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Navigating Independence: The Evolving Landscape of Financial Advising with David Pappalardo · RIA Collective

• 0:16
  Charlie Van Derven: Thank you for tuning into another episode of RIA Collective. I'm your host, as always, Charlie Van Derven. I've got a great guest today, David Pappalardo from Segal Marco Advisors. David's based out of Boston, and while the name sounds like he might be in an advisory role, he actually serves the industry much like we do at RIA Collective and Social Advisors. But one thing that's cool about David, David started as an advisor, so he cut his teeth just like you did. And that's a really nice thing to understand what the needs of his clients are. And I'd love to tell his story, but he's better at telling that story than I am. So without further ado, my new friend, David Pappalardo. Boston, Massachusetts. Segal Marco Advisors. Welcome to RIA Collective, and thanks for taking some time.
• 0:59
  David Pappalardo: Thanks a lot, Charlie. Thanks for having me.
• 1:03
  Charlie Van Derven: I love getting to know you, David, you got a ton of knowledge as that advisory role. So when we're interviewing vendors or even attorneys that have not sat on that side of the desk, their perspective on the industry is going to be different than yours is because you had I don't know how many years. David, you're going to talk to us about it, but you had years as an advisor before you started Segal Marco Advisors. What do you feel like was the advantage of that time spent in the industry instead of on the industry?
• 1:34
  David Pappalardo: Sure.
• 1:35
  David Pappalardo: Well, I think the biggest takeaway for sure was being on that side of the table. So now I'm in a role where we are working with advisors and advisory firms. And so having that perspective of being on the advisor side of the table really has been critically important because we understand the cadence and the operating rhythm of the advisory business, which is very different than, say, the institutional side of the business. So knowing what the needs are that things can come up last second, we have to be able to be structured to be responsive and be able to meet client needs, which is very different on the advisory side.
• 2:12
  Charlie Van Derven: Yeah, no doubt. Now, something we talked about a couple of weeks ago was when somebody goes independent, right. So our listeners are typically people who are thinking about that independent route. They're gathering information, maybe gathering confidence to make it happen. David, we talked about when you leave a large firm, you've got to replace everything the large firm was doing for you. Right. So you go to if you're starting an RIA, and maybe people are going to make it, maybe it's two steps to get there. But if you're starting an RIA, all of a sudden you become a CEO, it's got to think about all facets of the business. So tell me a little bit or tell our listeners a little bit about Segal Marco Advisors. What role does that fit for your clients that have made that jump to independence?
• 2:57
  David Pappalardo: Sure. So Segal Marco Advisors is an institutional investment consulting firm. And so we've been in the business a little over 50 years. The practice that I lead is the Advisor Solutions Group, which is a financial intermediary focused practice. So me and my team focus on working just with RIAs, private banks, family offices, insurance companies and broker dealers. And so essentially what we do is leverage the institutional quality research that our team does to be able to provide solutions in the investment realm to financial advisors. So that's really spanning the gamut from traditional investments, alternative investments, asset allocation, and what we call intellectual capital, which is essentially all market intelligence from white papers to market reviews and outlooks that can be leveraged by advisors and their clients.
• 3:55
  David Pappalardo: Awesome.
• 3:55
  Charlie Van Derven: So you're actually helping them grow brand with I mean, really it's the investment research part, but it is a piece of the puzzle, I should say. But in addition to that, you're helping them grow brand around these recommendations.
• 4:08
  David Pappalardo: Absolutely.
• 4:08
  David Pappalardo: I think as you mentioned, when an advisor is thinking about going independent, as you mentioned, they have to really become a business owner and part of that is recreating all of the services that their wirehouse provided to them. And so that's kind of a tall order for a lot of firms. And a number of different services have jumped up and the Custodian banks are certainly very helpful in filling that role. We focus specifically on the investment research part of it. How can we be a differentiator in what the advisor and the advisory firm is offering? So it's a different take on what the firm is doing. But certainly what it really comes down to in many cases is the advisory firm has to decide when they're replacing research, are they going to hire an army of people to do it or do they partner with a firm like ours to be able to plug into our 30 person research team?
• 5:02
  Charlie Van Derven: That's a great segue into a conversation about what do you keep and what do you outsource? Right. So advisors in the same vein, outsource, marketing, content development, things of that nature. To social advisors, you guys are just another piece of that. Right. So as you make that transition, I think an important message is here what are you going to own? Because when you're leaving a wirehouse, basically you're the client relationship and acquisition arm, right?
