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David Waddell of Waddell & Associates: “Be aggressively friendly!”

Be aggressively friendly! We once had a grumpy greeter in our firm. She transferred indifferent energy at best and negative energy at worst through the phone and at the door. This depleted client energy immediately. Advisors had to output twice the energy in quick repair. We quickly made a change and told our next front […]

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Be aggressively friendly! We once had a grumpy greeter in our firm. She transferred indifferent energy at best and negative energy at worst through the phone and at the door. This depleted client energy immediately. Advisors had to output twice the energy in quick repair. We quickly made a change and told our next front liner that they had to be “aggressively friendly.” That she is! Clients love visiting our offices or calling in. We want them to feel elevated by their experience with us. People ultimately do business with who they like. I often wish we had a chief happiness officer who would simply concoct and deliver random acts of kindness for our clients every day. How much would you pay for that?


As part of my series about the “How to Navigate and Succeed in the Modern World of Finance”, I had the pleasure of interviewing David Waddell.

David is the CEO and Chief Investment Strategist for Waddell & Associates (W&A), an SEC-registered investment advisory firm. David chairs the W&A investment committee and, pulling from his 20 years of experience, combines macro-economic forecasting, macro market analysis and macro risk assessments to design portfolio strategies for clients utilizing public market securities worldwide.

David is gifted with the ability to take complex topics and ideas and present them in a compelling manner that everyone can understand. He essentially cuts through the fog, hence the name “Fog Cutter,” and encourages his team to push the standards of what it means to be a financial planner. David is often featured as a global economics and investment expert in national media outlets such as Forbes, The Wall Street Journal and Barron’s, and is an internationally recognized speaker.

David earned his BA in Economics at University of the South and his MBA with a concentration in finance and investments from Babson College in Boston. He began his career at Charles Schwab & Co., Inc and was soon recognized for his outstanding business development record and promoted to the Institutional Strategic Accounts Team, which interfaced with the Big 5 accounting firms and Schwab’s largest customers.

David currently acts as Chairman of Epicenter Memphis and Co-Chair of the Memphis Chamber Chairman’s Circle while also serving as a board member for LaunchTN and the New Memphis Institute. He previously served as Chairman for The Leadership Academy, the RISE Foundation, and the Economic Club of Memphis and chaired the capital campaign to build the “Live” stage at the Memphis Botanic Garden. David has been recognized as a “Top 40 under 40” by the Memphis Business Journal and, in 2007, was a finalist for “Executive of the Year” by the publication.


Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?

I needed a job after graduating from college in 1995. I looked in the paper for the stock with the highest 10-year return. It was Charles Schwab. I called them up, said “I want to work for you people,” and they offered me $14,500 to answer phones at a call center in Phoenix. I worked really hard to get noticed, presented some innovative ideas, lobbied contacts I had in senior management, and transferred to the strategy group in San Francisco. The Dot Com dream led me to Babson for an entrepreneurial MBA. By the time I graduated, the bubble had burst, so I moved to Memphis to transform a small asset management business into a large wealth management business.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘take aways’ you learned from that?

Charles Schwab measured us on leads and conversions in the call center (among other things). A call would come in, and when appropriate we would qualify it as a lead and then throw it into a queue for the nearest branch to make contact. If the branch converted the lead we would receive credit. This didn’t seem like the most efficient process, so I began opening the accounts myself online (the internet was still relatively new). I’m still grateful for that decision because I soon led the entire country in lead conversions.

Soon after, Schwab invited me to a board meeting at the Phoenician. I expected to be rewarded for my innovative accomplishment. I entered the room and explained my method. Then, the CEO barked, “Waddell, did you know this is illegal?” I dropped my water glass. They told me to get out, and on the way out I heard another board member ask, “Are we sure that’s illegal?” I think that may be why I ended up in the strategy group. Key takeaway: Innovative companies reward rule breakers, as long as it’s legal!

Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?

Never Eat Alone by Keith Ferrazzi. The size of your network often determines the size of your success. All businesses are relationship businesses. Get out there!

Are you working on any exciting new projects now? How do you think that will help people?

I am writing a book. Regulations and technology have fundamentally changed how we invest. The days of pouring through analyst reports, interrogating management teams, and digging through supply chains have passed. Markets move on macro factors and tsunamic money flows drive thematic performance. It’s a playbook for memorializing how we invest our clients’ hard-earned assets.

It will not help those interested in investment fads. It will help those serious about compounding money at a high rate, for a long time. People spend way too much time on the tactics of investing. Choosing between Fund A and Fund B in an asset class can lead to minor performance drifts. It’s much more important to get the intermediate term strategies right. In the book, I will explain how to do that. If the book can improve a reader’s compounded annualized return by a mere 1%, it could significantly help people!

Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When you started your company what was your vision, your purpose?

Put the client first. Yes, it’s cliché, but consider for a moment the constant volley of lawsuits and arbitration headlines within our industry. Product sales built this industry as the asymmetry of information exploited vulnerabilities among household investors. We built our business to operate more like a doctor’s office. We use tax, legal, and investment expertise to try and maximize the health of personal balance sheets. We operate with a financial “Hippocratic Oath”. I believe we would have far higher profits if we had been willing to compromise on this value. We also would have invited in a predatory culture, litigation risk, heightened regulatory scrutiny, and high client turnover. We built this business to be a safe harbor for our clients. We may not always be right, but we will always do the right thing. Simply put, if you are not a client of Waddell and Associates, we can’t protect you.

Do you have a “number one principle” that guides you through the ups and downs of running a business?

