When it comes time to hire a COO and no one on your staff qualifies, where do you find one?

What do you do if no one on your staff qualifies for the job of chief operations officer? Some advisors say it's next to impossible to hire an outside COO, that no one could come in, earn the loyalty of the entire staff, learn your systems well enough to make improvements and, ultimately, take the burden off you-the owner-of having to do everything but what you should be doing: creating and maintaining the firm's vision.
This characterized the thought process of Jim Budros, Peggy Ruhlin and Dan Roe about six years ago when Budros, Ruhlin & Roe Inc. of Columbus, Ohio, had grown to the point that a COO seemed essential. "We were just growing so much, acquiring so many employees, so many clients, just so much 'stuff,'" says Ruhlin. "We realized that if we were to continue growing, we needed someone to whom we could delegate this stuff, and a strategic plan we'd pay attention to."
Initially, the three partners believed they needed to hire a COO. But the more they discussed the rigors of looking for and finding the right person, the more they veered off in another direction. Says Ruhlin, "Dan said, 'I'm totally unwilling to have to pay someone a couple hundred thousand a year for a few years while they learn about our industry and our company. The COO has to be one of us. And I was nominated."
At the time, Ruhlin saw the job of managing the company and its 20-plus employees as a new challenge, something she'd never done before. "I thought, 'I'm a pretty good financial planner and I'm doing a good job of training and mentoring younger planners in the firm,' but I'd never built a billion-dollar business or anything. I was probably the partner with the greatest interest in the job, as I was the one putting together spreadsheets to track our corporate progress."
After sleeping on it, though, Ruhlin came back to her partners and said she didn't want the job. "I was concerned that my contribution wouldn't be valued as much as those of the other principals of the firm who were working with clients." She was assured that wouldn't happen, so she agreed to take the job for two years. "We signed an agreement to that effect; it's been five years now, we're up to 32 employees and I'm still the managing principal," says Ruhlin.
Perhaps more important than whether firms hire from within or without is that they hire from someplace. The 2006 Moss Adams LLP Financial Performance Study of Advisor Firms concludes, "To service larger numbers of clients ... practices have added more people ... the problem isn't that firms have too much staff, it's that their growing staff needs better management." For many firms, like Ruhlin's, the partners can't easily share the management burden; a dedicated person, either an insider or an outsider, must be put in charge.
Are misgivings about hiring outsiders to these positions still prevalent? Perhaps, but sharing that space are stories of success by advisors who are finding qualified COOs from without. One such story is that of CCP Financial Planning Services Inc. in Palatine, Ill. CCP's CEO, Carol Pankros, and her daughter Carin Roman, the president of CCP, hired the first COO for their firm of nine employees in August 2006.
How did they know it was time? "I was much too busy doing administrative tasks," says Pankros. "What put us over the edge was SEC compliance. I was always able to cope with it but found I could no longer do it." Pankros first tried to divide up the "COO duties" among her staff. "Carin got IT, others got compliance, and then my staff was busier than me, which doesn't work well either."
Pankros was at a point in her career where she wanted to cut back on the time she spent in her business, so she reined in all the administrative tasks from her staff and created a new job. She and Roman hired M.B.A. and CPA Cheryl Giddens. For most advisors leery of hiring from the outside, the first question is always, "Where did you find them?" Says Roman, "It was a networking connection. The president of our computer consulting firm knew someone and we interviewed three or four people, of which she was one."
The other most common difficulty in absorbing a COO into a firm long run by its founder is that management decisions always made by the owner must now be delegated. In some cases, those decisions might go against the grain of what an outsider would do if given free rein. "For example," says Roman, "we've long had a policy in our firm that not every one of our clients has to be profitable."
"And that," says Pankros, "is one example of how Carin and I are working to make sure Cheryl understands our vision of the firm before we give her carte blanche to make decisions or manage staff."
Although Pankros and Roman both say the CPA certification wasn't mandatory, it seems more than a little helpful in identifying a COO candidate. "I graduated from the University of Illinois in accounting and worked for Coopers & Lybrand as an auditor," says Giddens. "My primary function was to understand client systems, what they did, how they did it and how they could be improved." Giddens went on to pick up an M.B.A. and also worked for a company before joining CPP, where she supervised staff, coordinated projects and monitored workflow-all desirable in terms of CCP's needs.
How difficult is it for an advisor to hire an outside COO? "Just use your network, as Carol did," says Giddens. Which was exactly what Homrich & Berg Inc. of Atlanta, Ga., did when it sought out its COO, Mark Rogozinski. Says Andrew Berg, one of Homrich & Berg's five principals, "Mark used to work with one of the partners. We hired him from Lydian Wealth Management, where he was COO. He was happy at Lydian, but the fact that we're independently owned-giving him an opportunity to acquire equity-was attractive to him."
Berg's principals knew they needed help when the five of them were getting bogged down with the firm's administrative and management duties instead of dealing with clients. "Nor were we as qualified to be doing some of those duties as a seasoned COO would be," says Berg.
Since his hiring in June 2005, Rogozinski has relieved the principals of their admin duties. Reporting to Berg, he handles compliance, marketing, client reporting and human resources for the firm's 47 employees. Freeing up the principals to do what they do best, the firm has added $400 million under management in the year and a half since it hired Rogozinski.
Says Rogozinski, "I've worked on gaining the trust and respect of the employees and, as part of that process, understanding how the company functions, what our processes are and where we're lacking. I apply what I've learned to what's going on here, either to make it better or to maintain the status quo." Rogozinski says nothing in the firm was really "broken" when he got there. However, he's helped install new systems, including iRebal (www.irebal.com) for asset rebalancing and Junxure (www.junxure.com) for CRM, and he has moved forward the firm's paperless office initiative.
His advice for hiring a COO from without? "Find someone with both financial and operations skills, perhaps in a bank trust department. Banks produce good operations people who usually understand accounting and can transfer their skills from a bank to an RIA."
And if you hire a COO who doesn't work out? "We'd heard stories of people selecting the wrong person for COO," says Roman. "We knew if we were wrong about Cheryl, we'd roll with the punches and figure out a different solution."