• 5:29
  David Pappalardo: Absolutely. And I think a big piece of it too, from a consideration standpoint is as an advisory firm, in many cases, most advisors are in a team environment at this point. So when they're leaving with multiple people in addition to themselves. So the question becomes, can you do really a dispassionate review of skills and expertise and what are the things that differentiate your practice? And perhaps you do have several people that are very talented at doing investment manager research. And if that's the case, that's great. And that provides a differentiator for you in the marketplaces. In some cases, though, that isn't true. And so being able to have some sort of resource that you can plug into to do that is useful. And it could be, you know, a number of talented people in the industry that you can hire to add to the new practice.
• 6:22
  David Pappalardo: In other cases, you may need to plug in to a resource. But really from where we sit and what we see in our clients that have gone independent, is it's a question of how do you differentiate your new practice? If it's going to be based on having investment acumen and capability, then you just have to make sure that you have that either through insourcing and hiring a team or maintaining the team that you have, or being able to get that externally with a firm like ours or others.
• 6:49
  Charlie Van Derven: That's a great tip. Right. And we don't talk about it often enough. Taking an honest assessment of where your skill set lies, not you as an individual, but also the team that you are maybe departing the wirehouse with, if you are leaving with others, taking an honest assessment of where the skills are and outsourcing the stuff that you're not good at.
• 7:12
  David Pappalardo: Right.
• 7:12
  Charlie Van Derven: There's teams.
• 7:12
  David Pappalardo: Absolutely. And I think there's always been, in my opinion, a bit of a fallacy in the financial advisory business, which is the marketing message for many years, frankly, for decades, is that your financial advisor is all things to all people. They're the investment expert, they're the tax expert, the insurance guru, the estate planning expert. In reality, no one can be an expert in all of those areas. And it's really a question of what is your practice going to offer? We have some clients that their focus and expertise is taxes, and their investment advisory business has grown out of that capability. To contrast that, we have other clients that don't offer tax planning services, and that's fine. They focus more on either the investment side or it could be insurance focused or even estate planning. So it really just depends on how narrowly you want to focus your business.
• 8:10
  David Pappalardo: And there's not really a correct answer. It goes case by case and firm by firm. There's a lot of different ways to address the markets out there and have a successful practice.
• 8:22
  Charlie Van Derven: Yeah. That's awesome, man. You got some great advice, David. Thank you for being here, man.
• 8:26
  David Pappalardo: Sure.
• 8:26
  David Pappalardo: Happy to be here.
• 8:27
  Charlie Van Derven: Yeah. So I want to know the why. Right. So you're growing up in an advisory practice. What was that jump about? Why did you transition at that time? Share what you can, man. Love to learn your story.
• 8:42
  David Pappalardo: Sure.
• 8:43
  David Pappalardo: Well, without naming names, I started in the mid ninety s at kind of a large wirehouse. And back then those were the halcyon days of cold calling. And I was in a windowless room making calls 12 hours a day to try to build out a business and luckily had some success at doing that and subsequently moved to another wirehouse in the later ninety s. And that worked out fairly well. But I got to a point where at least personally, I started to feel a bit conflicted because that was still at a time where it was commission based business almost exclusively. The transition to fee based was just starting, but it really hadn't got its legs underneath it. And I started to feel conflicted because what was right for my clients in many cases was to buy and hold. And there was certainly a conflict of interest and I didn't want to be put in that position any longer.
• 9:41
  David Pappalardo: So an opportunity arose for me to work at Rogers Casey, which was at the time a very prominent investment consulting practice in Darien, Connecticut. And so that was the forerunner of kind of came before what is now Segal Marco Advisors. About ten years ago, Segal Marco purchased Rogers Casey. But when I first started back in the early 2000s, there they were an institutional pension consultant that had this advisor solutions practice. And there was an opportunity, because of my background as an advisor, to come in and work with advisory clients, leveraging my time in the business. And so I really did that. And it was a great marriage between my experience and then also plugging into the institutional side of the business to understand how that worked and really institutional quality due diligence and having a framework for being able to help advisory firms. So I did that for a number of years.
• 10:47
  David Pappalardo: Then I had an opportunity to transition to what we call the dark side, which is the asset management business. I moved over to a large global asset manager in Connecticut to run global Relationship management for the firm, which was a lot of fun because it was certainly a different viewpoint from both being an advisor and being a consultant on the consulting side of the business. To be within an asset manager was really a great learning experience. We worked with firms really all over the world, including some sovereign wealth funds. So that was interesting and educational and after a number of years, for family reasons, wanted to relocate back to Boston from Connecticut. And when I did, there was an opportunity to come back to what had been Rogers Casey but was now Segal Marco Advisors and to lead the advisor solutions practice. And so I've been doing that for the last little over ten years now.
