"Everyone is more attentive, and we share financial information with employees on a quarterly basis. We don't share individual compensation, but we share revenues and expenses and what the profits are," he says.
The Moss Adams study also recommended that the firm increase its number of clients, based on the size of its staff. Since then, the firm has added about 100 clients and now has between 450 and 500, Bugen says, and each new client must pay at least $10,000 a year in annual fees. The firm's average portfolio increased from about $1 million to about $3 million, he adds.
Also, the firm now won't add a new owner until revenue increases by $1.5 million, and new owners must buy shares, either with revenue coming from a merger or by writing a check, Bugen says. Advisor Bill Knox, who spent 25 years as a tax attorney, became an owner in the last year by writing a check for his shares, Bugen notes.
Kochis Fitz Tracy Fitzhugh & Gott also has been very successful at building a bigger, more profitable firm. Its strategy has been fairly consistent since Tim Kochis and Linda Fitz started the firm in 1991. The two have worked together since 1982 at firms that include Deloitte Touche and Bank of America.
Early on, they acknowledged the desirability of expanding equity ownership. In fact, over the years they've added several partners, and the 24-person firm now has seven. "In order to be able to attract and retain people, we didn't have any choice," Kochis says. "It wasn't that we had to be dragged into it. We were eager to do it because we feel it's a very important part of our business."
The firm now has 10 planners, six of whom are owners. Another owner is the firm's chief financial and administrative officer. Supporting the planning professionals are administrative and operations staffs.
Moss Adams also did some compensation consulting for Kochis Fitz, but the firm already had made progress on revising its compensation structure, Kochis adds.
Today, the firm has a plan for nonshareholders and shareholders. The arrangement for nonshareholders includes three components: base salary depending on the market value of the job, a team bonus or profit-sharing that's distributed equally, and an individual bonus that's a percentage of base salary and based on individual goals, he says. Shareholders have a similar plan, but it also includes a fourth component: a dividend based on percentage of ownership.
The firm has made money pretty much from the outset, Kochis says, but it's hard to accurately measure its profitability in the earlier years. That's because it was only three or four years ago that the firm began paying salaries to shareholders based on the jobs they do, he says. Before that, owners didn't actually get a salary but rather a share of the profits, he says, so no dollar amount had been put on their labor contribution.
Kochis believes one aspect of the firm's culture is a key to its success: "We are a firm that does not tolerate internal competition. Everything is set up so that all the clients are clients of the firm. Compensation is not at all a function of the business you bring in or the business you're responsible for," he says.