business. And then you sort of reach this point where you can't do both, right? And you could have made the decision to stay an advisor or you could decide where, where's my highest and best use. And I think something that fund managers also struggle with is this exact challenge.
Stacy Havener: It's like, I started the boutique because I'm good at my craft, which is investment management, or in your case, wealth management and insurance and working with clients. But now I'm also running the business. And how did you balance that? I mean, obviously now you have this fabulous CEO, but what was that journey like?
Stacy Havener: How did you build past the point of founder [00:12:00] led sales? I know you did some acquisitions. Like, what did that
Scott Colangelo: look like? Yeah, it's uh, I mean, you learn, you make a ton of mistakes. Make no mistake about it. I mean, we definitely make mistakes and that's how, I mean, I hope you have enough self perspective to see it.
Scott Colangelo: And I remember when we, it was pretty contentious when we bought from the prior majority, it was just a, it doesn't matter. I don't need to get into why it was just, it is what it was. But one, I, one day I will share was the concern we had was he wasn't really a CEO. I mean, it was not out in the public. He wasn't present.
Scott Colangelo: It was, you know. And he was an exceptional runner of a business. He was an exceptional, I thought he was maybe the best CFO I'd ever worked with. And so when we got the deal done and there was times you think it's going to and times you don't, right? I mean, it's a, it's a rollercoaster trying to get a, trying to lead a minority led by out of majority owners.
Scott Colangelo: This is loads of fun. I should really encourage everyone to try it. And Tim and I went to dinner and I remember we're like kind of patting each other on the back. Hey, I got it done. This is [00:13:00] great. And he looks at me and he's like, you realize you're going to be CEO. I was like, no, that's such a bad idea.
Scott Colangelo: Like I'll run this company into the ground. So we actively, it was actually my wife's idea. She said, you know, Hey, what about Glenn? And Glenn had been at Lockton for quite a while and knew him. He was my neighbor. I used to play basketball with his kids in the driveway, you know? So there was a lot of trust there.
Scott Colangelo: Extremely bright. Off the charts, bright and hard work. And he's the hardest working guy I've ever worked with. So, you know, that balance wasn't as hard as you'd think because we didn't wait too long. I think we recognized early on. It took time. We bought the company in June. Glenn was kind of helping us out in October, but really started with us, announced it in January.
Scott Colangelo: So it's like a six month period where it was sort of me and Tim running it. But, you know, and I think when Glenn gets in there early on, you have this mentality of. You don't want to step on toes. And Tim and I both made it really conscious. I'm like, Glenn, it's your decision. It's your decision. It's your decision.
Scott Colangelo: You know? And I think that, you know, I mean, even [00:14:00] today, sometimes they'll come in and talk about something and I'm like, it's your call, man. I mean, you've done this way more than we do acquisitions. And I'll be like, he's like, what do you think? I'm like, Glenn, you've done 200 plus acquisitions. I've done one.
Scott Colangelo: It's like, you know, like, so. I don't know. Maybe we should go with your idea.
Stacy Havener: Yeah, but it's a great example of who, not how it's a great example of who, not how, because you could have, you and Tim could have said, all right, like draw straws, like one of us is going to take CEO and he's going to have to figure out how to do it.
Stacy Havener: Or you say, is that really our highest and best use? Is that really our unique ability? And if you can have that open and honest conversation with yourself and each other, you can actually put a person in place that can help you grow and look at the growth that you've been able to accomplish since Glenn's joined you.
Stacy Havener: So then the question I have for you is this. When you think about your unique ability and your role, even kind of going back then, as you were scaling up, I know you've shared with me, like you were still in meetings. You were still there is kind of like the [00:15:00] face and the heart and the and the sort of soul of the business.
Stacy Havener: Is that fair to say that you still had a role in the growth, but it was just different. It wasn't the weeds per se.
Scott Colangelo: I mean, there's several areas. One, I mentioned you earlier before the podcast. We had never done any acquisitions. And when Glenn got here, it's like, you know, scale is Glenn, Tim, and I've always believed in scaling, by the way, some of the things that we've, I think we've been on the front end for a while and scale does give you some advantages.
Scott Colangelo: And so, but Glenn knew that as well. We all were in alignment there. So, you know, we looked at really moving into, you know, obviously recruiting's cheaper than M and a. But doing M and a and, and then when we started to do some acquisitions, it does help your growth early on. But say you bring, say you're 3 billion in size, you bring in a 300 million shop of, you know, a couple of advisors, one advisor, whatever it is, 10 percent of your, you know, your assets, right?
Scott Colangelo: But now to do 10 percent I'd have to bring a 3 billion [00:16:00] shop, and there's just not very many of those. So now it's the kind of tables kind of flipped back to organic growth. And so it's amazing. The journey was like, Hey, the M and a could double your size in one transaction. In fact, our first transaction was a 4 billion transaction was bigger than we were.
