What Is Compass CFO Solutions?

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This is the Transition To RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On this episode:

Vendor name:

Compass CFO Solutions

Vendor category:

Outsourced Chief Financial Officer (OCFO)

Episode host:

Brad Wales

Episode guest:

Matt Hayon

Vendor contact info:

Website, mhayon@compassCFOsolutions.com

Full Transcript:

Brad Wales – Hi, I’m Brad Wales with Transition To RIA, and this is the “Transition To RIA Vendor Profile Series” where we look at the solution providers powering the RIA model. On today’s episode, we’re answering the question, “What is Compass CFO Solutions?” To help us with that is Matt Hayon. Matt, thanks for coming on.

Matt Hayon – Thank you for having me.

Brad – I think right before we hit record, we started chatting a little about where this type of service really resonates. I realized we should probably save that conversation. So I’ll give a little preamble for the audience to point out this is the type of service, not to steal your intro on it, where advisors generally won’t even know they perhaps need or want something like this until they’ve been in that independent space.

So my audience is looking at the RIA model. However, this also applies to pretty much any kind of independent model where likely for the first time in your career, at least your advisor career, if you’ve historically been at a W2 wirehouse firm, you’re now on that independent space. You’re now among all the different changes that occurred with that and are now responsible for your own P&L and running your economics.

There’s all kinds of advantages to being able to do that yourself, which I talk about a lot in my question and answer series. But as with a lot of things, with advantages also come responsibilities to manage all of that. What we’re going to be talking about today is how best to handle that sort of thing.

So not to steal your thunder on that, Matt, but if you could maybe start out by telling us kind of at that high level, and then we’ll get into some of the details, what it is that your firm does.

Matt – Thank you again for having me. You’re exactly right. And it’s not just coming down to managing your own P&L, it’s all the things that come along with running your own business. So it’s employee maintenance, running their payroll, HR, insurance, all these things that maybe you don’t think about until the last hour that we really can help you with or at the very least guide you in the right direction for all of these things.

Really a lot of these things you won’t know until you’re actually doing it and you say, wow, this is not what I signed up for. It just helps to have a CFO partner along with you that has done this before dozens and sometimes even hundreds of times and we’re able to provide that extra advice and hand holding.

Brad – I love the the payroll example. I mention that often as an example. For someone that’s never done payroll, it can seem this daunting task of how am I supposed to actually pay employees and how does this taxation work and maybe reporting at the end of the year? The key is to not be intimidated by it, but to accept the fact you are going to want and need to lean on providers that can help you manage that successfully. Certainly the kind of thing you’re providing.

What do you see? Obviously, some advisors and teams you know attempt to do it in-house. Is this where folks are doing it in-house and they just realize, hey, that’s not a good use of their time and they’d be better off outsourcing all of this to you? Or is this people that are just stumbling and they’re maybe not doing things correctly and they need to outsource it?  What kind of scenarios are you finding where advisors are really turning to a solution like yours?

Matt – Well, that’s exactly right. I tell all new prospects that you didn’t get into this business to manage your QuickBooks, to prepare a P&L. You didn’t get into your business to do all these things. You should be focusing on servicing your existing clients and growing your AUM.

You really should be thinking about your opportunity costs, but not only your opportunity costs, but the rest of your team. Should they be client facing? We really not only handle those tasks, but we have done it so many times that you don’t really have to manage us; we are pretty much autonomous.

So a lot of the firms that we’ve worked with appreciate the fact that they never even have to think about payroll. They don’t even know how to log in to their accounts. That we just do everything and we are kind of the ChatGPT where you say, I want this to be done and it gets done. Well the same thing happens with us. You just write an email, I want to do this, this, this, and this, I want PNLs to look like this, I want to pay this employee, and we just do it.

We know all the the accounting functions, the accounting language, how to get these things done, and we’ll just carry out those tasks for the people. We’ll be less of a vendor and more of a trusted advisor and some people even think of us as fellow employees.

Brad – What do you call this? Is it an outsource CFO function or how do you kind of typically, generically describe it?

Matt – Yeah, it’s really outsourced CFO because that’s really the term that the industry gives us, but it’s really I think it’s more co-sourced. Whereas it’s more of a co-relationship between me and you. We’re not just “I write a check to this company and they take care of all these things”, but hey, we’re in this together and they’re my partner. More of a consultant.

Brad – And how would you compare your solution to QuickBooks, or someone says “I just use QuickBooks. Or they say “I got, you know, my old college buddy down the street who’s a CPA, and they could help me with this sort of thing.” How would you position your solution compared to some of these alternatives advisors might consider?

