For RIAs, finding growth opportunities in an uncertain environment can be daunting. Succession planning, market volatility and changing client demands have driven many to use acquisitions as their primary tool for driving the growth of their practices. In fact, the RIA industry experienced its seventh consecutive record-breaking year of merger and acquisition activity in 2020 — a significant milestone given that deal-making stalled during the early stages of the COVID-19 pandemic.*

Growth via acquisition can be difficult to sustain without commensurate organic growth as well. We recently sat down with Michael Novak, founder and managing director of Wellspring Financial Advisors and a member of Capital Group’s RIA Advisory Board, to understand how his firm has generated sustainable organic growth with a focus on family meetings and a strong operational foundation.

What is Wellspring’s overall philosophy for organic growth?

Wellspring may be somewhat unique in that we have grown without spending much time actively recruiting new clients or marketing our capabilities. Our growth mindset focuses on controlled growth, and we believe that growth for the sake of growth is generally counterproductive. We don’t want to grow in a way that could hinder our ability to provide the high level of service that our clients have come to expect and appreciate from us. So instead of pouring money into marketing programs, we focus on maximizing the service we provide to our clients, which generates word-of-mouth referrals to other clients who are a good fit for Wellspring.

This approach may not work for everyone, but it makes sense given our positioning, values and capabilities. Wellspring provides comprehensive family office services for a very small group of ultra high net worth families. Managing client relationships of this kind requires hands-on care and attention, so we invest in our resources — and team members — accordingly.

The other key elements of our growth are our operating framework and our focus on human capital. Our operating framework applies some simple, easy-to-use concepts and tools to get everyone on the same page and provide rigor to our operations. We hire carefully, and then we set personal goals and measure everyone’s performance based on how well they align with our core values and culture.

How does your operating framework promote growth?

Several years ago, we adopted the Entrepreneurial Operating System (EOS) to get our team on the same page and build more structure and accountability into our organization. EOS is a set of simple concepts and practical business tools for growing companies. The principles aren’t rocket science, but the program provides a rigor and cadence to goal setting and tracking progress toward goals that has been a game changer for our company.

The EOS process forced us to define our culture and values in a way that isn’t just talk or window-dressing — our team members are held accountable to upholding Wellspring’s values on a regular basis. Sticking to this program has even forced us to make very difficult human capital decisions. The EOS program helped us to work through these challenges more quickly than we would have otherwise, and these decisions have helped to build a better company.

EOS also provides a weekly, monthly, quarterly and annual cadence to goal setting and goal tracking. We have found this to be extremely helpful because it creates clarity and accountability. It helps us to keep making progress toward our goals and allows every team member to prioritize his or her work accordingly. I highly recommend EOS to any RIA who is looking for an operational framework that can drive results.

What are some other essential ingredients of your firm’s growth?

Our clients value us for our insight and advice, not just our ability to deliver better risk-adjusted investment returns than other managers. As the world has become increasingly complex for wealthy families, many are seeking holistic wealth managers whom they can trust. That’s why holistic financial planning, advice and customized solutions are more of an alpha-driver for us than just investment performance.

Our ultimate goal — and the ultimate measure of our success — is to become the trusted advisor to our families. This means that we are the first phone call when our clients have any questions about their finances and life goals. We aim to become the family’s “true advisor,” a confidant.

The family meetings we hold with our clients are a cornerstone of our approach. We start by getting the entire family together, and then we encourage them to put everything on the table. Ideally, we believe that everyone in a family — all generations, from grandparents to grandkids — should understand the financial picture, what their role is and what it means for them. This level of openness doesn’t work in every client situation, but it is extremely effective when it does.

Why are these family meetings essential?

Many people come to these family meetings without having an appreciation of their family’s financial history or knowing what their place is in it. When we first meet, we don’t even discuss finances. The priorities of the first meeting are to educate everyone, bring critical information to the surface and fill gaps in knowledge. We work with families to help them create a shared vision around wealth, charity, inheritance and perhaps even setting goals for establishing a family legacy. This process gets everyone thinking about the multiple dimensions of wealth and how to manage it. At the same time, it facilitates some uncomfortable conversations around expectations.

Many of our referrals come from families who hear about our family meetings. Most wealthy families know that they need to have difficult conversations about family finances. We’re brought in as their experts, moderators and facilitators. These types of referrals have been a key driver of our growth.

What attributes do you look for in your employees, and how does culture contribute to your success?

We seek empathetic people with the soft skills that are critical to building and maintaining relationships. We also value industry experience and subject matter expertise — and so do our clients. Because of the level of wealth our typical client family represents, we must be experts in our respective fields, whether that is tax, investment or financial planning.

In addition to having senior, tenured advisors who lead client engagements, we also like to hire and cultivate younger team members. We serve entire families, so we need to form strong connections across generations. We recognize that there's a real communication gap between older and younger generations, and we believe it is important to meet everyone where they are.

As I mentioned earlier, we use the entrepreneurial operating system to ensure everyone understands and aligns with our core values. EOS helps articulate and follow a shared vision while making us accountable to each other and to our clients. We use EOS to assess individual performance every quarter and review it with each employee. The EOS toolkit has been an essential part of our firm's success from a human capital perspective.

Applying Wellspring’s approach to your firm’s strategy

Wellspring’s family meeting-centered approach may not work for every RIA given the challenges around the number of clients served and their account sizes, but the principles of family meetings can be applied to any situation. Wealth and family finances are difficult topics to discuss. Helping a family break down barriers and have candid, transparent discussions on wealth, inheritance and financial goal setting can help advisors become the “trusted advisor” that so many clients seek.

For additional resources on the topic of organic growth for RIAs, see our recent article on key drivers of organic growth and our Q&A with Ira Rapaport of New England Private Wealth Advisors.

*DeVoe & Company RIA Deal Book™, Fourth Quarter 2020.