Telarus CEO Adam Edwards on Snowhawk Partners Investment: What It Means for Advisers and the Future of the Channel

And now let’s go to the news that you’ve all been waiting for. We’re fortunate enough to have our CEO and cofounder, Adam Edwards, joining us today to share an important company update. So, Adam, thank you for making time to join us. I know everyone’s eager to hear what you have to share, so I will hand it over to you.

Alright. Thanks, Cass. First of all, great to see Chris on the call. You know, I heard about American Eagle from Rick Stern, the founder of Nitel.

He had sold Nitel to Comcast, told me about this company, American Eagle, and I’d said, yeah. You’re great. No. Don’t know what’s gonna become of it.

Glad you’re involved. But I’ve gotta tell you the momentum we’ve seen from American Eagle has been phenomenal. The fact that someone as talented as Chris Sealy, decides he wants to be associated with them is a great indicator of who they are and what they do. So, we continue to see a lot of momentum there, and, appreciate Chris being on here to share more of why why we’re seeing that momentum.

We did issue a press release, last week. Some of you have seen that.

Many of you had… Have chatted with me about it. I actually got to make a lot of calls, out to, some advisers and some suppliers. I’m sorry I couldn’t get to any… Everyone. But it actually informed me a little bit on what’s on people’s minds and maybe the questions people have. So let me start from the top of, what happened and why we did this thing and what it means for all of us. So if you missed the news, we took on a strategic investment from Snowhawk Partners. Very excited about this.

And Columbia staying on as an investor. So thrilled with the partnership. Many of you know that we took an investment from Columbia six years ago.

The belief behind that was we felt like the industry was going to consolidate. No longer would be 25 TSDs. It was going to consolidate. There would be fewer TSDs, and scale would matter.

And it turned out that was true. What also turned out to be true is that, Columbia was exactly the firm that we thought they were. We didn’t just, engage with a a private equity per se. We invested with the people there, with Evan Decourt and John Siegel who sit on our board and have been phenomenal.

I actually have a long reputation of, really being good investors and working well with management. That’s why we elected to bring them in six years ago. And look at the track record. What you see is we’ve built lots of things.

We built hub. We expand our engineering rapidly. You you know, the the…

In fact, I was talking to one of our, directors of engineering today about the the run up in engineering we had in 2021. We’ve continued to build tools. We’ve built out the capital program. So many things as a result of that investment that took place.

Also, consolidation.

We have acquired several regional and and some larger TSDs. Again, that thesis of there are going to be a few TSDs. It is a business of scale, and we wanted to position ourselves so we could be in the best place to serve advisers in what we saw as a new future.

So next step, bringing on Snowhawk. Once again, we’re preparing for the future. And as I mentioned in the press release, we are trying to further accelerate. We believe complexities continue to increase.

We also believe there are going to be a significant number of new technologies and services that come online. The advent of AI does not make us obsolete. It makes us critical. In fact, indispensable for customers trying to wrestle with new technologies.

And I think everyone got, carried away for a minute there believing that everyone’s gonna vibe code their own Salesforce application. It’s not happening. What’s happening is those with the resources and with incredible developers are 10 x ing their speed. What that means is 10 x ing the the rate of innovation, and that adds to complexity, which which once again means advisors are critical.

Well, Snowhawk saw that. And it wasn’t just Snowhawk. It was a lot of different, investors that are looking at industry, trying to figure it out, and and wanna be a part of it. And so we had our choice.

We could pick who we wanted. Once again, we didn’t just pick a private equity firm. What we picked was individuals, investors that we can partner with. Robert Reed, Sarah Bach.

Sarah’s got great background in building Equinix and being an executive there and understanding partners. Robert, great background from Blackstone for many years, but they’re also a boutique firm, which means we’re engaging with all of the founding partners, and we know them. And by the way, they have a common background with Columbia. They’ve invested alongside Columbia.

