In the 1990s, there were dire predictions about the demise of the independent advisor channel and the solo practitioner. Nevertheless, more than a decade later, according to Insights Into Financial Teams, a study completed by the Oechsli Institute in 2011, 54% of advisors are solo practitioners.

Still, 54% is probably a smaller percentage of total practices than it was 10 years ago. And advisors will likely continue the current trend of teaming up with each other: The Oechsli study revealed that 31% of solo advisors expressed an interest in either joining or forming a team within 12 months after the time they were surveyed.

As the industry marches forward, it is helpful to know some reasons why advisors choose to band together.

Younger advisors like to join established firms. Many mid- to late-career advisors began their careers by hanging out their own shingles, but these days it's not as easy as it once was to start out that way. New advisors need to be more knowledgeable about more topics-not to mention the three years of experience they need to use the CFP credential.

Teams offer increased leverage and scale. Advisors who work together can negotiate lower rates, obtain more favorable vendor and broker pricing, and participate in a broader range of pooled investment vehicles. Economy of scale is a key reason that advisors seek group arrangements.

Profitability. As margins in financial planning firms are squeezed, business size has become a factor in managing profitability. For example, many overhead expenses are fixed, and larger organizations can spread the cost over more advisors.

Succession and continuity. As advisors of the baby boomer generation age, more of them are looking to bring on a successor. This is spawning multiadvisor offices, since those advisors must bring on their successors long before they transition out of their jobs.

The focus on wealthy clients. Over the years, advisors will accumulate more clients who are wealthy, yet they may still want to serve those smaller customers who have been with them for a long time. Rather than prune these clients, the advisor may bring on another advisor to work with them.

After all is said and done, despite the advantages of merging, many advisors remain fiercely independent. Even if they can earn more money under a multiadvisor arrangement, they don't want the hassle, loss of control or required compromise.

What Do The Terms Mean?
Solo? Multiadvisor office? Ensemble? Enterprise? A number of terms have been used to describe today's financial advisory organizations, and it can be confusing. For example, two advisors who share space have a very different arrangement than eight advisors who own equity in a single firm with the same business name and processes. Yet in one sense they are both a type of multiadvisor office. How would we differentiate between them?

Think of a continuum, with solo on the far left and enterprise on the far right. Between the two ends are multiadvisor offices (a.k.a. silos) and ensembles. As one moves from solo to multiadvisor office to ensemble to enterprise, one would expect more consistency and formality in the business and more need for compromise from the advisors who are part of the organization.

A solo firm has just one professional. All the other organizations described have multiple professionals. (Here, the word professional refers to advisors with client management responsibilities who also have business development responsibilities.)

A multiadvisor office is called a silo. Frequently, multiple advisors share space but little else. These situations require minimal compromise, since they involve several advisors doing their own things their own way.

Ensembles and enterprises are more formal and more structured. The more components of a sophisticated business the advisors share-the firm's name, clients, marketing efforts, investment strategy, technology, profits and so forth-the more the advisors need to compromise. In an enterprise, for example, one would expect to see consistency in the business vision, the way work is done, investment products and management, career development within the firm, succession planning, and revenue sharing, to name a few similarities.

Where Are You Along The Continuum?
You may want to consider the following 15 questions, which will help you determine where you are in the solo-to-enterprise continuum.

1. Do you share space? In order to convey a professional image, advisors may share office space. Other than renegotiating the lease or communicating with the landlord, there is little need for such advisors to confer with each other. Yet some decisions, such as who signs the lease or where the coffeemaker goes, can be too much collaboration for some.

2. Do you share office expenses? In addition to rent, two or more advisors might also share fax, copy and scanning equipment, as well as office supplies.

3. Do you share a DBA (i.e., doing business as) name? Rather than have three or four names on the door, some advisors "merge" and operate under one name. A shared DBA name also promotes an image to the public of a more established organization.

