Comparing high-profit ensemble and high-profit solo firms leads to the sobering realization that solo firm owners are working harder and faster for less reward. The typical high-profit solo firm owner maintains 155 active client relationships, more than three times the number that a professional at a high-profit ensemble firm serves. Even taking into consideration the greater amount of time that an ensemble firm client will likely require (because they tend to have larger clients with more complex financial issues), this is an extreme difference. The high-profit solo owner has traded time for income-such a high number of active relationships demands late nights, working weekends and limited or nonexistent vacations.
This trend is borne out between wealth managers and generalists, too. While the burden is less severe than in the solo case, generalists are still hard-pressed at 100 relationships, twice the number served by a wealth management professional. The vision conjured up by this statistic is exhausting to consider, given the array of services that the single individual is attempting to provide alone.
Staffing And Production
While Moss Adams comes across many firms that struggle to really get staffing right, the ensemble and wealth management firms typically come closer to the target. Ideally, owners and senior professionals will have the freedom to generate new business and solve complex client issues because they have talented professional and subordinate staff to manage technical work, client service, compliance and administration. In essence, leverage means that it should be cheaper for others to do the bulk of the work than for the owner to do it herself.
High-profit solo firms, which typically consist of one support staff person (such as a paraplanner), and one administrative staff person (such as a secretary) in addition to the owner, suffer most acutely from the limitations of their organizational structure. Three factors squeeze the solo owner due to the lack of personnel leverage. First, there is no one to pass the professional work on to. Next, there are only 24 hours in a day and 365 days in a year, which place a physical limit on the owner's ability to serve and acquire clients. Lastly, if a client has an issue outside of the solo owner's realm of expertise, the owner will necessarily lose that part of the client's business unless they have a trustworthy referral relationship with an outside practice. Combined, these limitations place a ceiling on both client and company size that solos simply will not be able to break through.
High-profit ensemble firms have addressed this issue to a certain extent. The typical staffing structure consists of two owners, two professionals, two support staff and two administrative staff. While more people certainly share the burden than in the solo case, the relative lack of support staff indicates that the typical high-profit ensemble could become more efficient if junior employees were available to take over more of the professionals' routine workload.
Wealth management firms are closest to the mark. The typical wealth management firm has three owners, three professionals, five support staff and three administrative staff. This provides the kind of structure that can really free the owners up for more sales opportunities. However, data indicates that wealth management salary expenditure is somewhat high as a percentage of revenue, indicating that they have yet to "grow into" the staffing structure of their firm. This may change as the market improves. Many firms added new staff over 2002 and may not have had the chance for revenue growth to catch up with the increased personnel expense.
Although strongly correlated to pricing and client size, it is important to point out the differences in production between the more and less successful firms. High-profit ensemble owners are generating almost 75% more revenue apiece than the typical high-profit solo owner. Part of this substantial difference is attributable to their increased capacity, thanks to their professional staff.
Client Size
So why is the clownfish's technique so lucrative for advisory firms? Because it attracts big clients. The specialized knowledge and teamwork at a wealth management firm offer many things that a solo operator or service generalist cannot compete with:
More professional degrees and designations
More specialized areas of expertise