• 11:45
  Charlie Van Derven: Awesome, man, awesome. You've got a lot of great advice for advisors, largely, David, based on I mean, you guys work directly with RA, so you've seen this transition time and again.
• 11:59
  David Pappalardo: Absolutely.
• 12:02
  David Pappalardo: This is not a revolutionary statement, but this is the driving force behind the growth in the industry. It's coming from the exodus from a lot of wirehouses by advisors that have built up a significant practice and really want to go out on their own for a litany of reasons.
• 12:19
  Charlie Van Derven: Well, much of it echoing your statement earlier about you're in a place where you have to act and yours was transactional versus a fee based decision back in the day. Right now that everybody's mostly fee based, so that changes things. But all the same, a lot of times you're acting for the firm or with the firm in mind, or products or quotas or whatever it might be, and that may not have the firm's first. The client tends to come second in a lot of cases. And so that's the same sentiment. Even though yours is about fee based and transactional. It's the same sentiment today. I run into that all the time, where there's just too many biases that impact the client.
• 13:03
  David Pappalardo: Absolutely.
• 13:03
  David Pappalardo: And I think what we see, which is really gratifying, is of all our different clients, none of them are the same. They're all working with different types of clients in different ways. And if there was one common thread I would say that we've seen in the last probably five years is that the size of the relationships that our advisory clients are winning or at least competing for in many cases is significantly larger than it was years ago. And I think that's a you can attribute that to a combination of things. Probably market appreciation is part of it. The generational transfer of wealth certainly has played a significant role. But you end up having advisory clients that fortunately we've worked with for over ten years coming to us and saying, look, we have an opportunity to bid on 100 million dollar family practice and they have all this alternative strategies and private equity and we need help kind of getting our arms around it.
• 13:59
  David Pappalardo: Whereas five years ago that opportunity didn't present itself or it was much smaller and less complex. So that certainly has been a big change, I would say across the industry.
• 14:11
  Charlie Van Derven: That's so great too, that you guys have a resource because I know that's one of the fears is I've got all the resources of this big firm, right? What happens when I walk away? What happens to all those resources? It's nice to know they still exist. I'm not going to say better or worse, but they still exist in maybe an unbiased fashion when you're on the independent side of the business.
• 14:35
  David Pappalardo: Well, I agree 100%. I think the interesting nuance to all of this is that there's kind of a double sided coin here in how you approach doling out this type of advice as an advisor. So you actually need to have the capability again insourcing it through your staff or outsourcing it with a partner because you have to ultimately serve your clients and hopefully win and retain that important business. But the other part of it that I think sometimes gets overlooked is that there's an enormously powerful marketing angle to this where five or ten years ago, if you're a sophisticated advisor if you offered alternatives. That was a differentiator that made you different, it made you special. It's really become table stakes now. It's something you absolutely need to offer. The question comes down to how do you do it? Are you doing it yourself internally or are you using an outside provider or one of the platforms that are out there?
• 15:38
  David Pappalardo: There's a variety of different ways to approach it, but that's something that's certainly different. And really having that capability is a challenge if you're going independent, to decide, what lever am I going to pull.
• 15:52
  David Pappalardo: To have that capability?
• 15:54
  Charlie Van Derven: Awesome, man. So, hey, let me tap into your experience and all the relationships you've witnessed over the years because we like to see if we can't lend some knowledge to those listeners as they're contemplating this move to independence. David, I like to ask we're going to do it a little differently because oftentimes we're interviewing heads of RIA that have made that transition into an independent advisory role. Your angle is going to be a little different, but I like it because it's probably got greater perspective. So as you've watched people move into that independent side of the business, is there any one or two things that you look at that you go, you know, this was a really good move that somebody made, maybe helped them retain more assets. I won't feed you that. I'll let you respond to that. Something good that somebody's done that you can point to our audience is, you know, emulate this.