Scott Colangelo: And it was a retirement practice. And we got that done like our first, so literally our first transaction more than double does. But now it's like, geez, if I can continue at, we've got really strong growth as an organization. Like the RIA industry, I don't know if you know this, I mean, the growth rate's terrible.
Scott Colangelo: It's become a lifestyle business. Oh, really? Oh yeah. RIA space is terribly slow growth. I mean, we look at 50 acquisitions a year. You're shocked if anyone's over 2%, it's like crazy how low the growth rate is. You know, if you back out the market and a lot of them have grown because of market growth. You know, and we were clipping on 40 plus growth rate, and then they, now we've gotten so big, we're probably closer to 12.
Scott Colangelo: But if you can grow 10 percent and bring in 3, 4 billion, that's, you know, and add, do some add ons with some acquisitions [00:17:00] that are really attractive, then it's worthwhile. But it definitely has made a difference that growth, organic growth is, is the key to this industry. You don't have to pay for it. You may have to invest in that, but you don't have to buy a practice for organic growth.
Scott Colangelo: Everybody benefits. You're not diluting by buying, doing an acquisition and diluting everyone to grow. You're actually just, everyone's shares are staying the same and you're, and you're growing that adds a lot more value. So it's, you know, it's cyclical, but right now, as we've gotten bigger, organic growth has become our main focus.
Stacy Havener: Let's talk about that a little, because Organic growth is certainly challenging. I mean, M& A has its own challenges, but as you said, like once the transaction's done, you've bought the growth. If you're going to build that growth, like what works for you? And maybe this is a good way to kind of work in differentiators.
Stacy Havener: I know you have a sweet spot in the retirement space and I wonder, like, is that what you lean into and people come to you for that? Are you known for that? Like how, how do you think about [00:18:00] organic growth and the stories that you tell around it?
Scott Colangelo: Yeah, it's really interesting. Um, you know, just even five years ago, everybody was either solely wealth, solely retirement.
Scott Colangelo: And I think you kind of people trying to, you know, you have retirement shops trying to getting well, trying to get into wealth, wealth shops, trying to do retirement and candidly. They're all terrible at it because I have friends who are doing it. They're just not good at it. We got that. I say we got lucky.
Scott Colangelo: We started doing, we started qualified plan. The advisors, our retirement practice started, you know, early two thousands, it was focused on education and, you know, we're probably the largest provider of education to participants today through a separate entity. We rolled out of QPA called financial fitness for life.
Scott Colangelo: But what happened is. We started both those the same time our investment advisory committee sat on top of wealth and sat on top of retirement. And so they literally both, we were doing model portfolios we were doing. I mean, everyone's talking about managed accounts and retirement. We were doing that. No 2.
Scott Colangelo: I mean, so, and everyone's just [00:19:00] starting getting this craze the last 5 years. I mean, people used to call us crooks. You're like, oh, my God, you're charging a fee to manage money for participants. They dramatically need it and they are super happy to pay it and their performance is better and they're not jumping out of the market in a down market.
Scott Colangelo: So, but the point is this, what we've kind of learned is we kind of had two legs to the stool, which was retirement and well, and what everyone else is trying to do is, you know, like the retirement shops trying to do. Well, it's such a different business and they're just struggling with it. So the smart ones, the cap trusts and others, what they started to do is.
Scott Colangelo: By wealth teams, you know what I mean? That no wealth and then they take retirement. And so that cross sells really important, but you know, the only way to have a healthy company, if you ask me, is that there's really, in our opinion, there's really sort of four legs to the stool. You have wealth, retirement.
Scott Colangelo: Education and retirement is more plan level consulting education and then product production because we produce product as well and product production is more for scale distribution on the wealth side and other things. [00:20:00] And so, if you have all 4 legs, you're just gonna be a lot more solid business. If your wealth, you got 1 leg, you're sort of balancing every year trying to figure out, do I have time to service these people and still go out and grow and you're just kind of wobbly.
Scott Colangelo: Right? And if you have retirement, that's great. You're a little more balanced, but, you know, it does give you an opportunity to. To work with the CEO, the president, all those people, and maybe get their wealth as well and work with the committee members of the retirement plan and get some of their business.
Scott Colangelo: So there's some of that. The education piece was really what kind of stabilized the organization. Yeah. The third leg, the education is massive because listen, all these companies can go, Oh yeah, we're going to buy wealth companies. If you're not in front of the participant, you're not going to get utilization of any services.
Scott Colangelo: You try to roll out to them. You're not. I mean, I mean, people want. To talk to a human being, it's not a digital market all the way. You're not going to get it. I mean, the participant, you need to sit in front of them and say, and let them know you have these services. And when they see what we do with our educational retirement is [00:21:00] it was, we, whoever does say there's 20 locations, whoever does X, Y, Z location does it every time.
Scott Colangelo: Why is that? Because we don't want to a rep from a record keeper or, Hey, whoever's available, we'll send you. There's no familiarity. You want them to see the same face over and over and over and over. And that takes a commitment from the people willing to do education. So we have people that come in like, Hey, I really want to be part of that team.
