Cooperation drives survival, and even success, in rough seas.
The clever clownfish has the right idea-pick trustworthy and powerful colleagues. In one of the most amazing symbiotic relationships on the planet, the endearing clown of the reef uses its specialized skills to bargain with the normally fish-devouring sea anemone. The clownfish cleans the anemone, keeping it free of parasites and debris; meanwhile, the anemone's poisonous tentacles provide its groom with shelter and protection. The result of this unusual teamwork? Significantly improved standings for both creatures in a cutthroat, survival-of-the-fittest world.
Cooperation among professionals with differing specialties often yields the same results for advisory firms. Data from the 2003 FPA Compensation & Staffing Study, compiled and analyzed by Moss Adams LLP and sponsored by SEI Investments, reveals a clear picture of those who are truly navigating the rough market and those who are floundering to keep afloat. Moss Adams has found that ensemble firms, wherein multiple professionals collaborate to provide services, consistently outperform solos, or single professionals working in isolation. Additionally, the data unmistakably indicates that the greater the degree of specialization, the better the firm's performance. A sure measure of this success is the level of pretax income per owner. High-profit ensemble owners (the top quartile of ensembles, as measured by owner income) make, on the median, 33%, or $80,700, more than high-profit solos (the top quartile of solos). Cooperation increases the size of the pie at a faster rate than the increasing size of the partnership and staff.
However, simply working together does not offer a complete picture of the source of this success. Just as the clownfish collaborates with an organism from a separate branch of the animal kingdom, rather than schooling with other clownfish, so advisors also optimize their chances of success when teamed with professionals of distinct talents rather than flocking with colleagues of like plumage. When asked to describe their service model, half of the survey participants said they were multi-service generalists, or professionals who individually provide an array of services including planning, investment, estate, tax, risk management, etc., to their clients. Only about one-tenth of respondents indicated that they were wealth managers, or firms with at least three professionals representing different specialties and serving clients as a team. Although nearly half of the generalists worked for an ensemble firm, they did not seem to be deriving the expected benefits thereof. The "safety in numbers" technique, where those with similar skills school together, is not as compelling or effective for advisors as the multi-skill collaboration template. The disparity in owner income between the two is dramatic. Wealth management firm owners are, on median, earning more than twice what their generalist counterparts do-a difference of almost $136,000 in 2002.
A profile of the specific characteristics for success emerges after delving deeper into the financial performance of these firms. Key aspects of top firms include:
Fewer (per professional), broader and closer client relationships
Leveragable staffing structure
Large clients ($750,000 minimum)
Higher revenues and higher profits as a result
Ensemble firm professionals in general, and wealth management professionals in particular, are able to focus their energies on a much smaller body of clients. This leaves time for more personal attention to clients and the opportunity to offer services more individualized to each client's needs. The smaller number of relationships per professional does not translate into reduced revenue potential, however. It is likely that at least two, and as many as all, professionals at a wealth management firm will have a relationship with each client-meaning that each client is generating at least two times higher fees than at a firm with more numerous but shallower relationships. In fact, ensemble and wealth management firms consistently show higher revenues per client and much higher revenues overall.