• 16:42
  David Pappalardo: Yeah, absolutely. I mean, there's several examples. One that kind of jumps out at me is we had a client that had gone independent in the Midwest, and many of the advisors that were part of this new practice, their passionate hobby was anti cars. And so they actually had a number of clients that they had met through their collective anti car hobby. And so they said that they actually had some problems with the wirehouse they were working with in having marketing events and really ramping up this aspect and niche of their business. So I think to kind of step back, the answer would be by going independent, you're allowed to stretch your legs and really be you, express your personality. What are the things that make you and your practice different? So that when you're out in the marketplace, you're marketing you and the folks that you're working with and your view of the world, as opposed to the masthead that's on a skyscraper that you work in.
• 17:49
  David Pappalardo: So it really allows you, when you go independent, to be independent and really stretch your legs and express your personality, customize your business. And that really translates into happier employees. And I think a client base that's different than probably you would have gotten if you had stayed as part of a larger organization.
• 18:10
  Charlie Van Derven: That's a great example. And in that example, you're feeding your soul at the same time. Right I mean, if this is something you're passionate about, I don't know much about 85 Volkswagen in the garage, but most of the time I can't make it to antique car show. It's sitting in the garage for a reason. Not necessarily something that necessarily that I would key on, but certainly when I'm coaching advisors around networking, it's always about, of course there's got to be a level of affluence there, but it has to be something you enjoy doing. So cool if you network through name it BNI, but are you enjoying that? Is that something you enjoy doing? Because it's going to be a limited shelf life. If that's so by keying that around something that drives your passion, you're going to love the work you do forever.
• 19:03
  David Pappalardo: Absolutely.
• 19:03
  David Pappalardo: And I think another aspect of being independent that's powerful, along with what you had just mentioned, is that in addition to being able to use your personality and the things that you are interested in to shape your business, is that you really can develop a marketing message to really show in the marketplace how you're different. And I think that's really a key part of it. So it could be that in this one client's perspective, they focus on the antique car market and the affluent investors there. But there's a variety of different ways to show people what you do and how you're different, because at the end of the day, frankly, one of the most important questions that we get from our clients is what are your other clients doing? I think there's a healthy paranoia, so to speak, in the business where everyone wants to know, are they keeping up with the Joneses?
• 19:57
  David Pappalardo: What's the guy down the road doing? What's the practice across the street doing? And if that's the business that you're in and you just want to keep up with everyone else, it's going to be very difficult. Being able to kind of blaze your own path and figure out what you want to do that makes you unique as a firm, so that competition is dissipated because there isn't another you and there's not another Your. Practice, I think, is a powerful endorsement for being independent and crafting something unique.
• 20:27
  David Pappalardo: I agree.
• 20:28
  Charlie Van Derven: All right, flip side of the coin, david, you've seen a lot of good things. Yeah, I'm sure you've seen some people do know maybe knuckleheaded type things that you can recommend. Our audience stays away.
• 20:40
  David Pappalardo: I think, you know, the biggest thing is kind of more of a generalization, which is and you touched on it at the beginning of our discussion, which is if you are going independent with that freedom and independence, the other side of the coin is responsibility. And so if you've grown up in a warehouse environment or a large firm, you've probably really only had to focus on being a great financial advisor and working with your clients and building your business. Obviously, if you go independent, you're now, as you said, the CEO, you're a business owner. And that's a different level of responsibility. On top of transitioning your clients to this new firm and keeping the business humming, keeping your clients happy, doing your old job, and now being the CEO and a business owner on top of that, at the same time, that can be overwhelming.
• 21:34
  David Pappalardo: And so it really requires a lot of planning and coordination to make sure that once you pull the trigger, that you're ready for the downstream impact of the responsibility and this very significant change. So I think that's really the important thing is make sure that you're focused on what is going to happen. You have a plan, and it's not done too quickly. It really needs to be a thoughtful decision and execution.
• 21:58
  Charlie Van Derven: Yeah, I think where I've seen issues, it's people moving too fast.
• 22:05
  David Pappalardo: Right.
• 22:06
  Charlie Van Derven: It's not saving time for that attorney discussion and the review of your contracts and solidifying the client relationships. You want to move over and it's moving too fast, and maybe it's an emotional response to something that happened internally at the firm.
• 22:22
  David Pappalardo: Well, there's obviously a lot of focus when there's a transition of what percentage of your clients is going to move over with you, which is obviously critically important for the sustainability of the business. And if you move too fast and you maybe haven't measured twice before you cut, you can have situations where there might be an issue with the custodian. The assets might not transfer. The client might have run into some operational or administrative issues that leave them less than impressed, and that's not the time that you want to have that. So you really need to be thoughtful and measured about what you do so that it's a very smooth transition.