Scott Colangelo: I'd love to get out and do education because it's a, I mean, those businesses grow fast. I mean, if you're out there seeing people, you're getting other business that just are. So people want to get into that. I remember they would come to me. I'm like. You have to have a servant's attitude. That means you're, you're on the road and you're not seeing your own kids that night.
Scott Colangelo: You know what I mean? 4 a. m. You're in a car windshield time trying to get to a location by 6 30 a. m. So you can get them before they go on their shift. I mean you're going to be doing a meeting in a, on a factory floor wearing goggles and a hard hat. I mean, so it's, it's a real servant's attitude and here's the dirty little truth.
Scott Colangelo: No one wants to talk [00:22:00] about is that, um, The advisors don't want to do it. I'm just being honest. Like they think they're better than a participant. They think they're better than a, you know, 15 an hour, 20 an hour person. And I've always thought that's, I think that's the most valuable what you can do and how many people you can touch.
Scott Colangelo: You can get out there and do two days of meetings and talk to a hundred people, have an impact on 80 of their lives. And, and, um, think about like, so my very first retirement plan I ever did. I had a client asked me in 2001, 2002 is a printing company in Boston. And they said to me, Hey, do you, would you do our retirement plan?
Scott Colangelo: I think I told you this and I go, I know enough to be dangerous. That's not a good idea. And they're like, no, we trust you if you want to, you know, so I called his HR director's guy's name was like Jim or something. I can't remember. And he goes, I set up all these meetings and then Peter, the guy owned the company called me.
Scott Colangelo: Dropped a few expletives like what the blank, blank, blank. Are you doing? And I was like, and I told him, Oh, I don't know. I'm coming out to see all your people. I thought that know your customer rule applied to [00:23:00] retirement plans. So, so how little I knew, I thought I had to know their risks, their goals, their age, their retire, all that.
Scott Colangelo: But the cool thing was it changed the course of my career because I was always thinking I wanted to work with high net worth people. I had high net worth people. And that plan had like 29 percent participation. The average referral rate was under 3%. And I did meetings for at least a week and a half met with everybody and ended up their participation went to like 84 percent and they'd never went to like 7.
Scott Colangelo: 9. And I remember flying home on the flight thinking, Oh my God, like I know I changed those people's lives. I mean, I think about it today to this day, that's over 20 years ago. Even if half those people stayed invested, they probably have. I've got way more money or have money for those that weren't going to contribute.
Scott Colangelo: And that's when I decided to get more into the retirement space than me thinking, Hey, I can get an extra half a 1 percent return for a person that's already got 30 million. You know what I mean?
Stacy Havener: That's my favorite part of the [00:24:00] podcast right now, because everything you just said right there to me ties back to your dad selling tires and how he built that business.
Stacy Havener: And you said something so powerful, which is other advisors don't want to do the work and they think they're better than the participants. God, I mean, that is, it sucks, but that's true. Yeah. And so when you think about differentiators, the fact that you didn't treat them that way, you made them the most important person in that room with you.
Stacy Havener: When you were there, you were willing to go and talk with them. You were willing to treat them as an equal and someone who deserved really great advice. Imagine how that must have felt to them.
Scott Colangelo: Yeah. I mean, they want to be seen. It's funny. We used to do meetings and, um, It was always interesting how it was back when we were using like paper enrollment forms and stuff, and it was funny how we'd tell them to hand them in, but they wouldn't or if you have questions come.
Scott Colangelo: Talk to us, you know, [00:25:00] and they would all just get, get in a line. It naturally happened everywhere. And they'd want to personally hand it to you and have you look at, they want to have that affirmation of, Hey, I'm making a positive decision or am I doing this right or whatever it is. People want that, you know, so everyone's trying to push.
Scott Colangelo: And by the way, I do want to say something like there's a lot of advisors that do do the work. Don't get me wrong. Yeah, totally. It's a massive minority. Yes. Everyone else is going to conferences, trying to figure out the next FinTech that's going to solve the solution. Cause their plan sponsors, like you need a solution and then they turn around and they like, they bring them a solution.
Scott Colangelo: Cause that's what the, you know, they don't want to go do the work. Maybe they don't have the capacity. Maybe they don't, maybe, you know, who knows, maybe it's a health thing. Maybe they can't sit in a car for, you know, whatever. So bottom line is there are people that do want to do it. It's just such a small minority and everybody that knows our model.
Scott Colangelo: And the utilization, we have a participant services and managed accounts and all that. We're like 10 times higher than everyone. The industry averages like less than 5 percent of using FinTech in those types of wellness, um, financial [00:26:00] wellness solutions. And the reality is everybody in the industry knows that the people that are using it are the ones that don't need it.
