Managing growth isn't easy.
In this era of large financial advisory firms
seeking only to get larger, one couldn't find a better model of growth
than the 15-year run of McLean, Va.-based Sullivan, Bruyette, Speros
& Blayney (SBSB).
Greg Sullivan opened the doors of his Northern Virginia practice in January 1991. He knew Eleanor Blayney as a local planner with three years under her belt; Jim Bruyette he'd worked with at Ernst & Whinney in the '80s. Peter Speros was one of those professional-athlete-turned-financial advisors not uncommon in the Washington, D.C., area.
In looking at SBSB's recent achievements-most notable of which is its sale to Harris Bank of Chicago in 2003-it helps to review briefly the history of the firm. "In 1991," says Speros, "our five-year goal had been to get to $100 million under management, but we got there in only three years." SBSB's assets under management now stand at $1.6 billion, a persistent growth rate of approximately 26% a year for 15 years. Not that the focus should be on the assets this or any other firm manages; those are merely a yardstick with which to measure SBSB's success in latching onto a superior business model and working it to the extraordinary benefit of its clients, employees and partners.
Ingredients To Success
The ingredients to SBSB's success have been threefold: teamwork, standardization and luck.
Teamwork. "One factor inhibiting the growth of many advisory firms is that the partners tend to be very protective of clients and only share resources and support services," believes Sullivan. "It doesn't take long for these business models to prove they aren't scalable." A simple but profound truth? Yes, and a key component in SBSB's growth.
From the start, SBSB's avoided internal territorial turf wars and treated clients as belonging to the firm, not individual partners. "When we find what Eleanor calls a 'blueberry patch' of good clients, we all come in to harvest it," says Sullivan. What he describes is as much an attitude as a methodology-an attitude of having a truly collective venture, not a collection of fiefdoms under one roof. And it requires trust. "We prospered because we trust each other to do what's right for each of us and for the company, and we respect each other's skills and capabilities."
Teamwork also means bringing other peoples' expertise to bear on a new client. Blayney is generally deferred to on investment management issues, while Speros gets the call on risk management questions. "The focus is always on the client and what group of employees can best meet his or her needs. We do have set teams, but each managing director can choose how to structure a team for a given client." (In SBSB lingo, a partner is a managing director, but a managing director isn't necessarily a partner).
Sullivan calls this "open architecture." "I work with my own team 80% of the time; other times I'll bring other people onto the team. Or, if I get a client from a particular company, I might put that client with a team that's already working with clients from the same company."
Bottom line is that the sum is greater than its parts. Partners who fail to work collectively don't realize the scale and the growth of firms whose partners suppress their appetite for individual stardom.
Standardization. Successful firms understand the basic truth that you customize what the client holds dear while standardizing essential but unseen processes.
Take investment management. SBSB has a policy of how a portfolio should be set up and a philosophy of how it should be managed. "We want managing directors to be able to make unique decisions for a client, but do so within the guidelines we've set," says Sullivan.
Up front, clients get the focused attention of a managing director and his or her team. On the back end, though, SBSB is like a manufacturing plant, doing everything for the client with support from Charles Schwab. The proof of its scalability? "We have the same three-person team now with $1.6 billion AUM as we did with $800 million," says Sullivan. "We're at 40 employees now and believe it will take only 50% more employees to double our AUM over the next three years."
SBSB applies the same philosophy to financial planning, using Naviplan reports that are standardized as to what they contain and how they are bound and presented. Their tax work (yes, with two CPAs' names on the door, the firm does tax returns) is similarly standardized, using Pro Systems software, several employees to do data input and several more to review the returns on the back end.
"We've also committed to writing up job descriptions and publishing a handbook to guide employees in doing financial planning and tax return preparation." Borrowing a theme from Good to Great by Jim Collins, SBSB gets the right people doing the right things for the right clients. "We've spent nine months building a clear career path for our staff, so they know what their job is, how they'll get promoted and what pay ranges and bonuses they can expect, all the way from early entry to managing director."
Perhaps more significant, though, is the managing directors' realization that they were too close to the firm's processes. "We have lots of great ideas at the policy-making level," Sullivan says, "but we couldn't let partners remain involved in day-to-day goings on. We needed key people other than ourselves to take charge of operations, so we appointed operations managers for each of our key areas: portfolios, financial planning, tax returns, technology and human resources." All operations managers report weekly to a committee made up of Sullivan, Bruyette and Speros.
"We've also created a new position called 'Experience Manager,' a person who focuses on improving the client and employee service. It's her job to make sure everyone's feeling valued within the firm. If she knows of any issues she brings them to us, the Operating Committee." Which returns us to the issue of trust. An employee could easily see the Experience Manager as a company spy but, says Sullivan, the firm's employees value this manager and trust her to keep things in confidence while, at the same time, working to get problems ironed out.
Luck. Are teamwork and standardization the keys to success? Not without a little luck, says Sullivan. "We got lucky landing multiple clients from AOL (which opened a 220,000-square-foot facility in northern Virginia in 1999) and Microsoft people when those businesses were hot. Their people needed what we offered."
With a solid framework of teams, standards and luck, it's not surprising that SBSB caught the eye of Harris Bank. Cecily Mistarz, executive vice president of Harris Private Bank, says several key characteristics attracted Harris to SBSB, and would attract them to another acquisition. "They led with a strong financial planning approach supported by excellent planning professionals and relationships managers. This was evident to us in their clients' satisfaction with their services, the referrals they received from their clients-their strong client relationships, in general. Their trusted advisor approach, the fact they truly care about their employees and their clients, was the right cultural fit for us," Mistarz explains.
