Principal Agent Relationships Podcast Transcript

Principal Agent Relationships Podcast Transcript

SPEAKER

Hank Multala, Founders-Adviser First Partners

Hank Multala 

Well, welcome to the podcast. This is A Chat with Hank. And I'm Hank Multala. Well, Happy New Year to everyone. Thanks for taking some time to listen to this, on this side of the calendar. I'm sure you, like all of us had an unusually different holiday season. I hope this coming year brings all of you the joy you're absolutely entitled to. So I feel this is initially a better respect of everyone's time to learn about one of our services in it in 10 minutes versus a 45-minute call and additionally, if you if you want to share something on a podcast, I'm open to having a chat with you about your idea. So any continued interest, please feel free to reach out to us at adviserfirstpartners.com One of the additional services we have made available is the Principal Agent Relationship and I wanted to give you a very brief overview of what it is what makes it unique, how it works, why one would seek out these services and the benefits and how we've been able to eliminate the typical risks that exists in these relationships. If you do want to find out more again, you can visit adviserfirstpartners.com  and search under the White Label Principal Agent tab at the top. So that we both have a common reference point. The Principal Agent role we developed in our industries is a combination of two familiar and similar functional relationships, the professional athlete sports agent relationship, and the project owner project manager relationship. As most of you are aware in the in the professional athletes sports agent relationship, the obligation of a sports agent is to act as a fiduciary that is, your clients interests must always come first. Then the agent seeks out revenue opportunities and helps the athlete navigate logistical issues towards success with those discovered opportunities. Agents have to be transparent they must eliminate all conflicts of interest and also maintain transparent and regular communication with their client, the professional athlete. An agent also discusses the pros and cons of every opportunity and will in fact quite often cut their compensation to get a better opportunity for their client, the professional athlete. Most of you are also aware of the project owner project manager relationship where the project owner considers the big picture, and the project manager is focused on the daily and short-term details as well as the progress of the project. So, simply the project owner defines the scope of the project as to the why and the what and the project manager oversees getting things done that the how and the who of the project. Now, if you extrapolate the most valuable elements of both the professional athletes sports agent relationship and the project owner, project manager relationship, you yield the Principal Agent Relationship that we have developed for our industry and its availability at Advisor First Partners. So the principle is synonymous with the professional athlete or project owner and agent simply is synonymous with the sports agent or project manager. So by definition, the agent is a is a go-between. They are a proponent; they are an advocate or an ambassador on behalf of the principal. They have a fiduciary responsibility to put the principal's interest first, to eliminate all conflicts of interest and they're responsible for all activities outlined in an agreement. We are the agent, advisors, multi partner practices broker-dealers, RIAs, hybrids, OSJs, they are the principles in our industry. So why should someone establish a Principal Agent relationship? Well, the tremendous time savings and efficiency that's created has been in probably always will be the greatest driver in these relationships. And as I review the reasons the benefits and the risks, you'll get a clear grasp of the effort that goes into a complete and well thought out project that has successful outcomes. So what's the driver of seeking a Principal Agent relationship? Let's look at a sole proprietor a multi partner practice as an example. Our industry changes, your practices continue to evolve and grow and often there may be there may come a point when your business model no longer fits the culture, the offering, the direction or the quality of the present broker-dealer or hybrid RIA or the firm you're aligned with, and this misalignment usually occurs over time. But sometimes it appears rather quickly in cases of an acquisition, a decline in industry reputation or variety of individual and business reasons that further leads to practice deterioration, and loss of confidence. So when considering a change of the firm your business is aligned with the process requires active management, and an analysis of all the possible solutions, solutions that best address the needs of your client of your business and tackle the objectives you're trying to address. So as an agent, we are a domain expert, we develop a structured roadmap. We manage the process more resourcefully through due diligence, through comparative analysis, through communication effectiveness. And we also recognize the likely risks, while eliminating the emotional based decisions and underlying mistakes that exist in these projects. So this permits the business owner or the principal, to think clearly and remain focused on the motivations for the change and stay engaged to the core competency of the practice without fretting about the damaging impacts and the disruptions that exists to existing workflows and revenues. And likewise, the Principal Agent relationship can also be applied to working with broker-dealers, RIAs and other financial firms seeking to address strategic growth or business development issues. So what's the benefit of an agent over a third-party recruiter, placement agents or whatever descriptive you want to use? Well, first and extremely important, we have zero conflicts of interest. Because we have a fiduciary responsibility, we have no existing contracts or agreements in place with prospective solutions. And let me repeat this as it's especially important, we do not have open agreements in place to pigeonhole or stuff your business or find a solution into one of those existing contracts. This type of placement is not aligned with your best interest and if someone tells you so it's bullshit. We do not believe in the adage, if you if you throw enough shit at the wall, something will eventually stick. That type of work is damaged with flaws of mistrust and of favoritism. So we begin the process with discussions about your business interests and objectives with no preconceived ideas of what's best for you, your what and your why are our drivers for solutions. And to have existing agreements in place. that is the finder's fees and incentives to redirect business to specific solutions, would not support and honor the fiduciary obligation we have incorporated into our business. So we begin our search after initial discovery meetings. Then we research and present possible solutions develop a shortlist and then negotiate renumeration through a single use agreement, and renumeration meaning compensation so and the negotiations are not driven by revenue in our pocket. But by best solution outcomes for your practice. Very simply, we don't put the cart before the horse like the industry has always done. Another benefit is a knowledge advantage. Agents have level knowledge or expertise advantage in the industry and subject matter. And this results in a higher level of proficiency in the methods and in the negotiations. And also this this asymmetric information if you want to call it that provides us your agent, the ability to exercise additional influence in negotiations with any outside resource or third party. Another benefit we have seen has been an emotional detachment. We're all aware that emotions