Scott Colangelo: They, they're smart. They're, you know, they're, they're into investing. They kind of use it because they want to see how they're doing stuff like that. And they're probably the ones with the biggest balances and the most income and all that. And the people that, you know, that really need it, aren't using it.
Scott Colangelo: But man, they'll sit down with you one on one in the back of a break room and share things with you. And so I love
Stacy Havener: that. I think there's such an important lesson for all of us, even, you know, on the fun side, because part of it is human nature. To your point, you want to look for efficiencies. You want to look for that easy button.
Stacy Havener: Like there, maybe there's an easier way than going to the factory and meeting with all these people. And I get that, but the reality of any business is that it is a people business. People do business with people. So, you know, your numbers are eye popping, but when you really stop and think about it, you're like, well, of course you would have numbers like that because you're putting in the work to meet people where they [00:27:00] are.
Stacy Havener: And that's different, which is crazy to think about. That's a massive differentiator that you're willing to do that. That says so much about. You, the advisors who are part of your platform and just the culture that you've instilled that like, this is, you know, that's what values are all about. They tell you how to show up and that's what you're, that's what you're talking about here.
Stacy Havener: It's like, this is how we do things. And who we do it for. Amazing. Thanks for sharing that. And that was great. Okay. So let's stay with this for a second. Cause I wanted to talk about qualitative and how that plays in. I think you just gave us a masterclass on that. So now here you sit, let's go back to the organic growth.
Stacy Havener: So this is like a heavy lift, right? What you're doing with these retirement plans. So how do you combine that? Like, how do you grow at the rate you want to grow at the size you are knowing that so much of like your special sauce, if you will, is really in this face to face? Like, how do you think about that?
Scott Colangelo: Yeah, [00:28:00] it's really interesting because In the past, I would have just thought like you'd have like one, two strategies and you just, you know, get everyone reared up. And, you know, the reality is when you've done the number of acquisitions we have or recruited the number of people we have, these people were successful before they met us.
Scott Colangelo: So, you know, and they all had a different approach. And one of the things I love that Glenn has taught me is that, you know, there's really three types of organizations are sort of the, we're going to buy you. Or recruit you, duct tape you on and just say, go do your thing, right? In which case you get no benefit of scale.
Scott Colangelo: There's no synergies across organizations. No, nothing. And the other is we're going to buy you and you're going to become our company name and you are just going to do it the way we do it. No, if, ands or buts, which is what we kind of laughingly call the assimilation model. One's like, let's, you know, sort of let's intelligently integrate.
Scott Colangelo: And be flexible. And by that he means you can't take away a person's story that they've been selling for 20 years and then tell 'em they now have to go hit the brakes and go into a meeting with a, with a, [00:29:00] with a customer. Go, it sounds like the brakes were screeching, the tires are scree to come to a complete hal, but hey, everything I told you for 20 years is wrong.
Scott Colangelo: We're gonna do it this way now. You can't do that. So you have to find ways to, one, take advantage of scale, for example. Everyone, anyone that joins us, it's like, Hey, I have the best CSR system or I have the best accounting system. If that's what you're worried about, don't join us. Cause you're going to use our accounting system and our CSR system.
Scott Colangelo: Like if that's what you're interested in, go somewhere else. Like we want to be free. Now, if you say. This is how I work with my clients. This is how I service my clients is what's important to me. Like, Hey, we're all yours, but I don't have time for stuff like that. Let's scale the things we can scale, then take the additional resources we have, because we're not scattered like these other organizations.
Scott Colangelo: And then put that behind you and bolster what you're already doing. Like maybe, you know, maybe we have ideas that can help you and vice versa. And in many times, Glenn's told me, he's like, Hey, we look for an organization. Let's find something they're doing better than us and add that. You know what I mean?
Scott Colangelo: So it can't just be a one way street. [00:30:00] So I will tell you that organic growth is, is a series of things. We have organizations that still like to do dinners, invite people because they just like that contact. Yeah. We have people that do digital marketing. We have podcasts. We have people that do radio and TV.
Scott Colangelo: We do digital marketing and the retirement plan side. We have more specific strategies because they tend to be. Big groups of people. So you have to have specific strategies that you can scale across a thousand retirement plans or whatever we have, you know, so, um, if there's no 1 thing, I mean, there really is no 1 thing.
Scott Colangelo: It will always be a people business though. I know that. And if you can find ways to scale the things that you need to scale and still keep the human element. First, you know, sort of out front, you're going to, you're just going to do better long term than other organizations and the people that are growing because all they're doing is acquisitions, which is a lot of them are now also ones that are struggling because interest rates are so high and they finance so much of it.
Scott Colangelo: And so, you know, we have a real advantage there. There's some other companies I know that, you know, I know Peter Maluk over at Creative Planet, he does a great job. Exceptional job [00:31:00] of growing his company and it's not highly levered like a lot of these and just as really good organization. So you know how people got there and there's no shortcut and anything in life.
