In 1997, Dave Welling was at a fork in the road. He was working for Bain & Company in San Francisco and it was time to choose between becoming a career management consultant or leaving to work elsewhere.
Welling was ready for a change and began a job search. He had an offer in hand from a startup but decided instead to join Charles Schwab, a booming Bay Area company at the time. Schwab was growing fast and known for hiring management consultants and putting them into operational roles, a track to executive ones. It also offered Welling a “very unusual position,” to be chief of staff for John Philip Coghlan, one of the founders of the advisor business.
The startup would have been different. Welling would have been one of the first 50 or so employees and it required him to move to Seattle. That company was Amazon.
Joining Amazon at the time could have enriched Welling, but he doesn’t regret his decision. He knew little about financial advisors when he joined Schwab. “I was pretty young, I had a decent income. My wife had a decent income, but the wealth managers were for... If I knew what they were, they were for rich people, not for us,” he said. But things worked out as planned. He rose through the ranks at the discount brokerage then left to become an executive at Black Diamond and then SS&C Advent.
Now, Welling is the CEO of Mercer Advisors, a Denver-based RIA with 400 employees. Since he became the chief executive in 2017, assets under management have grown from $9 billion to over $21 billion and it expects to have acquired a total 40 other advisory businesses before year-end (it had acquired only six prior to his arrival).
[Like this article? Subscribe to RIA Intel’s’ twice-weekly newsletter.]
In a sprawling Big Question interview with RIA Intel, Welling talks about one of his neighbors (a familiar name in the industry), competitors, social justice, and Mercer’s future. “In ownership cycles we just bought the house. And we planned to live in it for a very long time.”
This interview took place Sept. 25.
Tell me how you ended up with Black Diamond and then ultimately to be CEO at Mercer?
I pretty quickly got zeroed in on wealth management technology as a place that I thought was going to represent significant growth. And I had developed a relationship with who was then the CEO of Black Diamond. The company was very small when I joined. It was less than 20 employees, less than two million in revenue. But it had a really good product.
So, I picked my family up from San Francisco, moved them to Jacksonville, Florida. And every one of my Stanford business school classmates, every one of my friends in technology at Silicon Valley, thought I was crazy, thought I was nuts to leave California in general and leave the Bay Area. But it was just an incredible experience with an incredible group of people and has been incredibly successful. And I’m really proud that it has continued to be really successful, even in my absence. There were periods where I was the last pin holding the whole thing together, particularly after we got acquired by Advent by SS&C. But it’s a great team there.
In 2017, you became the CEO of Mercer. How did that come about?
Black Diamond was bought by Advent. I ended up taking over running Black Diamond as a division of Advent. The CEO left; classic entrepreneur working for a larger company, oil-and-water situation. And some of the others in the executive team left. When Advent was bought by SS&C I was the only person of the 11 member executive team that SS&C kept or elected to stay. But that was a great experience to take over leadership of all of Advent worldwide. I was co-general manager of that business. But, long story short, and to get to Mercer, I’d kind of ended up back in running a division of a large company, and I was longing to get back to something that was a bit smaller.
I had a lot of inbound calls at the time from PE firms about a bunch of different PE opportunities. But the Mercer one, I talked to Genstar, which was the primary private equity sponsor at the time... And it just became the perfect alignment of my background and experience and where Mercer was at the time. When I joined Mercer, the CEO at that time, Dave Barton, had been CEO for eight years. He now heads our M&A efforts incredibly well.
And it was a purposeful break where it’s like, “Okay, Dave Barton, you need to either run M&A, or you need to be CEO. This is two jobs, not one.” And I benefited from that. Dave and I really have a great partnership and a great collaboration, and we’re really lucky to have had that kind of succession plan from leadership, to have given me the grace and room to lead how I wanted to lead, but also, we didn’t lose his talents and acumen and industry experience to lead what is key element of our growth.
