Giles Almond says he remembers exactly where he was when he heard the call to be a financial planner.
"That's one of those life decisions where you kind of remember where you're at when you made that decision," says Almond, the owner of Matrix Wealth Advisors Inc. in Charlotte, N.C. At the time, in the mid-1980s, he was a practicing CPA. Back then, he says, the norm was for accountants to refer clients who wanted portfolio help to stock brokers, and then they got a quid pro quo for clients who wanted tax help.
"I had a widow who had CDs [to invest elsewhere] and wanted to know my opinion on what she would do with them, so I referred her to my broker friend who proceeded to take all that money and put it in one stock-Illinois Tower. I'll never forget it. And it proceeded to go down and down and down."
The twist was that the client in question was Almond's mother-in-law. "I went home and told my wife, you know your mom is really ticked off at me," he says.
After getting about four phone calls from his concerned relative, he says, "I remember almost slamming the phone down and saying, 'This is it. I'm going to become more knowledgeable about financial planning and investments because obviously sending that business to other people isn't working.'"
Nothing like a downdressing from one's mother-in-law to summon up the blood and stiffen the sinews. Almond was in that situation some 23 years and half a career ago. It was something of a Eureka! moment, one that eventually brought him to stewardship of some $170 million in assets. And it has now landed him at a promontory view of Damascus-the next step in his firm's evolution that could take him out of the league of smaller players and boutiques and into the larger world. His mission? Get to a billion by the time he retires.
After the humbling experience with his mother-in-law, Almond started educating himself, went through the CFP program and did his first financial plan in about 1986, hiring an investment manager along the way. The business grew from there until it finally engulfed his entire practice and he let go of the tax work a few years ago.
In Almond's practice, which includes seven employees, one can behold all the joys and agonies of life as owner of a small financial advisory firm. He admits that he's only corralled a small amount of assets for someone who's been in the business this long, but that's because his tax practice continued to consume most of his time until a few years ago. Now he's at a career cusp where he wants to expand. But he wears so many hats and has so much paper to manage, that sometimes that goal seems very far off.
"I figure I've got about eight more strong years in the business," he says. "I intend to cross the finish line running just as far as I can. We have a sense of what it would take to get us there. We know the spread sheets. We know the growth rate. We know the number of clients."
Smaller advisors like Almond face all sorts of thorny issues, though: staying compliant. Finding the right technology. Coming up with a concerted marketing effort and figuring out the best fee structure. Employee recruitment and retention is also an issue, since larger, better capitalized competitors can gobble up the best people at double the salary. It's not enough to find a smart recruit. You've got to find a true believer.
How much does it take in time and staff to get past that level of $200 million or so? Are you positioned strategically if a lot of money walks in the door? How do you manage when you have all the issues of a large corporation-payroll and human resource management and compliance-but only five people in your office? Two of whom might be sick some Monday morning?
If you've been in the business for a few years and your fee structure is making you do more work for less money, you also have to know how to come up with a structure that's fair and doesn't alienate clients who were with you from the beginning. And once you've tackled all those questions, how do plan for a successor to take it all over?
If Almond wants to hit a billion, you'd think he'd be out aggressively wooing new clients, but he says so far his firm hasn't been that aggressive. "When you're dealing with a firm of this size where the owner has to play many roles-some of those roles can receive less attention than they should, and in our particular case the role of marketing director gets my part-time attention. Compared to a firm with a billion in assets under management, which can have a full-time marketing person-maybe even a marketing assistant-we're at a disadvantage somewhat. So we depend on referrals, primarily from clients but also from contacts that I have in the CPA world and estate planning attorneys."
Technology is another issue, because some of the best programs can be out of reach. "We're large enough where we can have a lot of basic good technologies in place," says Almond. "Like there are good CRM systems, there's good financial planning software, there's decent portfolio management software. But you know we're not big enough to get software like Zephyr or FactSet, which is very expensive."
The need to comply with increasingly demanding regulations has also got smaller advisors on the war path-because it has required many firms to go out and snag chief compliance officers or otherwise outsource their SEC compliance. This has been made worse by the Sarbanes-Oxley Act, which upped the ante and raised the barriers to entry.
"I understand that regulation is important to protect the consumer," says Patricia Kummer, president of Kummer Financial Strategies Inc. in Highlands Ranch, Colo., a firm with about $120 million in assets. "But we are duly registered with the SEC and with our broker-dealer, and the two don't always have the same requirements. I just had to hire a chief compliance officer because dealing with regulation on a regular basis is a full-time job. That adds more costs to the infrastructure of our business."
Figuring out fee structure is also a Herculean task for a planner trying to dispatch the Hydra-especially when that planner is transitioning from one type of business to another. Say you were billing per hour before. As you move to a different kind of fee based on assets under management, the transition can be confusing or alienating for many long-term clients. Some planners point to this area as the one where they made the greatest mistakes when getting started.
"I utilized every method that you've ever read about or a combination of them," says Almond. "And finally, a couple of years ago it had evolved to where we literally had over 25 different fee structures at one time going on in the firm-because of people who would be grandfathered [in for different kinds of older services]. And we said, 'This is crazy.'" So Almond said his firm simplified the fee structure to one that is based simply on assets under management-and used the opportunity to bump up the price in the bargain. Of course, some clients couldn't come up to the new minimum, now $500,000, and the firm had to part ways with them. But he says the new method is a lot better at rationalizing how much it really costs to service each client, and so those who were too expensive moved on.
