• Difficulty in differentiating in the marketplace

• Would like to build something with transferable value

• Cost pressures, fee squeezes and declining profitability

The problem is that these are chronic conditions that have existed for almost as long as I have been a resource to the industry (over 20 years). So I ask the question: "What are you going to do about it?"

What I have always said is that I believe there will continue to be a large contingent of "lifestyle" practices, individuals who have no desire to ever have, or be part of, a firm bigger than what they currently have. They will continue to make a living, but they will not be able to adequately address the problems identified above. As a small firm, it is harder for them to make an impression on their market, to ensure continuity to their clients who are getting older and care about this sort of thing, to keep good people who may want a career path, to have sufficient capital to invest in infrastructure and processes that will help them be better business people. But for many of them, none of this is important–they can handle a manageable number of clients, make a profound impact on their lives and, in many cases, lead a balanced life themselves. But, if they ever start complaining about the issues on this list, then it is time for them to re-examine whether remaining very small and very independent is a proper solution for them.

I have had no less than 10 conversations with advisors in the past two weeks who are experiencing one of the toughest tests of their business careers. The above problems are highlighted because these advisors have managed in only a growing market and economy, not one that is in a tailspin. So client service now becomes paramount in order to protect their flanks–this impacts productivity because of the defensive nature of managing relationships (no new assets, just increased time and cost to reassure them).

Consolidation of service businesses has always been tough. It‚s not like rolling up muffler shops. That said, I believe there is opportunity, not need, for firms to consolidate, especially on a regional or local basis. There are few, if any, markets in the U.S. in which there is a dominant financial advisory firm. As a business, the profession is fragmented, which creates vacuums in the market. That‚s why Merrill Lynch, Schwab, CPA firms, trust companies and others are coveting this opportunity so much.

So will firms be forced to merge? No. But will they be forced to manage their practices better? Yes, absolutely. The New World Order will not necessarily come from consolidation, but from the need for professional advisors to improve their skills as professional business managers. Nothing is more embarrassing than for a financial advisor to go broke or not be able to cover their monthly nut.

Mark C. Tibergien, principal
Moss Adams LLP
Seattle, Wash.

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