• 23:00
  Charlie Van Derven: Perfect comment. You got a lot of knowledge, David. I appreciate that. Do you mind sharing with us a little bit about where Segal Marco is going? I want to learn about your goals as a firm. Maybe there's others out there that are thinking about this independent move that want to engage you for maybe business or even advice. So we'll talk about that. But first, where's the company going? What is the know? I hate to put a timeframe on it. Maybe I won't. I'll just let you comment on it.
• 23:30
  David Pappalardo: Sure.
• 23:31
  David Pappalardo: Well, there's really two ways to look at it. The overall firm, Segal Marco Advisors, is the investment consulting practice that the Advisor Solutions Group is part of, and we're part of the larger Segal organization, which has been around for 80 plus years. So we have a diverse business that's been doing very well for many decades. And on our institutional business, we continue to grow very substantially. We have a large presence of the multi employer space and across really, every institutional segment specific to my practice in Advisor Solutions in the last ten years that I've been with the firm. Fortunately, the practice continues to grow. Certainly a lot of that is driven by really the institutionalization of advisory practices in the industry overall. So as the rise of people going independent, more and more family offices are popping up and having needs. Same thing with private banks needing really it's a bit of an arms race for capabilities.
• 24:36
  David Pappalardo: So all of that really is a positive trend that's helping us in the industry in general. So from a trajectory standpoint, all needles are facing up. The opportunity set is really enormous and it's really just a question from where I sit of finding the right partners. We tend to do very well with kind of medium sized firms that are growing and are really at that decision point of either you're going independent and you're trying to figure out how to staff your research needs to other firms that have been doing it on an independent basis for a while and are deciding I need to really take a quantum leap forward. Do I need to hire a number of people that have a research expertise or consider working with a firm like mine that can plug into a pretty significant capability set that's institutionally focused in many ways?
• 25:32
  David Pappalardo: So it's really a very positive story. We're excited again, we work with clients all over the US. We also have clients in Asia. And you know, the opportunity set is essentially the world. And really we're very excited for where the advisory business as an industry is going. It's certainly growing much faster than the institutional industry in general. They're not making any more defined benefit plans. So it really is a very positive viewpoint and we're excited really to continue to engage with clients that are thinking about going independent or have already gone independent and are needing some help.
• 26:17
  Charlie Van Derven: Very cool. So if one of our listeners, David, wants to get in touch with you, and I encourage you to do that, David's got again, not only a wealth of knowledge on the investment research side of the business, but also, having been an advisor, he understands where you're at today. We used to do websites for one of those companies that you started with, by the way back in late 90s. So I know that world pretty well, just from a vendor perspective as well. David, what's the best way for someone to get a hold of you?
• 26:41
  David Pappalardo: So there's two ways. You could send me an email, which is D, like David Pappalardo, which is Pappalardo@segalmarco.com. Or I can be reached at 917-531-4973.
• 26:57
  Charlie Van Derven: Awesome. And I know for a fact that you're an easy guy to get in touch with on LinkedIn.
• 27:01
  David Pappalardo: Absolutely. It's a wonderful thing.
• 27:04
  Charlie Van Derven: I love it, man. It's changed our business entirely.
• 27:09
  David Pappalardo: Absolutely.
• 27:10
  David Pappalardo: It's a great resource, both for us and for advisors, that's for sure.
• 27:14
  Charlie Van Derven: Yeah, for sure. I like that plug because that's so much of what we do at social advisors. So I'll ride that plug. Thank you, David. David. My new friend, David Pappalardo. Boston, Massachusetts. Segal Marco Advisors. Thank you so much for spending some time with us and offering your knowledge, experience, advice on that move towards independence.
• 27:33
  David Pappalardo: Absolutely, charlie, thanks for your time. It was great talking with you.
• 27:36
  Charlie Van Derven: You too. And for all of our listeners, thanks for tuning in to another episode of RIA Collective. Now, I say something similar at the end of every episode, right? This is not a money making. We're not trying to prop this up as a revenue generating podcast. Though maybe one day we can I'm not sure I'd reserve the right to change my mind. There's a need for this industry to continue to move independent. I believe strongly. I think David would agree with me that's where clients get the purest service. So we're simply out here helping to add confidence to those young advisors or maybe young in the advisory space who are trying to make a move to independence. As such, if you know anybody who's in that place, save this podcast shirt with them. Give us a review, follow us, all that other jazz you do. David, once again, thank you for joining me.
• 28:25
  Charlie Van Derven: And for our listeners, thanks for taking a little bit of time out of your day to join us on an.