When the two firms began to talk merger, what impressed the principals was how similar they already were in both values and operations. Both did comprehensive planning and charged flat retainer fees based on net worth. Mosaic had started with two fees, one for financial planning and one for assets under management. But it changed to retainer based on net worth to simplify the fee structure. "Some clients have money in different pots and they're not willing to move it," Simon says. Both used diversified asset-class investments, chiefly DFA funds and exchange-traded funds (ETFs). Each had a paperless practice, a strong client-services emphasis and a commitment to grow at their own pace and balance personal and professional lives.
The two planning firms worked on the merger for most of 2006. They started 2007 as one firm that shares a Web site, www.garnetgroup.com, marketing materials, software licenses, compliance costs, an ADV, an errors and omissions policy, a compliance officer and a retirement plan. They also created a common fee structure of 70 bp up to $1 million of net worth, 50 bp on the next $2 million, 30 bp on the next $7 million and 20 bp over $10 million. But the biggest advantage to the merger has been increased intellectual capital, the partners say. "Now we can approach financial planning with double the brain power," says Simon.
Smith says that hiring the first employees at Smith Rapacz LLC was more difficult for her than making the merger. "I thought that I needed to do my own data entry to get to know the client," Smith says. "My big change of thought was when I could let go of that." One of the selling points for the merger for all four principals was that, in the first step, they decided to keep expenses and revenues separately in each office. Each of the four women wanted the business to grow. But each was reluctant to give up the independence she treasured.
The merger hasn't been easy, Kutler says. "The name thing was a big deal. We couldn't decide and then we did decide and someone else took the same [name] and we had to start over." When the planners decided on Garnet Group, they had the name trademarked for financial services.
In this first phase of the merger, the revenues remain specific to the two offices. "Right now there is not a direct financial link to grow the other branch," Kutler says. "Part of stage two would be providing revenue sharing as an incentive for one branch to help the other to grow."
But already the new firm's succession plan has brought peace of mind to the principals. "If something happens to us, we have partners in Boston who can do something," Simon says. The spread in the age of the principals, from 36 to 50, also eases transition planning. Best of all, the merger creates an avenue for growth but still allows the principals to maintain flexibility at work and to balance their careers with family and other personal activities. And they are still in charge. This solution fits exactly for the new Garnet Group. Other firms will need to customize their own strategies.
Mary Rowland has been a business and personal finance journalist for 30 years, a half dozen of them as a weekly columnist for the Sunday New York Times. She wrote a column called "Practice Points" for Bloomberg Wealth Manager for six years. She speaks regularly about money and values. Her six books include two written for financial advisors: Best Practices, and In Search of the Perfect Model.