Matt –  These software systems like QuickBooks and Zero and these others, they are more of a SaaS-based system where you input your data, but it doesn’t really give you the guidance and it doesn’t really help you with categorizations and organizing your PNL. We come in as industry experts. We work with a hundred and I think we’re up 109 wealth management firms across the country. In addition to all of the tasks and the projects that we help RIAs with, we also have a data set that we can benchmark you against and we can make comparisons to.

So I would say the most valuable part of my service, I’m told, is the ability to say, hey, Matt, I’m looking to move to a new territory or I’m hiring a new employee. I want to understand comp packages. I want to understand advisor grid rates. I want to understand what other firms are doing. I want to understand the typical spend on marketing, technology. I want to know what’s a good CRM, what are others in the industry. It’s kind of hard to get access to information just because people aren’t really openly sharing a lot of that. So they rely on our data and our insights and we’re happy to share them on an anonymized basis.

Our agreement with our clients is that if you allow us to share your data on an anonymized basis, you have access to everybody else’s data on an anonymized basis and everybody says yes. It’s really a value add because these are all tasks that need to be done anyway. You need to pay your employees, you need to file your taxes, you need to do all these kinds of things. This is kind of the extra layer that really makes it worth being part of the Compass family.

Brad – I think a big thing I talk a lot about is I’m of the belief that you should use industry-specific vendors whenever possible. I think that encompasses where there’s so much value with that. For an advisor, it’s not very helpful to benchmark themselves against a veterinary clinic, right? They want to benchmark themselves against their peers in the wealth management industry. Because you have so many clients specifically alongside their same kind of practice, you’re able to do that. So certainly a lot of value there.

And I would venture to say there’s a lot that can be learned as well. So any challenge, and I welcome your comments on this, that an advisor team is coming across, there’s probably other advisor teams in the Compass family, as you noted, that have likely already tackled that issue as well with this subject matter and that you can kind of lean on. Is that something you help with also that if people come and say, hey, I’m not sure if my margins are appropriate here. How does it look? Is that a good example of the kind of comparisons?

Matt – Yeah, absolutely. Especially at the beginning of our trajectory, we worked with a lot of transitioning teams. So we worked with firms that were transitioning in ‘19, ‘20, ‘21, and many of them are still our clients years later. So when when we work with a transitioning team, the one thing is they have a ton of questions. They want to know, okay, I don’t know what I don’t know, so I want to make sure that I’m set up correctly, set up for success. So, what do you see other RIAs doing at the beginning or later on that they wish they would’ve done sooner? So we were able to provide that insight.

Now, we’re trying to do some research into firms that have worked with us. It’s just been an anecdotal thing thus far, but I’ve noticed that firms that work with us because they don’t have to worry about any of their accounting or CFO or payroll or any of that kind of stuff, they’re able to solely focus on AUM.

We believe, and we’re trying to put data behind this, that the firms in our network grow at a faster rate than their peers because they can just rocket fuel. They don’t have to worry about any of these non-revenue producing tasks, and they’re able to focus solely on their business. We have seen our firms outpace the industry for exactly that reason. We’re just trying to put data behind that.

Everything that we do, we’re trying to one-up ourselves and put out more data and give our clients more insights and more tools to say, okay, what does this mean? What is the story behind this, and what can I do differently? Every year we try to come out with up with new benchmarking tools and new data insights.

Brad – I think if I were a betting man, I would bet your data will definitely back up your assumption. I would agree with that assumption. Anything that’s not client-facing, you know, any time spent on the things that aren’t in those buckets is going to slow down the growth potential of a practice. It’s taking you away from perhaps your ability to grow the practice and service your clients better.

But quite frankly, what are the things that you as an advisor are passionate about doing in this business and what are the things you are not passionate about doing? I don’t know that any advisor team gets excited about the idea of doing payroll. That’s not something they want to wake up each day or week or month and do, right? So it’s not just, hey, what is a better use of your time? It’s also what is better use from what you are passionate about actually doing, and what could you outsource to someone else that arguably can do it better than you, anyways? Why do something that’s not going to get you excited to get out of bed each day? So certainly there are a lot of motivations for why this might make sense.

You did allude to that transitioning advisor. So a large part of my audience, of course, is advisors that are thinking about making the transition, and so there’s all kinds of steps and variables they need to think through and to put into place to make a transition successful. For that advisor that is already thinking, okay, hey, maybe this is one of the buckets I want to fill, how do you help advisors that haven’t made the jump yet, but that is in the roadmap? They are mapping out, maybe they’re three months out.