Of course, the fee-only method has conflicts, too, Almond says, but unlike the others, it's easier to be up front about it. "We had a client buying some mountain property the other day and I remember I put in the e-mail, 'Well our preference is that you live in a double-wide and give us all the possible assets you can.'" The client got the joke-and more important, understood the arrangement: If they are hemorrhaging money, the advisor's fees are going down, too, so it's win-win, lose-lose.
Kathleen Miller, president of Miller Advisors Inc. in Kirkland, Wash., says that part of the problem is knowing how the services fit into an assets-under-management scheme. Miller specializes in giving financial advice to divorcing couples, which doesn't quite fit the mold. If she doesn't charge enough, she must still provide these more nuanced services, even when the market is down, for less money. So her clients must understand the holistic nature of what it is she is doing. But it requires a change in attitude toward the service. Because to the wrong eye, charging so much can also look like you're gouging, says Miller, who says that regular CPAs think her fees look expensive.
"We don't just do investment management, we do comprehensive financial planning. Clients are used to getting these services and paying the fees for them," Miller says. "They know that they're paying for more than investment management. I think a lot of people, when they get started in this, frankly they think that they're going to provide all of this just on an asset management fee and they're overwhelmed trying to provide those services."
How Does Your Garden Grow?
Given these challenges, how does the entrepreneur at a financial advisory firm think about growing? Do they even want to?
Many advisors are like Almond-ambitious and hoping to break out of the $100 million to $200 million niche. When Joel Shaps took over Bedrock Capital in 2001, the firm had $40 million in assets, and about 75 clients, he says.
The clientele hasn't even doubled since then, yet the firm is now handling about $150 million. Shaps attributes this growth not only to the wind at his back from good markets but also to a concerted effort his firm has made to mine more assets from the existing client base. Shaps did this by building on the unique portfolio management model developed by the firm's founder and then he added asset classes.
"If we were managing a percentage of the client's assets, all of a sudden that percentage became three or four times that because we could offer a lot more product." Now, he says, the firm has gone from managing about 20% of every existing client's assets to about 80%, as these clients now rely more on Bedrock instead of managing the money themselves or parceling it out to a bevy of different firms.
There are those like Miller, on the other hand, who are happy to leave the asset accumulation to others. She says, as of July, she had about 210 clients. And she wants fewer.
"It's just plain not my goal to have $1 billion in assets under management," she says. "I want to continue to be a boutique firm."
Almond says that for any firm this size, marketing strategy No. 1 is holding onto clients you have, and his firm does it by holding events and dinner meetings with speakers and writing his own newsletter (with his own content, not something canned-yet another thing nagging at his time). But if Almond's goal is to finish when he retires with about $1 billion in assets, how does he go about that? He already works 55 to 60 hours a week.
"I don't know if you read The E-Myth Revisited by Michael Gerber, but it's very applicable to our practices," Almond says. "One of the things that it challenges you to do is put together an organization chart of your firm. Not people but positions. And I did that and it almost startled me: 'Hey, we've got this function and this function and this function, but we've got many more functions than we have people, and many of the boxes on the organization chart have my picture in it.' For example, I'm the chief technology officer because I'm the only one who sees technology from a firmwide perspective. I'm also a relationship manager-I'm meeting with clients on a daily basis. I'm chief marketing officer. I am the chief operating officer-the officer manager reports to me. I'm also the CEO. I have the leadership and the visionary responsibilities. And there I leave out that I'm also the chief compliance officer. So people like me can get stretched pretty thin."
Among the things he mentions he will need to get to his goal is more proactive marketing, even to other people's clients. "We have been very reactive," he says. "We encourage referrals. We're big on that, but in terms of being proactive, we're not. ... Our clients are being called on, but we don't call others."
"One of the [other] big variables is having the right people in place," he says, "And we certainly learned the hard way what can happen if you don't."
There are currently two financial planners in the practice and two members of the investment staff at his firm, in addition to two interns and an office manager. The firm also plans to hire an associate analyst later this year and then next year he will add another associate-level financial planner.
The last thing Almond will need to look at to grow, he says, is effective financial management. "For many years my business model was that we're going to provide the absolute highest quality service and try to be the low cost provider in our market. And I decided that's not a very good business model. It's insane."
After his big change in pricing structure, his new minimum fee is $5,000 a year, he says, and there's always a debate within the firm about whether even that is high enough.
"I guess I have an egalitarian streak in me or something, but if somebody really wants to use us and is willing to pay our fee, then why should I turn up my nose just because they have $450,000 in assets, not $500,000?" The structure also allows him to work with the young physician market, which he says is a lucrative bailiwick in Charlotte, N.C., where there are a number of large hospitals.
"We have a number of young physicians going through, many of which will be going in roughly short order to very high-paying specialties. So we wanted to make a way to have a relationship with them, even when their income was just getting started."
And that leads him to another eureka moment: "We have to look at our practice as a business," he says. "It needs to produce a profit and that's in our clients' best interest: For us to be profitable."