So, I had relationships with Genstar. Charles Goldman, I saw you did a piece on Charles Goldman. Charles is on our board, was on our board prior to me joining. Charles and I worked together closely at Schwab, had been good friends. He’s a neighbor of mine here in Boulder which is sort of coincidence. But-
The lesson there is, keep these industry relationships going. Because worst case, they’re friendships. Best case, they provide you opportunities. So, interestingly, Charles and I had talked many times over the years — even prior to him joining the Mercer board and advocating for me joining — about the opportunity to build something like Mercer in the industry. And when I left Schwab in 2009, it’s something that Charles and I actively talked about.
When you became the CEO in 2017, what were you tasked with doing then? And how have some of those things changed, especially in light of the pandemic?
I think Mercer then, even Mercer now, we’re still growing up. We’re still not really a big company, I guess we’re a big RIA. And we have a growth mandate, and we have a growth opportunity. At that juncture in 2017, we were roughly $9 billion in assets. We’re a little over $21 billion today. We had done six acquisitions. By the end of this year we will have done 40.
I think we had the teams, but they were not as fully fleshed out as they are today: a dedicated estate planning team or dedicated tax team. The trustee services that we provide. All those areas of the client experience were areas that differentiate ourselves fundamentally in the market from other financial planners and wealth managers who counsel on those issues, but don’t solve them through in-house expert teams. They use a cadre of outside professionals and we’ve obviously taken a different thesis on that. And then growth, obviously M&A was a huge part of the thesis to change the CEO seat and to use Dave’s talents exclusively on that.
Mercer has always been a strong organic grower. It got to $6 billion in assets before it ever bought a single company. So, keeping that going when you’re $21 billion is a fair amount of work, and thinking about how we diversify our organic growth engine, where new clients come from, those sorts of things. So, there’s really four prongs: culture, the client experience, M&A and organic growth, which were kind of the mandate to put together a strategy that we would execute on over a period of months, years. So obviously now we’re three years later and there’s a new vintage of that kind of thought process.
How has the pandemic changed any of those things?
It’s been an interesting year. I think it’s like Charles Dickens, it’s the best of times, it’s the worst of times, comes to mind. We fully changed out our ownership structure and recapitalized in the end of October of 2019. Genstar is still involved, but they invested out of a brand new fund, not the old fund. We took on an additional PE sponsor in Oak Hill, out in New York. And we actually expanded the employee ownership through a variety of different means. So, in ownership cycles we just bought the house. And we planned to live in it for a very long time. And our investors and the capital behind us have a much longer timeline than what we had in 2019.
And then March hits and it’s obviously a pandemic, but it’s also a financial crisis. Fortunately, financial markets have rebounded, with no guarantees that they stay where they are. But I think fortunately we just went back to the core in that middle part of the year. You have to serve clients.
We put a lot of our future investment growth initiatives on pause for what turned out to be like three or four months. And now they’re back on, in terms of marketing investments we’re making, investments we’re making to build out new services for our clients and things that weren’t urgent, but were part of the long-term trajectory. It was probably June and July where we started talking to the team about when we break into the curve, but we’ve seen the apex of the curve and now we’re hitting the accelerator out.
It’s been our best year ever in terms of new client acquisition, which is kind of mind blowing that that has been the case, but it has been the case. The consumer is responding to a real need for professional advisors to help them navigate what is a much more complex environment than what the world appeared to be in February. So that’s been probably the most pleasant surprise of the year that has otherwise had some real challenges to it.
Can you share, Dave, or give some context to the new client acquisition? You said it was a record year?
Everybody had a great January and February. And everybody had a first good week of March, but then what did things look like from middle of March on? We’ve been averaging maybe $150 million of new client assets per month in a COVID environment. Year to date, we’re probably at $1.2 billion through August, even counting September, of new clients. New money through organic growth programs is incredible.
