Finding the right fit for how you build and grow your practice depends on what you want-and need.
A couple of years ago when I wrote a book about how to find the perfect model for your advisory firm, I learned that "perfect" was a subjective term, depending more on your skills, your goals and your definition of success than on a common ideal. That's still true today. But more so.
For some people in the advisory business-like Mark Hurley, who was CEO of Undiscovered Managers at the time I wrote the book, "perfect" meant bulking up, getting big, to compete with the other big guys-private banks and brokerages and the like. Hurley had industry research reports, albeit developed by his own firm, to prove that big would win. But many small or even solo practitioners vowed they would never give up their independence, nor their insistence on knowing every client in the firm personally.
Hardly surprising then that we've seen action on both the large and small ends of that spectrum-and at most points in between. Hurley, along with New York investor Howard Milstein, created Fiduciary Network, a holding company, to buy minority interests in a dozen or so large wealth management firms, beginning with Evensky & Katz in Coral Gables, Fla., and RegentAtlantic Capital LLC in Chatham, N.J. The two will invest only in fee-only firms, which they believe is the best business model.
Smaller firms, too, are continuing to grow in ways that suit them best, moving slowly, focusing on goals and values and balance between work and family. Two of these small firms recently merged, doubling their size to include four principals, four employees and $300 million in client net worth. Each maintained its own office location, one in Boston and one in Bethesda, Md., for the first stage of the two-part merger, which was put in place December 1, 2006.
Mergers of financial planning firms have had mixed results. Although these two firms are small, the planning of this merger was anything but. The roots go back two years to when Annette Simon and Veena Kutler at Mosaic Wealth Management in Bethesda identified rapidly increasing overhead costs and resource constraints as the firm's greatest challenges going forward.
The two women had partnered in the fall of 2000 and were happy with the result. Simon, 48, a CFP licensee and NAPFA member who has an M.B.A. from Yale, was most interested in financial planning for clients. Kutler, 50, a CFA who had been a fund manager for T. Rowe Price for 13 years, liked the investment side. A small-yet perfect-model. The two write a monthly practice management column called "Building the Business 101" for Morningstar Advisor, where they detail their brainstorming and decisions on where to go as an advisory firm.
As they grew, they tried outsourcing but were unhappy with the results. Next they hired two employees so the partners could focus on the business. That was good. But not enough. They could see that they wouldn't remain competitive in financial planning unless they took more steps to grow and to cut costs.
So they considered an alliance that would pool resources and share expenses, hand-selecting four firms to include in a conference call about possibilities for the alliance. The planners on the conference call had plenty of ideas for an alliance, but little agreement on the form it should take. But one of the firms, Smith Rapacz LLC in Boston, had so much in common with Mosaic that the two firms began serious talks in fall 2005.
The Boston firm also had two partners with the same client-centric approach to financial planning. Lisette Smith, 43, a CFP, first went to work for a brokerage when she decided on a career in financial planning. When she "figured out it was sales rather than planning," she moved, in 1987, to a multifamily wealth management firm in Boston, where she was director of financial planning. Twelve years later, Tanya Rapacz, 36, CFP, joined that firm.
"We knew right away that we wanted to work together," Smith says. "The family firm was AUM and saw planning as a support service. We wanted planning to be the driver." When the two set up their partnership, also in fall 2000, they chose a fee structure based on net worth because they planned to give financial advice on the whole picture for each client. Many clients who came to them had a high net worth yet didn't have the $1 million to $2 million minimum in investable assets required by many wealth management firms. Five years after they formed the partnership the Boston planners, too, wanted to grow. "We had a lot of the start-up stuff out of the way," Smith says. "We wanted to take the firm to the next level." Also, Smith says, the perspective of the client was an important factor. "We thought we were being compared to bigger firms and that clients might be thinking, 'Are they big enough? Can they handle this?'"