Earlier this month, we released our 5-year anniversary episode of the COO Roundtable Podcast. Feeling somewhat sentimental during the recording, I read a few sentences from our introductory episode, released back in December 2018:
With the goal of shedding light on the tremendously important work COOs perform every day in the trenches, this podcast is a bit of a passion project of mine, as I have seen operations professionals widely viewed as “cost centers” and not “revenue generators” within sales organizations. We intend to demonstrate that without leveraging a Chief Operating Officer, RIAs cannot achieve the organic or inorganic growth initiatives they set for themselves. We strongly believe that COOs are needed to free the owners of these organizations from the daily minutiae of running a business.
I then pointed out during our anniversary episode that the 2022 InvestmentNews Compensation and Staffing Report had a short two sentences dedicated to the COO role under its Trends in Compensation section. It stated, “The COO position has experienced a consistent rise in its recognition and value over the past four years. Since 2019, it has had the largest gains in compensation, perhaps reflecting the increase in the responsibilities and recognition of COOs across the industry.”
Whether the COO Roundtable Podcast can be attributed to the increased visibility for the COO role or not, I am still extremely proud to see these amazing professionals finally getting their due recognition in an industry that has historically only recognized the “rain makers.” One former boss of mine explained it like this: “The closer you are to the client, the more valuable you are.” While I don’t think he meant to devalue certain employees, he indirectly was saying, “Our back-office folks are second-class citizens,” which is unfortunately a common attitude across the RIA industry. With increased exposure, however, I’m confident that attitude will slowly fade away.
But there is a dark side to this increased exposure for RIA COOs. By highlighting the benefits of professional management in our industry, many RIA owners are now looking to hire their first COO (or director of operations). And while they say all the right things during the interview process, in reality, they aren’t ready to hand the reins to someone else. “We really need someone to come in here and manage the business. I’m just too busy with my client responsibilities,” they tell an eager job candidate, who then believes they will be joining a firm that will allow them to get their hands dirty and foster some real change across the organization. Once the COO arrives, however, they find it harder to affect change than they had anticipated.
One anonymous professional manager I spoke with called it the “Founder’s Bias.” “The founder of the business has spent 10, 15, maybe 20 years building a successful business; they say they want to bring someone in to add efficiencies and drive the firm into the next decade, but in reality, they are really just looking for someone to come in and affirm the decisions that have already been made.” And if the founder begins to push back on the recommended changes this newly hired manager is suggesting, the staff quickly realizes the manager has no real authority, and no one accepts any of the proposed initiatives. I have spoken to countless RIA COOs who left their new positions within a year because of this very fact. Sadly, I’ve heard from three such COOs in the past month alone.
Some professional managers blame the expectation of unrealistic timeframes for their ultimate demise. “Fifteen years of inefficiencies compound over time and get deeply ingrained in the company culture. I was given 6 months to repair everything that was causing pain at the organization, and when massive progress hadn’t been made, I became the scapegoat for everything that was wrong—from the technology at the firm to the number of parking spaces allocated in the office lease, which had been signed two years prior to my joining the firm.”
It is critical that the owner(s) of the RIA set up the chief operating officer for success and fully support their new hire by not only communicating to staff that the incoming COO has complete authority to act on behalf of the owner(s), but also by providing the background and credentials of the COO before they arrive. Embarrassingly, I have spoken with many COOs who have arrived on Day 1 and the staff doesn’t even know who they are or why they were hired. This simply cannot happen if the COO is to become the driver of growth that the owner is hoping (and hiring) for.
As with any relationship, the key always lies in the level of communication between the owner and the newly hired professional manager. When expectations for both parties are not fully articulated, and if both parties cannot be honest with themselves (or each other) around capabilities to relinquish control and capabilities to run with the responsibilities placed on their shoulders, disaster can strike hard and often. My hope is that COO candidates and RIA owners can both use this article as a catalyst to start these sometimes uncomfortable but always vital conversations, to reduce the failure rates for RIA COOs. If both parties are headed in the same direction, with clear roles and responsibilities defined for both individuals, the COO can truly be the catalyst for change that the owner desires.
Matt Sonnen is Chief Operating Officer at Coldstream Wealth Management, as well as the creator of the digital consulting platform The COO Society, which educates RIA owners and operations professionals how to build more impactful and profitable enterprises. He is also the host of the popular COO Roundtable podcast.