can often compromise logic and lead to irrational decision making. And as an agent, though we respected we are removed from the emotional aspects involved in the outcome. We also see problems and opportunities differently from the principles as our job is to be familiar with the difficulties and the risks that come about during this process. Additionally, we do provide a great deal of structure. We create procedures and processes. We define tasks and outlines to complete to complete the project. We create anonymity and maintain privacy for the principal, we eliminate a lot of confusion while increasing the efficiency of the project. We manage the time and expectations with a clear understanding of the responsibilities. And we obviously have a responsibility for regular and open communication and an open communication schedule with a focus on the objectives and where we are in where we are going. There are two other benefits that we that we focus on very, very clearly that we take very seriously. We want to focus on a flat organization with us and, and that that is it allows for faster communication increased level of accountability, there's really no bureaucracy. So it allows the agent allows us to manage all the structural functions I had discussed. And two, we prefer exclusive relationships. We are very selective, and I'm happy to discuss this more on a phone with anybody. We're very selective in working with those we can help and judge that the relationship must be beneficial for all who utilize the services. This is this is not a one-way relationship, but rather a dynamic one and a collaborative one. So these are the benefits. And it's always great to talk about the benefits. Because it's something that we do, but in full transparency, the risks must also be discussed, there are some areas that can create an issue in these relationships, and I wanted to review them, and how do we de-risk our Principal Agent relationship? First, culture always matters. Always. It's essential for both parties to have a clear understanding of the cultures of both organizations, the principles, and the agents, as any shared values are important for open communication and finding solutions. And that is, there's a similarity in the cultures. As we just provided an overview of the benefits in the narrative, the core values are here to help a diverse group of people and businesses in the decision-making process. Another area we felt it was necessary to address a negative risk, was financial incentives. So some of you may be familiar with the author Daniel Pink, I got to know him through a program called Masterclass. But he describes two types of motivations. And I'm sure all of you are very familiar with this one's called extrinsic and one's intrinsic. So extrinsic motivation is motivation that's driven by external forces, typically money or praise. intrinsic is motivation you're motivated from within. So it comes down to personal satisfaction. So motivations driven by financial rewards only, again, by financial rewards only between the principal and the agent unpacks, a bigger philosophical question about selfishness. And then, and when given the opportunity, do we always optimize what's best for us the agent rather than you, the principal, and even philosophers have debated this for centuries. And in Plato's Republic, I know Socrates had a discussion with his older brother, who insists that people's good behavior only exists for self-interest. And since our renumeration or compensation is driven by fixed pricing versus hourly consulting, which I'll discuss next, then the extrinsic motivations that are purely financial incentives are eliminated, as is the selfishness. And all that remains is a guidance of a moral compass, a set of core values and like-minded people working towards a common goal. Which is why from a business context and I and I initially stated, this is why cultural alignment matters, and it matters a lot. Without it, all this fails. Next thing I want to address was compensation. And I want to be transparent on renumeration, or compensation and how we're paid. So as an agent or project manager to further eliminate financial incentives, that is the extrinsic motivation we just discussed and continue our commitment to the fiduciary promise. We elected not to contract via an hourly rate, but rather a project rate. And for those of you who have been involved in our hourly projects, I have and it's never surprising how quickly, project costs increased to a maximum limit, while the project itself has not yet been completed. And since we've performed numerous projects, we have a pretty good handle on the time required to fulfill a project and this eliminates the cost variable and further aligns our mutual interests. Since Advisor First Partners may also receive renumeration from  acting as an agent, engaging with the solution provider, so compensation from the solution provider, upon a project completion principle may receive a proportional reimbursement of the project fees that were originally given to us as your agent. And project fees are not substantial. They're negligible. And I know you may be asking, why is there a nominal but reimbursable project fee in the relationship? And it's a great question. And let me give you the reason, I hope you'll recognize that there's a lot of work, a lot of time, and a lot of research that goes into these projects. And to best align mutual interest, there needs to be a stake in the result of either time, or money by the parties involved. Again, your initial project fee, may be reimbursable and I'm happy to discuss that on a call and it would also be outlined in an agreement, but without a stake by both parties. What's the incentive and driver for the non-committed party to push and reach the goals set forth with the agent? The answer is there is none. Verbal promises and statements are not a substitute for a dedicated assurances and resources by both parties to the process. And this allows the principal, any agent to have that dynamic business relationship and remain focused and committed to seeing this across the finish line. Now, I know some of you may think, ah, I don't want to pay anything. And you know, that's fine. But you as a business owner, I believe you have, you have the duty to investigate the impact on your practice. And recognize there's an in measurable revenue loss, there's an expense, and there's a time cost to your business to take this upon yourself or, or to assign this to an associate or staff member. And I think you'll quickly recognize the value of a Principal Agent relationship. But again, if you're the type that feels you, you can do it on your own, you're running your business, and all the other outside influences in your life. And you can do all this well. Give it a go, or, as we say in a Navy, fair winds and following seas. So again, just giving the overview of the benefits, you know, and the risks that exists and how we de-risk these relationships in a principal relationship, I hope you really get a clear overview of the of the details and how we can actually help. So, I want to thank you again for taking time in your schedule to listen to this podcast and learning about the benefits of our fiduciary dedication, our ability to provide structure, and to manage the process for your project. And again, I'm always profoundly grateful that you let me bend your ear for a short period. To find out more how we can create an efficient and timely solution for your business. We'd be happy to chat, talk about the vision of your project. And as I stated in the beginning, if you want to share something on a podcast, I'm open to having a chat and sharing  the content you'd be interested in sharing with an audience. So you can contact us at adviserfirstpartners.com you can reach us at 855-502-8919 and please subscribe to our podcast. Good luck in your search. Thanks for listening. Take care.