Schwab Goes Big on RIA Training

When custodians and broker-dealers—the key partners of advisors—launch programs to help their affiliated RIAs and reps better run their businesses, the announcements arrive with heaps of promises that said programs will make significant impacts on advisors' businesses, whether it's in marketing, technology, referrals or wealth management. However, advisors are by their nature skeptical people when it comes to their partners' offerings. That skepticism, a boon to their clients, has been honed by years of fielding investment and insurance manufacturers' pitches about high-return, low-risk vehicles that often are neither, or software packages that will make their firms highly efficient overnight, though the reality often falls short of the promise.

So when a natural skeptic like veteran advisor Marita Sullivan said that Schwab's Executive Leadership program is "by far the best thing Schwab's ever done," you begin to pay attention. You pay more attention when Sullivan, the CEO of the Oak Brook, Illinois-based RIA firm JMG Financial, said that the same sentiment is voiced by leaders of other RIAs who've sent staff members into the Schwab program. "Everybody who's had someone in the program feels that way," she said, praising what those attendees have brought back to their firms.

Brent Brodeski, co-founder and CEO of rapidly growing Rockford, Illinois-based fee-only firm Savant Capital Management, is a serious businessman whose firm has acquired three other RIA practices over the past 18 months alone, and now has 130 employees and more than $4 billion in AUM. Brodeski is a major fan of the Schwab program as well.

"Despite being one of the larger RIA firms," he said, "we haven't been trained in how to develop our own people." Notwithstanding Savant's growth and business-building skills, prior to participating in the Schwab program, "no one ever taught us how to develop people."

In a preliminary discussion at last year's Schwab Impact conference followed by an hours-long roundtable interview in Chicago in May, Sullivan, Brodeski, two graduates of the first class of the Schwab Executive Leadership program and program director Rick Schwartz discussed the program's genesis and its structure.

During the roundtable, those graduates—Yonhee Gordon of Sullivan's JMG and Adam Larson of Brodeski's Savant—spoke simply but eloquently about what the program has meant to their careers, how it has enhanced their value to their firms and how the "cohort" of 32 program participants learned from each other. While the program features experts like Schwartz and academics from big universities who share their expertise and give the "students" serious homework, it turns out that like most advisors, Gordon and Larson seem to have learned the most from their peers in the program—and that peer learning continues in both physical and virtual ways.

Along with the 30 other graduates in the Executive Leadership class of 2014 (there are 34 in 2015′s class), Gordon and Larson are in the vanguard of a new cohort of leadership at independent advisory firms who are delivering on the promise of a new generation that can pick up the reins from the veteran advisors who founded today's independent advice industry. The future of independent advice, it seems, is in good hands.

Program Genesis and Structure

Schwartz gives the credit for the idea of the program to Bernie Clark, the head of Schwab Advisor Services, who recognized that "the next generation" of advisors is coming "fast and furious." Schwartz, who joined Schwab in 2011, cited the numbers: 55% of advisors in this industry are over 50, which over the next 15 years, "represents $2.4 trillion that will or should transition" into the hands of the next generation of RIA leaders. "It's an astonishing number," he said, but another number that hit him even harder was that "each year over the next 12 years, 8,600 advisors will hit that magic 65-year-old" mark and "there aren't enough buyers for all these firms and books of businesses."

So Schwab's advisor consulting unit talked to a number of leading advisors, "people like Marita and Brent," and came to understand that there was a need to "develop the next generation from a leadership perspective." In 2013, Clark announced that the Schwab Executive Leadership program would begin in January 2014, which is when the first class of 33 students convened. "Yonhee and Adam were in the first class," Schwartz said, with a total of 32 who completed the course (one dropped out midway.) In the 2015 class, there are 34 participants in "the cohort," with Schwartz predicting that all will finish the course. There are benefits to the participants and the firms (more about that later), but Schwartz said that because of the intelligence and commitment of the participants and their mentors, "in my three-plus decades in the business," which included time spent as an advisor, "it's been the most rewarding thing I've ever done."

There was another piece of data that helped jumpstart the program, Schwartz said. A Schwab Advisor Benchmarking study found that nine out of 10 advisory firm principals see an "internal transition, building that next generation" as the preferred way for them to find successors at their firms. The "epiphany for the industry," Schwartz said, is that when you grow your own internal successors, "the firm grows faster. The employee-owner model just makes a better firm."

Sullivan was quick to say that in talking with leaders of other firms that participated in the program, "we agree it's by far the best thing Schwab has ever done—everybody who's had someone in the program feels that way" because of what the participants "brought back to the firm" during the course and after.

Schwartz said the starting place for the program's design was to "figure out what this next generation would need. It wasn't about how to read a balance sheet or a P&L" but rather to learn "how to think about developing people and marketing skills. How to be an entrepreneur—focusing on things that you don't learn in college or on the fly."

Schwartz quoted an RIA firm leader—"it may have been Marita"—who at one point in her career realized "she needed to be more of an intentional leader. Leadership is not happenstance; there's methodology behind being a leader."

Schwab carefully chooses the participants for the program (see sidebar, "Next-Gen or Now-Gen?") and in what Schwartz says is a first for the Schwab consulting program, charges a fee, which Sullivan said was $12,000 (UPDATE: A Schwab spokesperson said the tuition is actually $6,000). "We wanted a commitment" from the firms sponsoring the students, Schwartz said. "We're investing a lot in this; we want you" to do the same.

The program begins with an in-person "keystone" event and ends with another in-person "capstone" event. In between there's a weekly video to watch from "world-class faculty, and every Friday we have a live call" with that academic. There's a social learning platform similar to the massive open online courses (MOOCs) that many universities sponsor, and Schwartz said there's a "coaching element" where he spends time with each student to ensure "the learning is sticking" and that it not only reflects the real-world challenges the students' firms are facing, but also that the students are helping to solve those challenges. "We encourage the formation of study groups along the way and post-course as well," Schwartz said, along with regular mentoring by the nominating principal at the students' firms.

