Advisor Peter Wheeler says his network can give any advisor the ability to offer family office services.

If the family office is indeed the wave of the future in the advisory business, Peter Wheeler thinks small independent shops are in for the fight of their lives.

It's hard to argue the point. It's generally recognized that advisors are under pressure to provide a wider array of wealth management services to affluent clients. It's also a fact that the demand for more services comes at a time when profit margins are eroding and many advisors are looking for ways to cut costs.

Throw in the fact that advisors are facing more competition from banks, full-service brokers, insurance companies, CPAs and the like, and you can't blame independent advisors for feeling like they're under siege. While the bear market of the past three years may have prompted some financial giants to retrench temporarily, they'll be baaaack.

Wheeler, however, doesn't see the situation as hopeless. In fact, he feels he's found a way for independent advisors to affordably compete with the Merrill Lynchs of the world. "That's something of which I'm most convinced," says Wheeler, president and CEO of Wheeler/Frost Associates, a fee-only wealth management firm in San Diego he started 20 years ago. "I can give any independent advisor the ability to look his client in the eye and say we provide comprehensive wealth management services."

What's most important, he says, is that they can do it without spending heaps of money to add in-house staff. That provides the additional benefit of opening up wealth management services to less affluent clients, he says.

Wheeler claims the service can be cost-efficient, even for clients with less than $1 million in assets. "They can provide all that service, be the quarterback of that team, without adding functionality in-house," he says.

What Wheeler says can do all this is FamilyOfficeNetwork LLC, a Web-based platform he launched in April that allows small, independent advisors to set up and manage a virtual family office.

Wheeler's vision is that FamilyOfficeNetwork will spur the creation of local networks of advisors, CPAs, attorneys and other wealth management professionals, all sharing client information online via a secured Web site. He likens it to a "virtual filing" cabinet, with the advisor controlling who has access to which client documents, and who has the ability to make changes to client information.

The network also allows members to send private electronic messages to one another. A crucial element, as Wheeler sees it, is that the financial advisor will be at the hub of the activity-managing the relationships as well as the client's assets. "The advisor stays in control," Wheeler says.

That's a significant component to FamilyOfficeNetwork because, typically, it's easy for an advisor to lose touch with a client whose issues are being handled by multiple professionals. This is because the client is usually the one at the center of the system, Wheeler says.

"This keeps the advisor in the loop," he says. "I found time and time again, when referring a client to an attorney, let's say, the client is back six months later, and I never heard from the attorney he talked to."

As of now, the network is more vision than reality. Wheeler is still striving to gain the critical mass of advisors that he feels is needed to provide true comprehensive wealth management services. Since launching the service in April, about 21 advisors, CPAs and attorneys have signed on.

He attributes the slow start partly to the unsteady economy and the struggle it has caused among financial advisors. "Very honestly, it's going a lot slower than I'd like it to be," he says. "Everyone is so busy trying to stay even that taking on a new project is something they don't see themselves doing at the moment."

The network has thus far signed on local coordinators in nine locations: Oklahoma City, Dallas, Atlanta, Baltimore/Washington D.C., Cincinnati, Wisconsin, Palo Alto, Calif., San Diego and Sydney, Australia.

The job of the coordinator, Wheeler says, is to recruit professionals who would be members of the local network and potential partners in serving clients. A coordinator will typically try to limit the network to professionals within a 25-mile radius, he says.

Individuals pay $1,000 per year to be members of the network. Coordinators pay $3,000 per year and get a 20% share of all fees collected from local network members, Wheeler says.

At that cost level, Wheeler feels the network could make wealth management service cost-efficient for a broader range of clients. "When I first designed it, the target was a minimum of $2 million to $5 million in assets," he says. "Once we got it done and looked at it, I changed my mind. It's really something beneficial for any level of client if there is a need for two or more advisors."

He notes studies indicate clients prefer the comprehensive wealth management approach. He cites a survey by J.P. Morgan Fleming Advisor Services in which clients who were offered one service had a satisfaction rate of 39.9%, compared with 96.6% for clients who were offered three or more services.

Mark Tibergien, a consultant with Moss Adams LLP in Seattle, says the network could be a big cost saver for advisors at a time when they're under pressure to expand services. But he was skeptical of the claim that it's suited for all clients. "That's a great example of someone creating an outsource solution for practices that don't have the wherewithal to do it on their own," he says.

Still, it may not be cost-effective to provide services for clients who are low on the wealth scale. "There is always that cost-benefit question," Tibergien says. "He may be right, but the big question is what's the cost to the client, and if it's too low, what's the profit margin in it for the advisor?"