And what’s incredible in an industry such as wealth management that’s so built on a kneecap-to-kneecap relationship development is those are clients that in some ways we’ve never physically met face to face. So that’s a really fascinating thing in this industry. And I think eventually we’ll get back to the kneecap-to-kneecap, in-person interactions. There’s a fabric of trust that gets built in that kind of interaction, but I think it just speaks to the need for an advisor to help clients navigate these environments.
After the death of George Floyd and others around the same time, you penned a letter addressed to Mercer employees that was also published by wealthmanagement.com. You wrote “The RIA leadership plans to evaluate actions we can take and how we can be an even greater force of change.” What progress has Mercer made towards some of those goals that you laid out?
It was a really difficult time and it’s continued to be a very difficult time, particularly with this week and the lack of justice that seems to be getting served with Breonna Taylor’s lack of [related] indictments and, just, it’s really painful.
I was feeling torn up about it, really struggling with figuring out what Mercer could do and learned very quickly that our entire team was really turned up about it. We’re maybe 25%, 28% minorities, depending on how you measure it, and probably 50/50 men and women. But the whole organization, regardless of race, gender, sexual preference, anything, was really torn up and trying to figure out what could we do.
We did almost a dozen internal round table discussions and that was really powerful. The organization really wanted to take action, but I felt like it was really important to listen and learn and for people to share how they were feeling. But part of those forums were collecting ideas of things that people thought we could do, should do. And I think we have a lot of work left to do.
We’ve been doing the scholarships for years and those always have gone to those underrepresented in our profession. We’ve done those with UC Irvine and with University of Colorado and are looking at expanding that to some other universities, particularly where we have a major presence. Because we don’t just give them money. We actually do teaching on campus. We get engaged on campus. We take interns. So, for us it’s not just say and pay. We actually get involved. So, we have higher standards than just the money we put into those scholarships for getting engaged with the university and their financial planning, undergraduate, or graduate programs.
I joined here in Colorado, it’s not specific to this profession initiative called inclusive economy, which is a group of … There’s about 25 CEOs in the economy and a couple of nonprofit leaders. And it’s a group that’s committed to drive social economic change in Colorado. I feel like a big part of our strategy needs to be peer connections and peer accountability and peer engagement. We only have 100 people in the state but we can punch above our weight class by having a role in engaging other companies who care about the things that we do.
We had signed the UN principles for responsible investing years ago. We’re doing a webinar in a couple of weeks on socially responsible investing. There are a lot of our clients care about this as well. That’s been exciting.
And then the last thing, which hasn’t been formally announced yet, is we’ve made a donation as one of the charter advisor members to Advisersgiveback.org. We felt like it was a great utility to match our advisors who want to do pro bono work with people who need the help, but have some help through technology and Advisersgiveback.org to do that matchmaking. So, our advisors just need to show up. They’ll schedule a couple of hours that they’re available for consultations. And it’s an all anonymous, both on our side and the consumer side and Advisersgiveback.org.
There’s a lot of work that I’ve done examining, and it is part of our mandate too, our hiring practices and sensitivity training. We’re looking at all that, too. We’ve got a lot of ground to cover, but we’ll help turn the cultural flywheel of how we’re making a difference, because hiring practices are important, but you make hires one at a time. We could impact 1,000 people in the next six months through this pro bono planning and the organization will really feel like we’ve contributed. And we’re excited about that. Hopefully, you can hear that in my voice that we can give something back. We’re here to help people achieve economic freedom and that’s not just rich people.
I interviewed Mercer’s CMO Karen Lee about the company’s organic growth efforts online. How important was that when you became CEO and how important are those efforts now?
It’s crucially important today and for the next five years. I think when I joined we just weren’t ready yet. There was not a single marketing person in the entire company when I joined in 2017. It was me. If we’re going to do a press release I was going to draft it.
[At Schwab] we spent a lot of money on an agency and they need to be managed. They can’t do their best work, unless they really have a good counterpart at the company. It’s sort of a criticism, but it’s also sort of not. That’s the biggest thing.