Gordon and Larson reported that there was a healthy amount of virtual networking with other members of their cohort during (and after) the program. The other members of the cohort came from firms around the country and had various job responsibilities at their firms, with Schwartz saying the group included "not just client-facing folks, but chief technical officers, plenty of portfolio management people" and COOs, like Gordon and Larson, both of whom said it was valuable getting those different perspectives from peers at firms with which they didn't compete. Gordon reported that she joined two study groups within the cohort who continue to meet, that the social learning platform was "excellent," saying she knew precisely what her homework assignment was every week, and that the learning agenda was laid out clearly. "We also use LinkedIn where we ask, 'Has anybody faced this issue?'" which she also found highly valuable.

Larson said the individual coaching sessions with Schwartz worked out well, since in discussing specific issues Schwartz would often suggest he also speak to another student within the cohort who was facing similar challenges.

Larson said the platform "made it easy" to participate in the program; he could "sit there with the group on my iPad and interact" with other members of the cohort on a regular basis.

The program's curriculum covers five areas: leadership, innovation, talent management, strategic marketing and entrepreneurship.

Benefits to the Participants

Gordon said she enjoyed getting insights from people with different backgrounds in the program—"if we all had the same backgrounds it wouldn't have been so beneficial," she said—but added that part of Schwartz's value to the program was that "he also was an advisor; he knows what we're going through and that adds to his credibility."

There were benefits to the sponsoring firms as well. Sullivan said of Gordon, "There were so many times you'd come back to me and say 'so and so is doing this' or using this technology. You'd go speak to Dan, our tech guy" at JMG. Schwartz recalled that following a technology discussion in the program, one of the participants, an RIA firm's chief technology officer, set up a conference call to show the other students what he was doing at his firm with a specific piece of technology. "We weren't involved," he reported proudly, since that kind of intracohort cooperation is part of the program's goals.

Brodeski recalled how his experience getting an MBA was different from Larson's participation in the Executive Leadership program. "When I did my MBA, I didn't have a real job" during the first part of his master's, though "for the second part I did, and it made it much more valuable," he said. The Schwab program "is more like that second part of the MBA." Brodeski said Larson would have a discussion on innovation in the program, and at Savant, "we were focusing on [innovation] and could apply this stuff right now." The mentoring between student and nominating principal, he said, "created an ROI right out of the gate."

Schwartz said he encourages each student to sit down with the nominating principal at the beginning and end of each course of study in the program to discuss "what you've learned or are going to learn." He said it's also important that the principals "let the Adams and Yonhees of the world try things; we call it making a 1% change" in the firm.

Larson said that's how the program worked for him. "I got encouragement from Brent to try new ideas. One of the things I got out of [the program] was confidence," he said, to first come up with ideas, to get validation from his peers in the cohort, and then to realize that "I have the idea, I have the tools, and I can do it."

Gordon said that for the program to work, "you really need the support of the top levels of the firm that the program is a good idea," and that they're "open to new ideas."

Schwartz said he doesn't want program participants to "make massive change," but to think more like an entrepreneur, which in the program "we define as the generation that will carry the business forward and bear the risk—they're the next risk-bearers."

Benefits to the Firms

As for benefits to the firm's original entrepreneurs, Brodeski said, "look at me or Marita—we learned this over an extended period of time, through trial and error. I had an MBA once upon a time, but I [really] learned from decades of attending conferences, from executive training programs, through participation in YPO. It took a lot of time and money, and frankly, a lot of it wasn't industry-specific; it was more general." When presented by Schwab with the opportunity to "fast-forward our leadership training and learning opportunities for the next generation, it filled a void." While Savant is "one of the larger RIAs, with 130 employees, we're not big enough, we don't have the time or energy, to afford to assemble these resources ourselves, whereas Schwab was able to do this." He lauded Schwab for "assembling this cohort of like individuals sharing experiences that you wouldn't otherwise get from a more general program."

After all, Brodeski said, veteran advisors like himself "came in as CPAs or investment people or salespeople. We had technical skills and relationship skills with end clients, but we haven't been trained in how to develop our own people, our staff. We're good at that end client experience, but no one ever taught us how to develop people."

Gordon appreciated that the program "developed my leadership skills but also will allow me to develop other leaders" at JMG.

"We got here through entrepreneurship," Brodeski said, but "what got us here won't get us to the next level." The veteran advisors' "people skills got us to the table, but now it's about process and structure and systems that the next generation—the Adams of the world—will execute. That will make us sustainable and allow us to continue to grow."

Take a look at the Executive Leadership program's curriculum, he said, which will "instill many of the concepts that real businesses need to stay healthy and sustainable. It's not what we needed 10 to 15 years ago, but it will be the Adams of the world who will be effective in making that happen."

He concluded by saying, "We became leaders by default; you're becoming leaders by design."

The independent advice industry is no longer just a cottage industry. Despite the large number of solo practitioners, independent advice is now in its adolescence, marked by the success of firms like HighTower in luring top-producing wirehouse advisors into a national RIA firm, and the presence of private equity in bankrolling growing roll-up firms like Focus Financial and United Capital. There are plenty of mid-career MBA programs for up-and-coming Wall Street executives, but Schwab's Executive Leadership program is unique. Its specific focus on the independent advice business and social media learning, with individual coaching and a strong mentoring relationship at the students' firms, may be leading the charge to, at last, make a serious profession for independent advisors who work in serious businesses.

— Check out 'Time of Abundance' for RIAs: Schwab on ThinkAdvisor.