Growing In New Markets
Finally, firms that want to get to the next level must find a way to enter new markets—either through mergers and acquisitions or by starting from scratch somewhere. Advisors in large markets like San Francisco, New York and Chicago may not need to open a second office, since they are already in places they can expand, but otherwise, many firms will want to branch out (out of Seattle, into Washington state, for instance) as a way to seek both opportunity and dominance.

Aspiriant, for example, is in both San Francisco and Los Angeles, as well as in several other markets. Brownson, Rehmus & Foxworth is in Chicago; Palo Alto, Calif.; and New York. Firms such as United Capital have been structured from the beginning to be national brands, and they have acquired pieces of the map strategically.

But managing both operations and culture in multiple locations is a challenge that has proved very difficult for advisory firms. Many have lost satellite offices—smaller locations with one or two partners—either because the far-flung partners chose to become independent or simply withered away.

To be successful in attacking a new market, a firm will need critical mass in that new market to convince clients that it is a viable competitor. Usually that means the firm must acquire a well-respected local firm. Advisories will also need critical mass to attract talent, and must be able to offer incoming advisors a well-developed career track.

New advisors must be hired or acquired who can articulate the firm’s vision in a new market. Or else, people from within the ranks who already know the culture must take over leadership responsibilities in those new markets. The culture must be exported—which means the new office will have to accept and adopt the culture of the firm. But that is also very difficult. The key to such transitions is the presence of leaders who lead by example. Every professional wants to join a culture that is successful.

Conclusion
The largest firms of today stand at $15 billion to $20 billion in AUM. There are only 28 firms with more than $5 billion in AUM, according to the Financial Advisor list. However, if this rate of growth continues (23.7% growth in AUM in 2013 for super-ensembles), we can expect to see today’s $2 billion firms reach $5 billion in only five years, meaning that another 70 to 100 firms will reach the $5 billion level by 2020, based on growth and math alone.

Success in business is not just a combination of math and growth, however. To reach this rare size requires changes in culture, organizational structure and ownership mentality. The changes could be difficult and painful, as are all changes in culture. But the process of growing is a process of constantly tearing down and rebuilding bits and pieces of the organization so that they are ready for the next phase. The firms that succeed in that mission will be the ones who write the next chapter—the future of the industry.

 

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