And when we reached out to Columbia about our choice, they said, we think it’s fantastic. We’ve worked with them. We know how they they behave, and, we’re we’re happy to have…

To to, be alongside them as investors. So we feel like we’re in a really good spot, picked a really good partner. But, again, it is for this acceleration that we see. Number one, in technology, but number two, in the things that we intend to build, the resources, the engineering, just like last one.

I feel like this is kind of a repeat of, hey, we hit the accelerator six years ago. We didn’t look back, and we’re gonna continue doing the same.

So as I reached out to, some of you, the responses I heard were, hey. Great to hear the team’s still running. Great to hear that it’s the people we know and trust, and so overwhelming, you know, positive feedback. I also heard questions of, hey.

Who’s got majority? That seemed to be a question on people’s minds. And, my my response to that was there’s never been a majority. Patrick and I were never majority partners.

We were partners. We were fifty fifty.

Then Richard came on board. He wasn’t majority either. None of us were majority. Columbia came on.

They were not majority. And then Snowhawk has come on. They are not majority either. So we don’t have a majority partner.

Never did. But I think what people are really asking when they’re asking that is, hey. Do the operators, still have majority in the business? And my response to that is, that the way business runs, we don’t sit around a board meeting and vote on everything.

In fact, we don’t vote on any…

We never held a vote with Columbia. When we sit around a board meeting, what we do is talk to parties who have seen lots of different businesses, we say, hey. This is how we’re performing right now. This is where we’re investing.

And they ask questions. Have you thought about this? What about that? Are you concerned about this?

Then we have conversations. And there are disagreements of, hey, are you sure about that? That is no different than when it when it was just Patrick and I running the business or when it was Patrick, Richard, and Adam. In fact, Patrick used to say, if we all had the same opinion, one of us wouldn’t be needed here.

He’s right. You do want that difference of opinion, but you don’t bring things to a vote.

You talk through things as partners. Many of you are involved in partnerships, and you don’t just vote over everything. And and that is the way the business has been run the last six years. That is the way it will continue to be run for the… Not just the next six years, but the next however many years as we keep running. And and so I wanted to make sure people knew that because that is one of the questions that I did receive about, what that means. What it means for the future of the industry? I continue to believe in consolidation.

I do believe that the the way TSDs are situated today, we have a great opportunity to be an enablement mechanism for advisers. The more complex things get, the broader the technologies go, the harder it’s going to be to be an expert on all of them. And I think TSDs have filled this great position of, yes, it’s a financial, enablement system to be an insurance so that when you sell one supplier and don’t sell them again, your commission is safe. That’s number one. But number two is the expansion of service, removing friction from some of your daily activities of submitting orders, registration, understanding that, you’re locked in. You’re not gonna be, kicked out by direct.

But but most importantly, I should say increasingly importantly is the information of great suppliers like an American Eagle that just shows up. Where are we going to get that? Well, it takes an aggregation of data.

It takes personnel and data, that that curated data to make available to you at your fingertips. You heard CAS talk about, hey. Just type in the name. You can get an introduction.

Well, turns out you can do more than an introduction. You get a lot of information on these suppliers and our experience with these suppliers, and that is going to increase. What you’re gonna continue to see from Telarus is our data being ingested into a system that you can access to get that information. Right now, a lot of that comes from engineers.

Increasingly, it comes from a database. In the future, it’s gonna come from all of the above, because the breadth of the offering that you’re going to have available to you is going to continue to increase. And your value is going to in…

Continue to increase as long as you can distill that information associate it with the right, customer opportunity, and then stand by them. Make sure you got the levers in that business to make sure your customers are getting the right treatment. Again, as those businesses go from a few 100 to a few thousand suppliers, that that need for, expertise and data on on your side, to stand out as the, penultimate expert, is going to be critical. And that’s where…

That’s what we’re building. Beyond that, I said, about consolidation, that trend is gonna continue. I have no doubt in my mind. I can’t predict timing.

