More personal attention
More capability for developing individualized solutions rather than offering products
More of a corporate atmosphere
Consequently, many wealth management firms are in a position to set a minimum account size of $1 million or greater. Those participating in this study were somewhat smaller, but nevertheless show client account sizes of nearly four times that of a generalist firm. The high-profit ensemble and high-profit solo figures were very similar to those shown in the adjoining graph, with high profit ensembles showing significantly higher assets under management per client than their high-profit solo counterparts.
Revenue
A natural consequence of the differences between firms of different organization structure and service model is annual revenue size. On median, high-profit ensemble firms brought in $1.3 million in 2002, 2.9 times the revenue of high-profit solos.
The difference between wealth managers and generalists is even wider. On median, in 2002 wealth managers had revenues of $2 million, over six times the median revenue of generalist firms.
A Warning From The Clownfish
Studies performed at the Sydney Aquarium in Australia have revealed a more sinister side of the relationship between anemones and clownfish. When first introduced to a new anemone, a cautious clownfish circles and gradually draws close to it, finally touching the anemone as it starts to groom. At first, the tentacles stick to the fish, indicating the anemone is injecting its poison, but as the clownfish carefully repeats the exercise the anemone accepts it and allows it to roam at will through the tentacles. However, an unwary clownfish that rushes in prematurely is quickly killed and eaten.
The lure of the upsides of specialization and cooperation may lead to a hasty merger with a lawyer and a CPA or two. But beware: Until trust is developed, your potential ally is your erstwhile competition. Unfortunately, Moss Adams encounters many firms that have rushed into an ill-matched merger begun in the blinding glare of revenue growth potential. That said, the growth potential is not an illusion, if the allies are tested for a good fit and chosen following a carefully thought-out strategy. Advisors should heed the lesson of the clownfish: specialize, collaborate and succeed.
Bethany Carlson, CFA, is a business consulting analyst for Moss Adams LLP focusing on financial and operational analysis, financial forecasting and modeling, and compensation program analysis and design. She can be reached at [email protected].