4. Do you share staff? The receptionist is the easiest staffer to share. But as advisors move down the continuum, they may also share customer service assistants, paraplanners or other advisors who serve smaller clients.

5. Do you target the same clients? To help describe your client base, start by determining your average revenue gleaned per household. Assume that Advisor A has 100 households he sees twice a year (200 appointments) and Advisor B has 300 households, half of which he sees twice a year and half of which he sees once a year (450 appointments). The difference is 250 appointments per year. All require preparation and follow-up, and they should prompt a discussion at the firm about the fair and equitable use of shared human resources.

6. Do you have an integrated book of business? When advisors know each other's clients, they can fill in for each other during absences and create consistency. The clients might see multiple advisor names on their monthly statements.

7. Do advisors who have different specializations in your firm work with the same clients? Some organizations that have similar niches have fostered increased specialization among their advisors. One advisor may specialize in risk management, for instance, while another specializes in estate planning. This can also help minimize the potential for conflict.

8. Do all the advisors in your firm manage investments and portfolios in a similar fashion? When investment management, such as fund selection, rebalancing and performance reporting, is consolidated into an investment committee or investment department, it frees up advisors to focus on client relationship management and rainmaking, streamlining the process for the benefit of all advisors in the firm.

9. Are operational processes in your firm shared? To ensure efficient daily operations, all advisors must follow the firm's standardized processes, including the preparation and follow-up for meetings. The more mature the organization, the more processes are standardized.

10. Is business management integrated? In larger firms, numerous business management responsibilities are combined and integrated. The same business plans, budgets, P&L statements and human resource documents are used firmwide, and strategic decisions are shared.

11. Within the firm, are there death or disability buy-sell agreements with other advisors? The more an entity looks like an enterprise, the more likely it is that the advisors have agreed to a buy-sell arrangement when joining. They understand that their clients' business will be redistributed within the firm, as the firm may pay for the purchase of their practice when they join or leave it.

12. Do advisors have defined leadership roles in the business? Or is the responsibility for managing the business delegated? The larger the firm, the more likely it is to have defined business management roles for specific partners. For example, one advisor might oversee human resources, while another oversees technology. In more sophisticated firms, a managing partner may run the show or the organization may hire a chief operations officer, allowing the advisors to use their time exclusively for rainmaking and client management.

13. Are business documents put in writing and followed by all? Written business documents tend to mean greater formality. Whether it is a meeting agenda or a formal review of business goals, larger organizations put more in writing. That includes the documentation of career tracks. Employees in larger firms may have structured expectations and defined development opportunities.

14. Is revenue pooled within the firm? In enterprises especially, at least some revenue is shared to minimize peaks and valleys in individual advisor production. The degree of sharing tests many advisors' interest in and commitment to being part of a larger organization.

15. Is firm equity shared among multiple partners? Larger, more sophisticated organizations have a built-in legacy, where firm equity is formally transferred to advisors when they become partners. The entity's health and well-being do not depend on any single advisor; instead, the firm should be strong enough to survive over time regardless of any particular advisor's arrival or departure.

Typically, the more yes answers you give, the further your firm is along the continuum. But there is no clear-cut line of demarcation. One way to measure it is by scoring the answers:

  1. If you answered yes to up to five of the questions, you may have a multiadvisor office.
  2. If you answered yes to five to 10 of the questions, that would more likely suggest you have an ensemble organization.
  3. If you answered yes to 10 questions or more, you likely have an enterprise.

Sure, there are exceptions to this simple approach, but it is a starting point.

As our industry becomes increasingly complex and regulated and more advisors join together for whatever reason, it will be useful for those pursuing change to clarify the type of organizations they want. In such cases, advisors can use these 15 questions to help themselves do the following:


By articulating these goals, the questions can be very helpful in preventing problems down the road.

Joni Youngwirth is the managing rincipal of practice management at Commonwealth Financial Network®, member FINRA/SIPC, a registered investment advisor, in Waltham, Mass. She is available at [email protected].