I know a lot of people state they would never sell. I will tell you this. Every every TSD we have purchased has uttered those words to me. We will never sell.

But things happen. The environment changes, you know, situations, change in the industry, and that will happen naturally. TSDs will consolidate down to two or three. And one of the things we’re doing is prepping for that.

We did it with Columbia. We’re doing it with Snowhawk. And, we want people along our side who share our vision in who who advisers are, what their future is, and how we should be engaging them and honoring our culture of putting them first and, helping them in that regard. So very excited about, this stage.

I also think, candidly, I I I selfishly like putting some of the rumors to rest. I think a lot of rumors floating around about what we’re going to do or not do. And and I love the message it sends that we’re in this thing. By the way, Columbia is in this thing.

I think a lot of, folks believe, investors come in, stay for three years, and make a mess and then leave. Well, you can see objectively that’s simply not true. Columbia here for six years, signing up for another five plus whatever it is. I’ve seen investments they’ve been in for over fifteen years.

These are not short term focused people. Like I said, we didn’t go and bring on a a private equity. We brought in partners, like like Evan and John. We’re doing that with Blackstone.

So…

Or sorry, with, with, Snowhawk. So super excited about that and, wanted to make sure you heard it from me, especially as I’ve gotten feedback from some of these calls. So what I’m hearing is a lot of excitement that we’re gonna continue to do our thing. We’re gonna accelerate our thing and for your benefit.

That’s why we’ve always been here. We’re going on our twenty fifth year. I’m super excited to celebrate that next year, and we’re gonna keep doing it. Another question that came up.

People…

A few people commented, hey. Why is Patrick not in the press release?

And what what we’re trying to express is that, hey. Leadership is not changing. By the way, Patrick is still Patrick. He is an owner in the business, continues to be an owner in the business.

But Patrick does not participate in management, hasn’t been a part of management meetings for years. Where you do see Patrick is you’ll see him engaging with partners. You’ll see him at Presidents Club. You’ll see him at Partner Summit in in many places.

He’s always been the cofounder, always will be the cofounder, but his role is not changing from what it has been the last several years.

So some people felt like that was missing from the press release. I want to clarify that. So those are the comments I had based on some of the feedback I had. I wanted you to understand my excitement in in, being at this stage and what it means going forward.

I’m I’m personally thrilled with, the outcome that we got, bringing in the partner we want. But happy to open up to q and a. I know there are gonna be other questions that maybe weren’t addressed, and looking forward to answering some of those. So, let me just, view the the chat here just a second and see if there’s anything we can answer.

Let’s see.

Oh, best coming from Diamond Bar. Love the love the Diamond Bar shout out. Thank you. Go,.

Let’s see.

Yeah. So there was a a question about Patrick. Yes. Patrick continues to be a shareholder in the business, and his role continues as it has been. If you have been to our weekly management meetings, Patrick hasn’t been part of those meetings for years.

Patrick is engaged. He takes calls from partners all the time, works with them on whether it’s capital or or helping them get to the right place or setting up new partnerships. But Patrick also has outside investments. You know?

He’s an entrepreneur at heart. The only reason I sit here is because he is an entrepreneur at heart. I would not have started this business on my own. It’s because that’s who he is, and that’s what he enjoys.

So he does a lot of outside investing, and advising as well.

New acquisition to other TSDs. Yes. I sure hope so.

But, again, can’t predict the timing of that. We just don’t know, but I I do believe in consolidation. I’ve I’ve been stating that for the last eight years.

I continue to believe in that.

Let’s see. Less about multiple opinions, more about the founders being personal investment.

I appreciate. So Zachary kind of specified concern

around majority. Let me just say this again. The way a functional company works is the investors don’t make the decision.

When the investors start making a decision… I saw this once years ago when we were forming the company. We partnered with a public company, and they put a restriction on the CEO that he couldn’t make decisions over $303,000 out consulting the board. You might as well fire the person.

