Other ways to win clients? Consider creating a niche as a fee-based wealth manager who offers alternative investments, the consultant says. The movement toward fee accounts dominated the past few years. Fee-based accounts grew from $82 billion in 1992 to $769 billion in 2002, Tiburon finds. Alternative investments like hedge fund assets grew tenfold to $550 billion in the same time period. Marketing wealth management services as opposed to just investment management, Roame added, allows advisors to offer and charge for a host of services, such as private banking, risk management and wealth transfer, which aging boomers need.

A Tale Of Two Practices

RegentAtlantic Capital wanted to become a bigger, more profitable advisory firm, but its owners found that they had to make major changes in strategy to achieve that goal.

Three or four years ago, the Chatham, N.J.-based firm thought the way to expand would be to hire a CEO to help it acquire or merge with other firms. It also increased its office space, took out a large loan and hired more staff. But those moves didn't produce the desired result. RegentAtlantic did complete one acquisition, but found other firms it approached weren't interested, says owner David H. Bugen. Profitability declined, and the firm lost money in 2001.

In January 2002, RegentAtlantic hired Seattle-based Moss Adams to review its strategy and do a comprehensive compensation study. By March of last year, changes were underway.

"What the study said was to focus on our core business," Bugen says. "We had been looking at adding trust and tax services. We needed to focus on our core business and limit acquisitions, focus internally and find solutions for our legacy clients."

Although the CEO had done a good job, the firm didn't need one if it wasn't going to be doing a lot of mergers and acquisitions, so he was let go, Bugen says. Eliminating that position and cutting other costs reduced expenses by $300,000 to $400,000, he notes.

Another important step RegentAtlantic took was to create teams and institutionalize its revenue stream, so clients belong to the firm as opposed to any one advisor. Each of its six wealth managers leads a team that also includes an analyst who is a CFP licensee or in the CFP program, as well as a client services administrator.

The firm also developed a compensation plan that distinguishes between labor and ownership. Owners are now paid salaries based on the fair-market value of the job they do, and they receive a percentage of any profits based on their ownership.

RegentAtlantic, which has 18 employees including five owners, also established an incentive compensation plan for all employees based on targets for firm profitability, revenue growth, the number of new clients and client retention, Bugen says. "Everyone in the company gets a percentage of their pay if we hit those targets," he explains.

The plan began in July 2002. The company ended last year with a 7.7% profit margin, and expects to hit at least 18% this year. Bugen would like to get to a 25% profit margin.

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