Scott Colangelo: And if you try thinking, you can shortcut it because interest rates are low and not focus on really building value and systems and, and adding, you know, finding ways to sort of get the growth and support them in a manner that. You know, really all we should be is sort of a step up on a platform that gives them an ability to reach higher than they could before.
Scott Colangelo: And so if you're not doing that, it's eventually going to catch up to you. It's caught up to a lot of the RIAs. A lot of the RIAs are not in great shape from the standpoint of cashflow. That really, a lot of the aggregators are struggling right now.
Stacy Havener: Fascinating. That was great. I love the part about, you know, there's no one way to do organic growth, but the secret is how you keep sort of the human element in the center of it.
Stacy Havener: And what you've done is you've done a really nice combination of old school and new school, if you will, right? Like those dinners. [00:32:00] I mean, they're old fashioned, but think about when we were together at Castle Hill, like there's something really special about sitting down and breaking bread together and just talking without a lot of pressure and time and all these things, you know, beeps and buzzers and things going off on your phone.
Stacy Havener: Like there's something special about that. So I love the combination of the two of them. And I think there's an important lesson there for us as well. We'll think
Scott Colangelo: about it a little bit. I mean, we're not, we're not designed to be alone. Human beings are not designed to be alone, right. Or designed to be like around other people and, you know, and have human interactions.
Scott Colangelo: So that's no different for our business.
Stacy Havener: So you mentioned something I want to talk about if it's okay with you, which is the product side. And that is such a, like. I don't know, not a third rail topic, but you've heard a lot of R. I. A. S. and wealth firms, but like, Oh, product, like, don't say product. Don't even mention it because you get [00:33:00] into this like proprietary product.
Stacy Havener: B. S. Everyone does. But like, I think it's interesting that you said, like, that's one of the pillars that you're building the business on. And so how do you think about that? And how do you do it in such a way where it's, you know, still client first and not you guys
Scott Colangelo: first. So first of all, um, you know, I hear things like that and I just, you've met me, I tend to be pretty direct and I think, I think they're being moronic.
Scott Colangelo: And the reason is that fundamentally they're selling products, whether it's their, whether it's their, my balanced portfolio or my growth portfolio or whatever. So if you can take the things you're already doing. And scale them into a CUSIP based solution or something that's going to be far more efficient and give you far more buying power.
Scott Colangelo: If you go out and take 100 clients and put them in strategies, that's great. And then the all 100 of them are in, you know, so let's say all 100 of them are in a 60, 40 blind and they all [00:34:00] have the same thing. Good. That's fine. I have no problem with that. But if you pooled all their money into one thing, you're going to get better pricing.
Scott Colangelo: You're going to get, I mean, there's so many benefits. Yeah, do we do manage strategies? Do we do, you know, um, risk based portfolios and stock portfolios and all that, that are just RA based where we charge advisory fee? Yes, but to not take the bigger ones and sort of structure them differently. We're not doing this on a lot of stuff.
Scott Colangelo: We have a handful of solutions that would be considered a product, right? But take those and get better pricing. I'll give you an example. We launched the fiduciary investment trust. It's a series of collective trust for retirement plans or risk based portfolios. So everyone's doing managed accounts today and say they have 100 retirement plans, right?
Scott Colangelo: And several billion dollars and they do managed accounts on all 100 and they're managing accounts of different core funds lists on a hundred plans. They have no scale whatsoever. We created five QSIP collect, you know, based collective trust. We put a three 38 [00:35:00] wrapper around them and so that we can move the fiduciary liability from the plan sponsor and all that.
Scott Colangelo: And none of the underlying funds are ours. So all we're doing is charging a fee to blend them Okay now outside people will criticize us when they compete with us. Oh my god. It's a product It's the same exact thing. They're doing like literally it's a it's 25. Yeah, it's blended together They're doing 25 funds blended together.
Scott Colangelo: We're wrapping it with a fee. They're wrapping it with the fee The difference is we made a q sip base. So the money got pooled together now i'll give you Two quick examples. What did that? That didn't give them when it's rates were really low. And we had, you know, we had a few billion or a couple billion dollars.
Scott Colangelo: I can't remember how much we had in those. And we wanted to do like a 10 percent allocation to stable value because we knew rates were going to go up. Like it didn't take a genius to figure out rates were going to go up. And when they did bonds, we get crushed. And the going rate was like 1. 5. That was the average stable value rate.
Scott Colangelo: Well, we, because we had so much money pooled together, had several hundred million to do. The bid, we got 2. 95 as the rate, we got literally double more [00:36:00] like double everyone else's rate. And we're able to do that one transaction instead of having a hundred plans signed forms, right? And then wait for them to do fund change notices.
Scott Colangelo: That's the other thing. Inside the portfolio, I can change this fund for this fund, this one for this fund in the Q SIP based solution and never have to do a fund change notice because it happened inside the product. What's everyone else doing? Okay. Yeah. We're gonna make a change to your allocation, but I got to add this fund, remove this fund, you know what I mean?