My job is deciding and working with the company to figure out what do we add next? We had to nail down our value proposition. We rebuilt our website. We generate a lot of our new client growth through relationships with Schwab, Fidelity, TD Ameritrade, Scottrade before they became part of TD, and E-Trade now. And we have salespeople out there working those relationships. So, the first marketing muscle that we flexed was giving those people the materials, tools, communications that they needed to be more successful in their jobs.
Now we’re kind of to this point where we can get to the next rung of the ladder, or of Maslow’s hierarchy of needs, which is, “Hey, how can we invest in digital marketing to lift all boats and specifically to acquire clients online?”
Even 60-year-olds have made a quantum leap on technology adoption and a quantum leap on this notion of I’m comfortable making this highly involved decision of hiring a wealth manager through interacting virtually or learning virtually. It’s not a binary decision. Eventually we will get back to face-to-face, but what has traditionally been a hard place to find affluent clients at the margin has gotten easier.
And we’re big enough that we can make those investments and not have them come at the cost of other investments we need to make in the business. I think that’s an important part of it. That’s an area that we had a lot of big ideas at the beginning of the year. And it’s test and learn, test and learn. It’s not running big advertisements on the NBA Finals. It’s local level digital SEO, SEM, and constant learning rather than trying to run a Super Bowl ad or something like that. That latter part is not really in our plans. It’s a little bit of a different thesis.
Is that in the budget, if that was something that you believed in? And is Mercer allocating an outsized portion of money to marketing? Or is it your scale that enables you to invest in marketing the way you have?
The investment in marketing that we make for future growth is judged based on what we think the return on investment should be or could be for that investment. And in our ownership structure, I’ll draw a contrast between private company and public company, if we can show solid return on investment for those investments it’s kind of infinite what you should be willing to spend.
What we’re not willing to do is something that Creative Planning did a year ago, which is run advertisements on the Masters and the Super Bowl. I think that was more about ego than it was about actually growing the business. It’s not really practical. And they spent, God knows how much money, millions of dollars, at least an eight-digit number, to run ads for very little result. So, we’re going to be much more disciplined because we’re not going to sacrifice or mortgage the core business and our responsibilities to serve clients based on our growth investments. The growth investments need to stand on their own. Not enough people really understand that.
Are you worried about protecting those clients and assets and making that effort worth it, so to speak? Knowing that advisors could decide to leave and take those people with them?
I guess there’s a philosophical answer to that and there’s practical. I’ll be succinct. The philosophical answer is we don’t own the clients and we don’t own the advisors.
The clients choose to work with us. They can leave at any time. The advisors choose to work with us. They can leave at any time. We have to provide enough value to the advisor to encourage them to invest their careers with us, and our clients, so they invest their money with us. That’s fundamentally what it’s about.
Now, you get to the practical side of it. It sounds like a New York situation that you wrote about. In the time that I’ve been CEO. We’ve had two advisors leave out of a couple hundred. And they’ve signed non-solicit clauses, they’ve signed restrictive covenant agreements with the firm because the firm is, as you said, investing resources. And in our construct, we’re giving clients to these advisors that the firm has invested capital in. And in even our structure we have separate salespeople. It’s very different from the wirehouses. It’s more like Schwab and Fidelity. So, a Schwab or Fidelity financial consultant leaves, they start soliciting clients or Schwab or Fidelity. Schwab or Fidelity are not going to take that well. And so, we enforce those policies just as we should. But I think, fundamentally, how we really think about it is, we’re going to do a heck of a lot better if the clients and advisors want to be here rather than if they feel like they’re trapped here.
So, I think we’re not immune to that risk. But structurally as a business this is why we didn’t like the [Focus Financial] model or a Hightower model. There’s not a lot of loyalty to the mothership there. It’s a holding company, really. And in the independent broker-dealer model, under the wirehouse model, it’s very independent contractor driven. Our philosophy is we’re going to be one team and you’re the advisor. You are responsible for the relationship, but there’s also an investment strategy person involved in a state planning attorney involved, a tax professional involved, and a whole bunch of other sales resources would be involved, and marketing resources be involved. So, part of the ticket is you’re going to be part of a team.