That is not a functional company. The way a company works is the investors bring on a board to represent them. They appoint a CEO. That CEO hires a management team and runs.

And and they sit, there’s accountability, and they talk through things. But when a board starts making decisions, that’s not a functional company. We don’t have a board that’s going to do those things. Richard and I sit on that board.

I happen to be chairman of that board and, have, feel pretty good about, retaining my position as CEO. We…

Operators operate the business. Investors invest. That… That’s the way it functions and the way it should function.

Let’s see.

What’s it needed? Why is the investment needed? Zachary asked, number one, to accelerate. Also, some people are gonna get paid out. Some of the shareholders, people we acquired, people who were here years ago, their their equity gets paid out.

And then benefits go to, you know, future management folks. We… But but most importantly, it’s investing in the things that we want to build for advisers. Like, again, the things I mentioned we built because of Columbia as a result of Columbia investment, those are gonna continue on.

Big one being consolidation, being able to have the resources to to acquire when the time is right.

Let’s see.

Yes. You do see Patrick on Strava.

So a comment about, hey. Advertising what TAs do and their value. That’s a good point. You know, it’s it’s… One of my beliefs is that as the TA motion becomes more universal, similar to insurance brokerage or wealth management, that operators like CIOs just know it is malpractice to not have an adviser by your side. When that becomes a normative behavior, we’re all going to be better off, and I agree with that, that we can help in promoting that of making sure that CIOs know that they need an adviser alongside That is that is good for all of us, and I agree with that.

Are Columbia looking to sell out? No. In fact, this transaction is evidence of that. If they were gonna sell out, they would have, but they’re not. They are, continuing on with us.

Expansion of support staff. What you’re gonna see is improved support. We have been on a tear, I would say, the last year and a half in terms of our improvement over support. That continues to get better. We continue to invest in that regard. Our belief is to the extent we can serve you better, whether it’s commissions advocating for you or just taking headaches away and friction away, you’re gonna be happier me… Enabling you to go sell more. So we will continue to invest in support.

Let’s see.

Let’s see how the investment will accelerate TA growth.

So, yes, I I I love that, Tim. What’s in it for me? Again, like I said before, build… Building out the tools and resources.

What last… You know, when we took the last investment, I think we went from five engineers to 19, pretty rapidly.

You all…

We also got out to the field quite a bit more. What you’ve seen is our education platform, has expanded. Turns out we are working on our education platform right now, that is going to be released early next year. You’re gonna see more there, where content got improved.

You also saw us build out other product segments. So you’re gonna see additional suppliers come in that we can vet and support. So you’ve got, an ability to sell more, relevant products. So those things will all increase increase.

What was the…

Let’s see. Any changes to personnel? Not that I know of. People always…

You know, people make decisions. The company also makes decisions on on personnel. I’m pretty proud of our tenure. We have very long tenure, and that’s important because it’s a relationship business to have people you’re familiar with.

But, no. I don’t I don’t see an exodus. In fact, I’ve talked to a lot of the people who…

When I chat with our, employees, I talked yesterday to a lot of advisers. Sorry. Last week. This week, I’m talking to a lot of employees and checking in with them.

And I gotta tell you, they’re so excited for just continuing to run, just like you. You know, they’ve aligned themselves with Telarus.

They believe in what we’re doing, and, they just wanna run. And, we’ve attracted incredible people, and, we’re gonna continue to attract incredible people and keep incredible people. But, no. There’s there’s no exodus, that’s gonna happen. Let’s see.

Turn our goals.

Up… Let’s see.

Let’s see. Deeper bench. Here’s a summary. Deeper bench, more tools, expanded suppliers, plus the I four strategy. Yep.

Is Snowhawk the lead investor? No.

Snowhawk is a minority investor. So similar to Columbia, similar to me, they are a minority investor.

So there is no lead. Let’s see. Telarus suppliers grow beyond 500. Yes. I’m confident that suppliers will grow beyond 500.