Scott Colangelo: Like, so it's just more honest and not be open minded to it. You know what I mean? So, and that's, that's just one scenario. The second one was we had, uh, I'm trying to think who it was, I think it might've been a DFA fund. I'm pretty sure it was, but we wanted to use theirs inside our fit portfolios, the collective trust, one of their, I think it might've been their small cap fund.
Scott Colangelo: Don't quote me. I think that's right. And I think it was like their most expensive one was a great fund. Their funds are really cheap. But I think that one was like. 80 basis points or whatever. And we ended up saying, Hey, we'll send you 80 to a hundred million dollars. Uh, I can't remember what the number was and they, um, and we negotiated with them and I thought they'd come back and say, yeah, we'll do it for 60.
Scott Colangelo: They came back and [00:37:00] said, we'll do it for 28 basis points. And we were like, so now we have the same fund that the ones that people, other advisors were competing with, that's, you know, say we're dumb for doing this. And we're getting it for a third of the cost they are. And so those are just examples of advisors, just not thinking bigger picture or, Oh, I'm, you know, if they don't understand it, they just go, Oh, that's a fiduciary risk or you're pushing product.
Scott Colangelo: I literally have the same exact thing you do, which is much better because I was willing to take a year to, you know what I mean? Willing to take a year to go ahead and. And, and, you know, when we hit this, we had to spend time, it was a year and a half process. We had to hire a risk of attorneys, we had legal accounts, I mean, just to do the research, but it was right.
Scott Colangelo: And so those are just things, you know, but here's the broader one. The broader one is this, the investment banks, we'll put it like this. RAs five years ago, there was like 10 RAs with 10 billion or more. Today there's 75 or something like that. Five years later. So we're growing rapidly. The investment banks, Goldman Sachs, [00:38:00] Morgan Stanley, all of them.
Scott Colangelo: We're on this like 25 year gravy train because what happened, they saw that Yale was using non traditional assets, PE, state, and all that stuff, and your returns were better with less risk. And so all of a sudden all the investment policy statements go, okay, well we can do 5 percent then 7%, then 10%, then 15%, then 20, then 25.
Scott Colangelo: And they're all maxed out at like 25 or 30. And that gravy train is relatively done for the investment banks. They just had sort of this. Every year, more people were putting more of an allocation to there and they were selling those products, killing it. Right. Just absolutely killing it.
Stacy Havener: This is in retirement plans.
Stacy Havener: You're talking or you're saying in general pension
Scott Colangelo: and institutional pools of money. Yeah. Okay. What's happening now, Stacey, is that, you know, like Goldman hired a hundred people to sell them to the RIA channel. Well, why is that? Because the gravy train over here is done. And now they're like, we got to find that next pool of money to sell into.
Scott Colangelo: Morgan Stanley did, you know, have their best quarter. What? A couple quarters ago, I can't remember, and they brought in 92 billion in new assets or something like that. [00:39:00] Everyone was stunned. I was actually in the Goldman building the day it happened. Everyone was like, Oh, my God. And like, over 60 percent of the assets, the new assets came through the RIA channel.
Scott Colangelo: So if us as RIAs aren't going to work with boutique managers or create product or things like that, the big wire houses, the big investment banks are going to come in and. Sell directly to us. So we leave that are off as RIAs, as advisors, as shops like yours and collaborating and figure out ways to work together, you know what I mean?
Scott Colangelo: And creating, you know, our own solutions or working with good boutique solutions or whatever it is, then letting them come in and do the business because they're not dumb and we don't collaborate and we don't create our own solutions. They're going to create them for us and, and then they're just going to just.
Scott Colangelo: You know, have a lifelong stream of income from R. A. s that never slowed down to say, geez, maybe we should look at product production.
Stacy Havener: So, so well said. And of course, you know, I could not agree more with what you're saying there, which is it's really a mindset shift. It's a mindset shift about who's driving the [00:40:00] bus.
Stacy Havener: So, you know, if you want to take control and create something special for your clients, the way to do that is what you're talking about. Actually creating that product that's special for your clients, negotiating the fees, getting the cool, interesting managers that you want in there because you are in control.
Stacy Havener: You have the capital versus you're not collaborating. You're waiting for some big firm to come and push their product down to you. And you don't have a say. The only say you have is like which thing on the supermarket shelf you're going to pick. And that's a big mindset shift. I've always said, and we chatted about this at dinner, like, RIAs don't realize how much power you have.
Stacy Havener: Individually, sure. Like, someone, you know, a firm your size has a lot of, of scale, so you can, you can move the needle. But even as a collective, if RIAs banded together and [00:41:00] went to some of these boutiques or, you know, Asset managers or any kind of service provider and said, Hey, here's how much capital we have.
Stacy Havener: And this is what we want. You'd get it. Your example shows that
Scott Colangelo: that's possible. Yeah. I think, I think for example, if like you have boutique managers and you know, that was the first time I saw someone, I was really impressed with several of them and you know, if you had. Several shops that got together and said, Hey, we want to use your funds.