Maybe you could give us an example of how much lead time you’d arguably like to be starting to work with an advisor before they make that jump.  Also, if you could comment on how you coach and how you help advisors that have recognized a need and a desire for this, but they are still in the planning stage and then how you help move towards that actual transition and then kind of going forward.

Matt – Absolutely. Before I answer that, you did say something that was interesting to me, that there’s a non-monetary value to your time. Well, my saying is always that you didn’t get in this business to manage your QuickBooks or to run payroll or to do these things. That’s just not your passion. Your passion is focusing on your clients, servicing them better, and growing your AUM.

So if you can reinvent your job or create your dream job where you didn’t have to do that payroll and those day-to-day tasks, wouldn’t you want to explore that option? So there’s not only the monetary opportunity cost associated with your time, but the non-monetary cost of some of our clients who just simply don’t want to do these things. So there’s a lot of value to that.

I apologize, your second question?

Brad – I was talking about that transitioning advisor. So where you would like to get involved and what that assistance on the front end looks like in anticipation of a long-term kind of service alignment.

Matt – Right. So we have worked with clients four months, five months before the launch. It really has less to do with us and the actual work, but more about their comfort level. Some of the transitioning advisors work with us early because that’s just how they’re wired, and they want that additional, they want to build their team early and know that I’m with them. To have that extra comfort. I’m happy to work with them at absolutely any stage. I have some advisors that say, you know what, I know this is important but I can deal with this later and I can work with you one month out or two weeks before the launch. It’s really up to you and your comfort level and when you want me to be a part of the team and I’m happy to be a part of the team at any time.

What we do for the advisor, for example, that’s a couple months out we help them with a proforma. So we help them understand what are the true costs of running an RIA.

You will know, let’s say, the revenue for example, your assets and what you can expect reasonably. But it’s hard to know what the true cost of running an RIA would be simply because you’ve never done it before and you don’t have anything to benchmark against. So we again in addition to our benchmarks, we have a couple of materials as well, but insurance costs and the payroll costs obviously, HR, other things that you might not think of immediately, but a seasoned CFO would know these things are typical costs for an RIA. And we just want to help you guys with really anything to make you more at ease with the transition.

So if you have employees that need to be on board as payroll, then you want your payroll system set up early. You have other kinds of HR concerns that you want to lay out. You need help and you want introductions to a lawyer or an accountant or whatever. We help you assemble your team. We just want to help you in any way that we possibly can.

What we typically do is hey, listen, we are a resource to you. You can ask us questions that are accounting-related or not accounting-related. If it’s not accounting-related, I’m happy to listen to them and appoint you to somebody else. We just want to be a part of your team.

My clients ask me things that are totally outside the realm of accounting and HR and I’ll do my best to answer them and I’ll say but I’m not a professional in healthcare or whatever, but this person is. So I want to help point them in the right direction.

Brad – Yeah, I applaud you. I’m a big fan. I do it with my own business. I say be very good at one thing, but stay in your lane and don’t try to think you can be everything to everyone. So deliver on your value and then having a network of resources you can refer people to is certainly helpful. I would say for that transitioning advisor, I often speak in terms of kind of version 1.0 of the practice, and there can be a version 2.0 and 3.0 and so on.

Something like if an advisor team wants to go in the RIA model and one of the things they plan on doing is let’s say starting a podcast. Well, guess what? The podcast doesn’t need to be part necessarily of version 1.0. Version 1.0 is successfully navigating the transition, moving your clients, getting re-established, and then kind of version 2.0, perhaps, is where you launch the podcast.

The challenge though in the subject matter we’re talking about here is, as an example, your employees want to be paid, right? So they are not going to wait for version 2.0, perhaps months after the join. There are certain things that do need to be part of the transition and in place right from the jump. So certainly something advisors and teams should be thinking about pre-transition is how they’re going to handle this, whether they’re going to do it in-house, outsource, that sort of thing.

For the advisors that whatever that path is, they are now maybe considering version 2.0, and that that could be a long-tenured RIA at this point that has been doing it in-house or they have some solution they’re just not satisfied with and they want to perhaps switch over to you, how long does that process typically take from kind of first engagement with you to where you might be delivering that full suite of services?

Matt – It really depends on the firm and their speed for lack of a better term. So what we’ll do is when we onboard a team, we have about a dozen things that we ask for. We ask for access to their bank accounts on a read-only basis so we can log in and view transactions. Credit cards, same thing. Access to their payroll account, access to their QuickBooks file, some tax documents to have on file. The idea is that the onboarding process might be a pain, but it’s only going to happen once. I’m going to only bug you once and I’m gonna have all this stuff for the long run so I can work autonomously.