The the the resources that we’re going to be able to provide or rather the suppliers we’re gonna be able to provide is gonna continue to expand just like it has historically. Remember, started out in calling cards, long distance, you know, Internet access, quarter t ones, half t ones, we used to sell, fractional t ones, I guess. And that continues to expand. That trend is not gonna stop.

What is critical though is that you have information, proprietary data at your fingertips. AI is gonna level a playing field so people can access…

They can scrape every website and get information and create a comparison very quickly. What AI can’t replicate is you, of of you being around after the implementation, standing behind the product you sold, taking care of the customer when things go sideways. That’s not replaceable. What you need, though, is proprietary data.

How has this product been implemented in the last six months? How happy have customers been? What has been our engineering experience on sales engagements here? Are they what they say they are on the website?

60% of the data that we get submitted from suppliers is is what we vet through and about 60% makes it into our database. 40% does not. What that says is what is being stated on the website, we cannot always validate. We don’t always believe it.

You need that kind of curated data to be relevant, to your your, your customers or rather to be differentiated, I should say, from what they’re just getting off of the web. That and you standing beside them when they make a choice and implement and, continue on, That that just doesn’t go away, but it will be enhanced by the the data we’re providing.

Let’s see. Education. Thanks for that, Joanne. We’re gonna continue with education. That is a… One of our our major pillars that we think is critical for serious advisers.

Five years from now, how many will be? You know, I don’t know what the timing is going to be on how many TSDs. I believe it comes down to two or three. All you have to do is look at examples of other large, you know, scale businesses. You can look at railroads and how they consolidate it down. It doesn’t make sense to have a 100 different railroads.

But also on TSDs, look to the technology distributors.

The…

You’ve got TD Synnex, and you’ve got Ingram. That didn’t play out for a number of years. Tech tech data was on its own. SYNNEX was was on its own.

And then you had Ingram, and you had others as well. It took a while for that to consolidate, so I can’t predict timing. But I do believe it comes down to two or three. That…

That’s my belief.

Let’s see.

Asked about plans to go public. No no current plans to go public. You know, we have had thoughts, about, hey. How do we involve, you know, advisers on the economics going forward? But going public is not a conversation right now.

It’s it’s interesting, but, candidly, I don’t envy ScanSource. Like, when they kinda go up every quarter and talk about what’s going on and why. You know, I think when you’re trying to do more long term oriented building, being nonpublic and not focused on the next quarter’s results is really nice. Doing big meaningful things takes more than three months, And I think public…

The public markets can sometimes be a nuisance. There is an advantage, however, because you can make more people a part of of the growth. And so there is an advantage, but that’s not an active conversation right now. May…

Maybe someday, but not an active conversation right now. That’s right. Shop for DSL. Thank you, Zachary.

Let’s see. Best contact or recommend a new supplier. I I would say one of the most underutilized, resources for new suppliers is use the, Matrix Pro. If you go on to Hub and use Matrix Pro and just talk to it, just enter information, filter down, you’re gonna see great information.

Also, our supplier insights, I would say narrow it down first, then reach out to an engineer. You can also reach out to your PDM, and they can direct you to the right. If you’re really looking in a specific area, you maybe wanna get it to a solution architect. But we have an incredible engineering team now, enabled by some tools that we’ve built to aggregate the information.

So I would say just submit. If you just submit the the the request to, [email protected], you’re gonna get a great response quickly. So you can you can start in any one of those paths.

Let’s see. Several suppliers have a VAR channel and an agent channel. VAR discount is almost always substantially greater than TA payout.

Often, we’re seeing…

So so that’s right, Tim. From a resell motion, yes, there is. What’s interesting is when people get into resell, they realize that all of sudden they gotta manage collections and bad debt, and there there are a lot of other things. So certainly a different motion.