Scott Colangelo: We think we can send you this much money. They'll give you a better price. I mean, why would they not? You know what I mean? It's for them, it's scale too. And it helps them as well. So, uh, yeah, yeah. I mean, we really, people need to. These RIA firms need to really start thinking about working together more and being, being so defensive and protective and, you know, work together.
Scott Colangelo: There's ways that you can help each other and, um, it's not complicated. Solicitor agreements allow us to share revenue. There's ways for us to, you know, there's definitely things that we're doing better. There's [00:42:00] some RIAs that they could benefit from us. We can share in revenue and there's definitely things they're doing.
Scott Colangelo: You know, better than we are and we get benefit from them. So, um, it's just, we need a different mindset in that space. And a lot of that is you have a lot of people that, you know, there's ego, there's a lot of egos and, um, you know, it is what it is. I mean, you build a billion dollar book, you've built a great business, you know what I mean?
Scott Colangelo: And you. Should be proud of that, but you know, I think that maybe sometimes we think a little bit too much of how much of that was just purely us and, you know, the market's been great and there's a lot of things that, that help get people to success. And I think that the next stage for this industry to excel is going to be collaboration because if not.
Scott Colangelo: The big investment banks would just come in and heck, I know of two investment banks right now that have pools of money and they're buying RIAs. So,
Stacy Havener: yeah, that's, and that's the risk. And so I think I love that. This is like the era of collaboration and the era of sort of specialties, right. Specializing [00:43:00] in something.
Stacy Havener: And that's what you're talking about here, because if you want to switch to that abundance mindset, if you want to get out of like. The scarcity mindset says this is my billion that I built and I can't let you in, Scott, because you'll take my clients. The abundance mindset says like everybody is uniquely talented at something and what would happen if instead of thinking you're competing, you started collaborating and what 10 X could you put on?
Stacy Havener: Yep. That billion together. So I love that. Can we, um, can we end with some fun questions? I also love that I haven't even looked at my notes this entire time. This conversation has been fabulous as I knew it would be, but I have some questions, um, inspired by Proust's questionnaire, which was the idea that, you know, there's certain questions you can ask someone that sort of give you, uh, you know, insight into who they are.
Stacy Havener: And you've done a really nice job of letting us see some of your past and your story. And I appreciate that. But I have a couple more if you're up for it. Let's do it. Okay. So the [00:44:00] first one, we're going to baby step in. The first one is, what book inspires you? Oh,
Scott Colangelo: man. Um, you know, Glenn had me read one a couple years ago.
Scott Colangelo: Uh, The Singularity is Near. Hmm. And it's about when computers can essentially process information faster than the human brain. And, um, it's really gives you hope for the future. Everyone's feeling like AI and all this stuff is a negative and, you know, and everyone thinks, you know, like, I'm sorry, nothing political, like, you know, climate change, all these things.
Scott Colangelo: The reality is the advanced technology will be able to. Fix a lot of our prior mistakes. And, and that's just a fact. I mean, they have bacteria in Japan that can eat plastic now that they're working with, I mean, there's, there's so many things. Oh yeah. There's algae that can eat plastic. I mean, there's just, there's so many different things that the technology is going to be able to solve.
Scott Colangelo: They can grow, we can grow as much food as we need in the world in the lab today. I mean, that's just a fact. Now people may not agree with it, but [00:45:00] it's a fact there's, you know, you have people, you know, some of the. Dehumidifiers. You can put a dehumidifier in the middle of the desert and it can provide enough water, you know, individual units and homes that can provide 'em enough water.
Scott Colangelo: It's just a matter of, I mean, so I mean, we can solve a lot of things with technology. I think the one thing that. The other side of the coin, there's always another side is that the one negative was unemployment, you know, that they could really hurt jobs and stuff, but it was a fascinating book. It got you thinking and interesting, really positive outlook on the future as opposed to this kind of media driven negativity that we all live with every day.
Scott Colangelo: Right? Yeah. It's worth a read. It's a
Stacy Havener: really worthwhile. Thank you for sharing that. That's a new one. I love that. Um, okay. So switching from books to places. What place inspires you? What's your happy
Scott Colangelo: place? I mean, Tori and I's happy place is Cabo. We go down there and it's just serene and it's arid, it's dry, but you're next to the ocean.
Scott Colangelo: It's like the perfect place. So I love that. But, [00:46:00] but one, you know, it's funny. I was just talking to someone the other day, like, if you can go anywhere, where would you go just for like a couple of days to have fun and just enjoy it? I love Charleston. I just think it's so cool.
Stacy Havener: So many people. Charleston's having a renaissance.
Stacy Havener: I have never been, is it?
Scott Colangelo: Yeah, it really is. What do you love about it? Cool little restaurants, friendly people, clean. I don't know, just an air of positivity. I don't know. It's just a, you know, I mean, there's so many good little restaurants. There's a bar inside of an old church and it's a cool vibe. I mean, it's just.