Know thy balance sheet! Aggressive corporate strategies at the tail end of a business cycle exacerbates pain. Defensive corporate strategies at the beginning of a cycle sacrifice opportunity. Most business owners focus entirely on their income statements and ignore their balance sheet. It’s the management of the balance sheet that regulates business risk and ensures continuity.

Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?

Our client base grows largely by referrals. Because of this, our prospects closely resemble our current clients, which accelerates the qualification process. We also originate a lot of high-value content, which improves our client conversion rates. Lastly, because of our size we are focusing more on growth through acquisition strategies. We believe we have a terrific business model, a great compensation model, and great team members which makes us attractive as a platform for high-quality financial advisors or wealth management firms looking to make a change.

If a fellow CEO would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?

It depends on the size. The friends, family, and angel rounds can only get you so far. If you are trying to raise $5 million, you can probably get there with your rolodex and establish the terms along the way. If you are trying to raise $50 million you will need VC and they will establish the terms. I am not against tapping VC, but I would reserve that for big game expeditions. Otherwise, bootstrap until the VC comes to you!

What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?

Every business is different, but on average standard small businesses I see trade for about 4x income, internally, and 6x income, externally. Tech businesses tend to trade on revenue as profits get reinvested into scaling. These will vary with the pace of growth. 2x revenues would be low and 8x would be high. However, tech multiples seemingly have no upper bound these days.

What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?

Your people determine your pace and profits. I’ve seen great plans fail with bad people and bad plans succeed with great people. Often, it’s us (founders and CEOs) that limit business growth. Different stages of the business require different leadership. A business that should be growing that isn’t growing has a leadership problem.

What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?

Again, know thy balance sheet. I’ve seen businesses fail because they flex up debt at the wrong time or underperform because they avoid it at the right time. Most small businesses hate debt and build up outsized cash balances as security blankets. This almost ensures they remain small businesses. Leverage isn’t risk. Failing to use leverage correctly is risk.

Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.

  1. The hardest thing about this business is staying in it. The barriers to entry are low, the margin compression is high, most fintech innovations disintermediate incumbents, and failure to deliver consistent performance in a world of churn and unpredictability is often fatal. You must provide a differentiated service to an audience that appreciates it enough to pay for it. Investing has been commoditized. Financial planning has been digitized. Clients pay us for the quality of our strategic advice and for our communication capabilities. I recall a prospect once saying, “OK I am going to hire you, but I am also going to keep track of the holdings that you will sell to see whether your purchases add value.” I responded, “Is that what this is about? If I am with you at your deathbed and you have plenty of money in the bank to care for your spouse, your kids are educated and financially secure with their own families, and your grandchildren have ample education funds and legacy trusts to launch their lives, will I have done right by you?” He said, “Absolutely!” I am happy to report we are on plan and never compare his stocks we sold with our stocks we bought.
  2. It’s all about the people. Financial companies have no real book value. We traffic in conversations. Invest in great people and you may have a great business. Also, if you don’t pay, you won’t play. Employee churn and client defections will plague and endanger you. The average tenure of our staff members outstrips the industry averages. The average tenure of our client relationships also outstrips the industry averages. These two outcomes are linked. Clients want quality and continuity.
  3. More focus means higher profits. Firms often prioritize “vanity” metrics like revenues or assets under management. This can lead to discounting, unprofitable business lines, or strategic confusion. Know what you do well — and most profitably — and do more of that. Stop doing the other stuff. Mission creep leads to margin seep. I remember a moment from business school when a professor humiliated me for proposing a business line for a firm that would have grown the top line 30% while shrinking the profit margins 30%, thereby leaving net profits about the same. I deserved the scolding and learned to defend profit margins vigorously!
  4. Robust technology has become table stakes. Antiquated technology will alienate younger, more sophisticated, and higher-margin clients. Firms who spend more on talent and technology will win. Businesses become complacent with technology, which allows new entrants to leapfrog. We lost a high-value prospect one time to a robo-advisor because they had a cool website widget. Our website looked like a trust company brochure from the 1970s. We fixed that immediately!
  5. Be aggressively friendly! We once had a grumpy greeter in our firm. She transferred indifferent energy at best and negative energy at worst through the phone and at the door. This depleted client energy immediately. Advisors had to output twice the energy in quick repair. We quickly made a change and told our next front liner that they had to be “aggressively friendly.” That she is! Clients love visiting our offices or calling in. We want them to feel elevated by their experience with us. People ultimately do business with who they like. I often wish we had a chief happiness officer who would simply concoct and deliver random acts of kindness for our clients every day. How much would you pay for that?

Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?

It’s not about the money. If you make client relationships about money, they will constantly appraise you. There is always another firm with lower rates, better performance, or more incentives. If you make the relationship quantitative, you will always be at risk. You must find ways to broaden and deepen your client relationships to become a partner and not a vendor. High client turnover leads to high anxiety and high client acquisition costs. Find a core group of clients you love to serve and overserve them. I promise they will love you back, even when the numbers falter. In our business there is no better feeling than that.

You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

I believe deeply in the power of entrepreneurship to close the income inequality gap. We do not have enough diversity among our successful entrepreneurs due to inaccessibility to capital. Cities that have established public/private partnerships to locate, cultivate, and fund entrepreneurs, regardless of social connectivity, grow at a must faster rate. I do not believe you solve poverty by servicing it. I believe you solve poverty by enriching it.

How can our readers follow you online?

Check out our website: WWW.WADDELLANDASSOCIATES.COM.

This was very inspiring. Thank you so much for joining us!


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