And then once I have access to all those things, I’ll just log into your QuickBooks and we’ll start working and we’ll see what’s been done in the past and what I have and what I might still need and if there’s any other information. But I mean the actual onboarding is a day-long thing. It’s up to your own speed again. After that, we physically log into the QuickBooks the next week and we start working.

Brad – So for the range of services that you work with advisors on, and we’ve only touched on it very high-level here, I’m sure in a more in-depth conversation, you would get into all of the different services. So I’m a big believer because I want to ask you about how you price something out. Well, just like an advisor charging their own clients, price alone is only one piece of it. You do need to understand, okay, well, what’s all the value and services I’ll receive in return? So, obviously advisors would want to have a one-on-one conversation with you about that to fully understand that. But just to kind of set expectations, how is something like this priced out? Is this kind of like an ongoing monthly fee or some sort of annual fee? Or how do you price something like this out?

Matt – Yeah, so we bill monthly and we don’t bill based on AUM or revenue or anything like that. We bill based on transaction volume, scope, and how much time it’s going to take my team to actually work with your firm. So what I ask for is your QuickBooks file if you’re comfortable, or a few financial reports just to get an idea of what you’ve got going on in the complexity. Once we have that we’ll arrive at a fair price and that’ll just be your monthly rate.

Although there’s a cost associated with working with us, obviously I’m not going to be free, but there’s your opportunity costs, the things that you are and are not interested in doing for your firm. We just have an analysis of what would it cost to hire a CFO to actually do these things.

We’ve noticed that hiring a CFO in many cases for a wealth management firm is a bit overkill for forty hours a week. You don’t need 40 hours a week to do these tasks. You might need a set number of hours per month. So hiring a full-time person at $200,000, $300,000, whatever a CFO will get, an experienced CFO is just way overkill, and you’re really better off renting. We’re like the Uber of CFOs. You can do a ride share. We can bill you for basically what you use.

People have really taken to that concept. Especially when you’re a new firm and you wanna be nimble and you wanna do more flexible things, that’s drag. The $200,000, $300,000 on a full-time salary is a drag. We feel that in addition to all those things, we can offer you things like data insights that you can’t get with a full-time CFO. So we think that there are lots of benefits to our model and we are happy to work with firms at all stages.

You did say something interesting about having a phase A, a phase B, a phase C. One of the beauties of our service is that we are long-term partners to you. So yes, we will work with you pre-transition and help you put together a proforma and help you do that. But firms appreciate the fact that hey, Matt’s going to be with me in year two and year three and year four and year five. So we’re building something together and he’s always going to be my partner, he’s always going to be running my payroll, he’s always going to be giving me this advice. It’s not like, hey, you’ve launched, sayonara. It’s kind of an ongoing partnership.

Brad – Yeah, and there’s a lot of benefits to having a partner, having the kind of scale you alluded to. I’ve heard of when you can outsource like this referred to as being like synthetic scale, where perhaps you can’t justify from the size of your practice having that full-time, in-house experienced CFO. You don’t have, as you alluded to, perhaps forty hours a week of need for that, but you still would like to access professional, experienced, CFO-level expertise and so that’s what this kind of solution does, as I’m understanding it, is to provide that. Like I said I’ve heard that term synthetic scale where you can achieve scale without having to actually be large enough to do it in-house yourself.

So for those folks that want to learn more, and obviously we’ve only touched at this at a very high level, lots of different advisor and team scenarios, lots of different ways you can perhaps help them. So everything starts perhaps with the first conversation. What is the best way for advisors or teams that are watching this that want to learn more to be able to reach out and have that conversation?

Matt – Check out our website, compassCFO.com. There’s a “Contact Us” button and you can fill something out or you can email me directly at mhayon@compassCFOsolutions.com. Happy to have a call. We’ll put you in touch with other current clients. They would love to talk to you. I really just wanna understand where you guys are and see how I can help you grow the business.

Brad – Yep, fantastic. Well, I will put the website and email address in the show notes for those that didn’t catch it. but everything begins with a conversation. That’s how you have to start learning more and say, hey, is this a fit? I think Matt would agree this is cliché, but you can never have that conversation too early in the process, particularly if you’re transitioning. If you think you might need or want something like this, you can always start the conversation and kind of map out a timeline as to where it might make sense to maybe dive deeper but you can never be too early to begin.

So Matt, with that I appreciate you coming on and helping us understand Compass CFO Solutions and the ways you can help and support RIAs and advisors.

Matt – Definitely. Thank you for having me.

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