Scott Colangelo: It's got, I don't know, it's just a, and it's always young. There's a lot of universities around, so it feels youthful and stuff. But yeah, it's really, it's a beautiful, I'm adding
Stacy Havener: that to my list. And it's like, it's got that from what I've seen in pictures. It has that very like small town, historical quaint, interesting vibe.
Stacy Havener: I love that. The hotels are
Scott Colangelo: old and they have the old Mahogany in, you know, just kind of the old brass railings. I mean, it's. It's just kind of, I don't know. It's kind of a regal fun.
Stacy Havener: [00:47:00] Yeah. Fancy, but fun. Yeah. I love that. Great. Okay. Everyone's going to Charleston now. Um, okay. So now we're going to pretend that you're at a stadium, you know, maybe a stadium and you're in your fine city of Kansas city.
Stacy Havener: You're at a stadium. You're going to, you're going to walk out. You're going to give an inspiring talk, motivational talk to thousands of your fans. Adoring fans, um, I'll be there and, uh, and what song do they play as you walk out and take the
Scott Colangelo: stage? I have no idea. I'm so bad at this. Yeah. All
Stacy Havener: right. Well, let me ask it a different way.
Stacy Havener: When you get in your car and you need to like, just get like, you know, jazzed, you're going somewhere. You're going out. What do you play?
Scott Colangelo: Eminem lose control. Yay!
Stacy Havener: See, I knew we were destined to be friends.
Scott Colangelo: No, hands down. Perfect. That's my son going to the gym. That's everything.
Stacy Havener: [00:48:00] See, that's great. So, okay, we'll play it when you take the stage.
Stacy Havener: We might scare some people, but hey, this is how we start
Scott Colangelo: powerful speeches. I have a feeling if you set that up, there'd
Stacy Havener: be nobody in the stands. I highly doubt that, my friend. All right, here we go. What profession Other than your own, would you like to attempt?
Scott Colangelo: Oh, attempt or wish I had. I'm too old now, but yeah.
Scott Colangelo: I really like, I really enjoyed boxing, um, a lot when I did it, and I wish I could, that would have been. It's just you and another person. There's no, you're not counting on. 10 other people on the field or anything or coaches. It's just, you know what I mean? And that was, I loved that.
Stacy Havener: No, I don't. I don't know what you mean.
Stacy Havener: So are you saying that you were in a box, you were like competitive boxer?
Scott Colangelo: I did junior golden gloves and then silly fights in college yet, but it was like a fight night with some of those fight nights and stuff, but it was, yeah, yeah. I liked
Stacy Havener: that a lot. Okay. Yeah. That is also a first on the Billion Dollar Backstory [00:49:00] podcast, and I love it.
Stacy Havener: I am here for it. Um, okay, flip side of the coin. What profession would you not like to do? You could also say boxing, I guess is
Scott Colangelo: the case, maybe in the
Stacy Havener: media, meaning like what? Like being like a news anchor. You don't want to be on CNBC. Yeah. Yeah. It's just a dirty business. Too much. Okay. That's a great answer as well.
Stacy Havener: All right. Now this one's a little reflective and hopefully a long ways away, but what do you want people to say after you've retired or left the industry? What do you want people to say about you?
Scott Colangelo: Yeah, I hope they say that I made, I don't know, added value to investors and participants and, you know, I mean, I really think that if every single thing you do, if your question is, how does this help the end user, it has sustainability.
Scott Colangelo: If your question is, how do I make more money doing this, it's going to be a short term. Uh, [00:50:00] thing, and maybe it can help your earnings short term. That's what corp, that's what publicly traded companies do all the time. And they, and they just fall on their face over and over long term, sustainable, healthy growth is only possible by making sure the end users win before you do.
Scott Colangelo: So it's not complicated.
Stacy Havener: Yeah, that was great. And I think back to the stories you were telling about, you know, those first plan participants that you went to see 20 years ago. And I'm sure, um, wherever they are, they are saying that you made an impact on them. So those conversations are probably happening already.
Stacy Havener: Thank you, Scott, so much for being with us today. This has been a wonderful conversation. We're all better for it and, uh, grateful to be your friend. Yeah. Thanks,
Scott Colangelo: Stacey. Appreciate the opportunity. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Scott Colangelo: The information is not an offer, solicitation, or recommendation
Stacy Havener: of any of the funds, services, or products or to adopt any investment
Scott Colangelo: [00:51:00] strategy.
Stacy Havener: Investment values may fluctuate and past performance is
Scott Colangelo: not a guide to future performance. All opinions expressed by guests on the show are solely their own opinion and do not necessarily reflect those at their firm.
Scott Colangelo: Manager's appearance on the
Stacy Havener: show does not constitute an endorsement by Stacey Havener or
Scott Colangelo: Havener Capital Partners.
You May Also Like
Resources