We’re able to tap into some of that resell motion through our MSP providers. When you work with, like, a Quest, for instance, who are gonna bundle those things together as a service, take care of all the billing, I find that most advisers want that, but there is a resell motion adviser you’re asking for, and we’re actually working on that. We have something behind the scenes we’re working on where people want to be enabled for that. But, yes, there is a difference in margin, and it’s because of the risk, the risk in the collections that that you deal with.

I really like our our margins for the role we play in in the market.

Let’s see. What role will you have in the near future? Well, I hope my current one.

Unless Richard decides to fire me. Richard and Patrick ding up on me decided to fire me, but, my role is right here. I’m I’m continuing here. Let’s see.

Address resell. Yeah. That’s an active conversation. Again, most advisers don’t want to. And and the difference in margin, think, Tim, is because of the risk profile, the billing, the collections, everything else.

Let’s see. Robin.

Let’s see.

What else? Suggesting new supplier to be listed. Oh, suggesting new supplier? You can suggest a new supplier anytime.

You can reach out to, supplier management, and and they’re happy to take suggestions. By the way, when an adviser suggests a supplier, we look a lot closer to just people who are signing up. By the way, there’s no way to sign up anymore on the website as a supplier because we found most of those were not great outcomes. People need to know the channel.

We’re…

We can’t build the channel for suppliers. We’ve found through long, sad experience. If they have an existing channel or they’re willing to hire a consultant to help them with their channel or invest in channel know how, putting hard dollars on hiring channel veterans, that’s a great signal. But the best signal is when you recommend someone and say, hey.

I’ve seen this. I’ve worked with them. I really think you should do that. That advocates for…

Advocacy from you is is the brightest signal that we see. That’s the strongest signal of future success of a supplier when we’ve we’ve already seen them work well with an adviser. So please do tell that. Feel free to share it with your PDM.

Just reach out to us. That way, we can get you in touch with supplier management.

Let’s see.

I hear you, Tim. And, by the way, Dan’s got some things up his sleeve.

You’re… You you… You’re welcome to reach out to, Dan on that, but, I hear you on on the resell. Let’s see.

Yep.

That’s right. On resell. Let’s see. I think twenty four years.

Yeah. Zach… Zachary. By the way, those that don’t know, Zachary is OG. He, he joined us probably a year into it. I was gone on my, honeymoon when, Zachary joined, Patrick signed him up.

And it is it is so fun to be on a journey this long, with folks you’ve grown up with, that you’ve, you know, built businesses with and seen their kids grow up. It’s, the the journey of a lifetime. Just phenomenal.

Anticipate acquiring customer facing selling agencies. No. Tim, glad you brought that up.

That…

That’s a no. We don’t think our space is in, customer facing agencies. We do have…

You know, our customer success team will manage customers on behalf of adviser, moves, ads, changes, upselling, but we believe that should be done on your behalf. I think that becomes very confusing if we were to step into acquiring agencies and trying to be an agency. That’s just not our our place. We believe…

And we made this decision twenty two years ago. It was shortly after we started. We were developing software. I was selling, so we were kind of an agency and a TSD.

When we got really clear about who we wanted to be, which is supporting advisers and helping them be successful, everything else lined up. We didn’t have to debate a lot. We could debate about what…

How we help them, but we didn’t have to debate what the business is. And so, no, that’s a bright line for us. We are not acquiring agencies. You can see from our capital program, happy to get capital to an adviser for them to go build their business, for them to acquire advisers.

Hey. If someone wants to get out of the game, we’d love for them to be bought by another Telarus adviser, and we wanna put capital behind that.

But in terms of us buying, selling advisers, that’s… That hasn’t happened. It won’t happen. That’s not in the cards. We just don’t think that makes sense. We strongly believe in in, independent advisers. I think that’s the end of the questions.

Any other questions?

Alright.

I think we’re there, Cas. Yeah.

I see it. Yeah. It looks like they were… We’re all done. Alright. Adam, thank you so much for joining us, sharing that important update.