The feeling was mutual, says Jim Bruyette. "Harris has been an extremely ethical group to deal with, living up to every promise its people have made. Further, many of these deals are done because the buyer wants to impose its method of doing business onto the company it's acquired. This was different because Harris was looking to import financial planning expertise and the bank has encouraged us to continue doing business as we see fit."
The bank would entertain other acquisition candidates, Mistarz says, but hasn't yet found what it's looking for. She says, "We're very selective. We want a firm with the same characteristics as Sullivan Bruyette but, so far, it's been impossible to replicate."
"We weren't looking to sell when we were approached by Harris," Sullivan says. SBSB had frequent suitors, and Sullivan and his partners would politely listen to their pitches, but nothing would come of them. When Harris said it would take a hands-off approach to SBSB, though, they listened more closely.
The sit-down with Harris forced Sullivan and his partners to think hard about what they wanted. "We decided we needed financial security, including employment contracts, and we wanted to know our clients would be taken care of whether or not we were involved."
"When we next met, we each put our numbers on the table to see how close we were." They decided to keep talking, which began what Sullivan describes as "the grueling process" of having a large company come into your office and turn over every piece of paper, looking for risk and liability exposure. The most notable aspect of the negotiations? "They never stopped. The day before the signing, we were still negotiating issues."
What did they get-the bottom line, the big number? Blayney will say only that it was a multimillion dollar sale. Unconfirmed reports say it was just below the $15 million mark. "It would be difficult to reduce the selling price to one number, as there were many aspects to the deal, such as employees' compensation, tax angles, etc," Blayney explains.
"We didn't want to do it strictly on an earn-out basis," says Sullivan. "We wanted guaranteed payments, we wanted to participate in upside growth, and we wanted employment contracts long enough to keep us involved without feeling tied in." In 2003, they started out with three-year contracts and recently renegotiated five more years.
Will employees stay on at the end of the newly negotiated five-year contract? "That's our hope," says Sullivan "If new leadership were to come on board at that time, our key people would hang in there. The new leadership might, in fact, come from our own managing directors." SBSB expects to open up more managing director slots, as many as one per year for the next three years.
Commenting on their post-sale interaction with Harris, Blayney says, "Mostly, it has been positive, as they've shared with us their (personnel) search capabilities, our accounting is done centrally, and we now have a better emergency preparedness plan."
"Harris has audit committees that need to come in and look at our business, but it's helpful; we run a better business because of it," says Sullivan. On a slightly more cynical note, he adds, "The larger organization is trying to figure out if you know what you're doing. You need to suck it up and just get through it."
The best way to deal with the minor intrusions, Sullivan discovered, was to let everyone in SBSB do their own thing while he and Bruyette dealt with the bank. "We keep our employees insulated and focused on client service."
"Our employees like the idea of more formalized reviews and compensation, and they find comfort in the big corporate infrastructure," says Blayney. "Certainly Greg and Jim are consummate businessmen, but we began in a conference room meeting with clients and that's what we like to do; writing a human resources manual wasn't something we worried about. So there are times now when all of us feel the weight of a bank bureaucracy, but we knew that was part of the deal. The upside is it shifts some risk away from us."
Perhaps the sign of a smooth transition is the fact that the clients hardly noticed. "They're not particularly aware of the change even though they know it took place," says Blayney. She says the clients are getting better service in a number of ways, like investment research and product selection.
Surprisingly, many clients were unfamiliar with the bank's name. However, most did know of its parent, the Bank of Montreal.
Sullivan says the most important business lesson he learned was the confirmation of their long-held belief that if they ran the practice as if it were always for sale, then opportunity would meet preparation. "When our opportunity came along, we were prepared," he says.
Was there an important life lesson in this experience, as well? "I took home the idea of maybe selling the business, and my son, a high school sophomore at the time, said, "Oh, I thought some day I might work in your business with you." My response was, "David, some day you should own a business, but it should be your own and not mine." I learned that family members have a vested interest in your business, too.
Sullivan's biggest surprise? "How hard all of my partners worked after the sale. Each of them has been thoroughly committed to making this transaction a success. Once you sell the business, you don't have to do that. We already had our financial guarantees, so it was really refreshing to know everyone was still committed to the business and to our clients."
Do Sullivan and his original partners miss working for themselves? "We don't own all the profits at end of day, but we still have a lot of skin in this game."
"The only downside I have found," says Bruyette, "is that we're now part of an organization with deep pockets and must play strictly by the rules. As a smaller, entrepreneurial company, you try to remain flexible and avoid having cumbersome policies and procedures; now that's unavoidable to some extent."
Perhaps most important, says Sullivan, is the legacy they will create. "You see leadership coming up from your employee ranks and realize you're a steward of something. Everything you've worked for is to be passed on. Maybe that's been done from a legal standpoint, but we're still doing it in an emotional and professional sense. It's just like raising kids. You want them to grow up and leave home."
David J. Drucker, M.B.A., CFP, an independent financial advisor since 1981, now writes, speaks, and consults with other advisors as president of Drucker Knowledge Systems. Visit his practice management portal, Practice Lifecycle, at www.practicelifecycle.com, and Virtual Office News, a practice management and technology newsletter for financial advisors, at www.virtualofficenews.com.