James Whiddon, president and CEO of J.W.A. Financial Group Inc. in Dallas, became the coordinator of FamilyOfficeNetwork's local network in Dallas a little over a year ago. Before setting up the network, Whiddon says his firm was considering transitioning to a family office by hiring staff over the course of the next five years. The network, he says, allowed a cheaper and faster way to roll out the service. "This gives us the freedom to use other professionals without making the firm, deeper commitment" of hiring someone, Whiddon says.

The local network in Dallas has signed on four members since it started, with two others currently evaluating it, he says. About 15 to 20 of the firm's 75 clients have used the members, who now include attorneys and CPAs.

Whiddon says he wants the network to grow to at least 25 to 30 members and to eventually include other advisors who have specialty practices. "We're looking primarily for financial advisors who don't do what we do-niche advisors," he says.

The network that is furthest along is Wheeler's in San Diego. It includes a dozen members, including a local Mercedes/Porsche automobile dealer-

ship. Wheeler says he wants the network to have 50 advisors by the end of 2003.

He estimates the network is servicing 60 clients. He cited as one example an elderly couple who, with Wheeler's help, selected an estate attorney, provided him with all the data needed for wills and trusts, and received draft copies of the documents-all online.

A CPA who is part of the San Diego network, Ed Blitz, president of Blitz, Lee & Co. in Mission Valley, Calif., says the network whittles down to minutes document exchanges that normally can take days. If Blitz needs a client's capital gains and losses, for example, he used to have to phone in the request to Wheeler's office, wait for them to retrieve the information, then wait for it by fax or mail. With the network, Blitz says, the information is at his fingertips.

Likewise, if an attorney needs a client tax return, Blitz can upload it to the network Web site, where the attorney can download it in minutes. "Various things come up during the year where we need certain information, says Blitz. "This makes it really convenient."

Wheeler says the origin of the network goes back to 1997, when California passed legislation giving CPAs the ability to get into the investment and insurance businesses. To Wheeler, it was a signal that competition and client demand were inevitably pointing the advisory industry toward one-stop comprehensive wealth management services.

For independent advisors, Wheeler knew there would be difficulties transitioning to this kind of service. On a practical level, Wheeler says, communications between an advisor, attorney and CPA of a single client can be time-consuming. That results in the client taking the lead in coordinating everyone, when that should be the role of the financial advisor, Wheeler says.

One of the aims of the FamilyOfficeNetwork, in fact, is to have the advisor play an active role in helping clients chose other financial service providers. "The typical advisor response is what I call the three-card referral system," he says. "That's where the advisor says, 'Here are three cards of insurance agents. Give them a call and see which one you like.'"

Knowing that strategic partnerships were probably the only viable alternative for small independent advisors, Wheeler went looking for software solutions to the communications problems. What he found, however, were products that facilitated communications between advisors and clients, but nothing that helped advisors communicate and share documents with other professionals. Making matters worse, Wheeler was looking for something that would facilitate communications among a multidisciplinary group of advisors.

"We're trying to provide connectivity between very different types of practices," he says. "There was just a lack of products that provided a good cohesive work flow."

So Wheeler decided to pursue his own solution starting in 1999, when he incorporated Synergy Financial Services, the precursor to FamilyOfficeNetwork. From that point, the challenge was finding a software developer willing to take on the job of developing a highly secure file-sharing platform for advisors and their clients.

Wheeler ultimately inked a deal with ScheduleOnline, a San Diego-based software development firm, in January. Four months later, the company produced a finished product. The company also hosts the network on its servers. A third version of FamilyOfficeNetwork, which will provide expanded messaging capabilities, is currently in the works, Wheeler says.

Wheeler, meanwhile, acknowledges some issues still have to be put to the test as the network grows, such as the way in which network coordinators select members. He also screens the coordinators himself. Once selected, he says, their job is to find "quality people" as members of the local group. This includes checks for any disciplinary actions and making sure they're property licensed and certified. Because members will be from the same locale, Wheeler also expects coordinators to pick people they know.

But he acknowledges that depending on personal familiarity has its drawbacks. He notes that if someone applies to be a provisional member of a network, all other members are notified and have the right to reject an application. The coordinators would have the final say in such a situation, he says.

"Most of it comes down to a reputation issue," he says. "That's a tough one to work with, and so far we're small and it hasn't become an issue. But someone is going to get upset about it eventually."