When a client moves to Florida. So they want to continue to be served by the advisor in Santa Barbara, or do they want to be served by somebody locally? The rest of the industry is structured for people to hoard and protect and keep stuff for themselves. And that’s feudalism. That’s not a free country.
These things happen. People leave because they can. I left Black Diamond, I left Schwab. I didn’t go back and solicit old clients or try and cross sell stuff. I still have friends there and I left the right way. Now, if somebody doesn’t, we’re going to step up and we’re going to enforce the policies that they signed up for.
Can you talk about the role of financial advisors in the future? How involved they will or should be in investment management?
There’s a lot of advisors who hold on to investment management when it’s really not the highest and best use of their talents and more importantly, an organization of that scale. And that sentiment, particularly if it’s individual security selection, there’s just not enough differentiation there anymore through customization. I think in some ways we are a TAMP (a turnkey asset management platform), we just don’t hold out our investment management services to advisors who are not employees of Mercer.
Mercer works with multiple custodians. Is there something that sticks out to you or any thoughts you have about the custody space?
They’re all capable, I think Schwab, TD, and Fidelity really are ahead of the class. Pershing does well in square pegs. You know people who have multi-currency needs, have some banking needs, then it’s a good organization. So, you have kind of the four and it’s a really large distance until you get to the rest. But it’s kind of predictable. It’s become a scale game.
I’m frankly not that concerned about it. I think there’s enough competitive forces out there. I think more scale just actually helps them become more efficient. Our life would be a heck of a lot easier if we just had one custodian.
I’m also not concerned about what the retail businesses are doing. And that context comes from working at Schwab 12 years and just saying, “it’s a free market.” And if they’re going to add, like financial planning, if they’re going to do asset allocation, we just need to always be doing something that they don’t do. There are people to be worried about, that have been standing still for 15 or 20 years just doing asset allocation, not doing any planning work, and then trying to charge 1% or one and a quarter percent to do something that frankly Schwab could do Fidelity could do, Vanguard could do. So that’s why it’s so important. When I joined, we tripled down on our estate planning team, our tax team, corporate trustee.
And we get over a billion dollars a year from those retail franchise clients that have eclipsed what those institutions can provide. So that’s a huge marker.
We’ve made it through everything, I think on my list here, Dave. Anything else that you wanted to talk about that we didn’t? I’m always sort of curious if there’s something people-
We haven’t talked about technology at all.
We didn’t actually.
I’m a former tech executive that is head of a wealth management firm. So, I feel it’s part of my core. I know we’ve gone on long, but I think it’s an exciting time. It’s been an exciting time for 10 years for the technology that’s available to advisors. It’s the alchemy of humans in the highest and best use of a human with letting technology do what it can do. It’s not a robo-advisor or a wealth advisor.
It’s, how do I help my financial planners deliver a quality customized financial plan faster that’s on the mark that the consumer can digest and understand, and actually influence their behaviors in a positive way? There’s a ton of inputs that go into a financial plan, a tiny data entry, regardless how you use aggregation.
I have a thesis that there are great third-party technology providers out there. That’s the ingredient in the supermarket or in the farmer’s market that we go and collect. We do the recipe, we put it together. Our technology team are the chefs. They’re taking the ingredients that other people are growing and building and figuring out how to put those capabilities together for what we’re trying to create.
The biggest resistor on technology adoption in the industry is advisor behavior and consumer behavior, not the availability of technology to actually solve the problem. And what 2020 has done is forced them to change their behavior because they had to learn how to use all this stuff. They couldn’t just yell at somebody down the hall to do something. They actually had to use the technology. The adoption curve has been jumped, for sure.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.