Many advisors find teaming up offers growing advantages.

Three years ago Brent Kessel, CFP, took his first step toward shedding professional bachelorhood by hiring a semi-retired financial planner to join him on a part-time basis. Last year the president and founder of Abacus Wealth Management in Santa Monica, Calif., added a full-time financial planner who services client accounts and does investment work.

Now, in his most definitive move toward taking Abacus beyond sole practitioner status, Kessel is putting the finishing touches on a formal merger with another financial planning firm. He started considering the change two years ago when he met his future partner at a financial planning conference. "We have complementary expertise and interests," says Kessel, who prefers not to name the other firm until the merger is complete. "I concentrate on stock options and real estate, while his specialty is pensions and physician practices."

Even though the two firms will maintain separate offices, Kessel says being part of a larger firm created by the merger will give him greater leverage to negotiate lower rates for errors and omissions insurance, obtain more favorable pricing from vendors and brokers, and participate in a broader range of pooled investment vehicles. "The issue of continuity was also important to us, since we both have families," he says. "The buy-sell agreement for the partnership establishes a formula for fair market value, which is critical if one of us becomes disabled or dies."

While Kessel and other financial advisors see pairing off as a route to greater economies of scale and a way to help ensure continuity, others say they have no immediate plans to add another person's name to the door. Barbara Steinmetz, a CFP licensee as well as an Enrolled Agent, handles her 45 clients with the help of an administrative assistant. "It's a very high-touch kind of practice," says the founder of Steinmetz Financial Planning in Burlingame, Calif. "I know my clients' personal histories, the names of their kids and what sports they like. And they like knowing that they are not going to get passed off to someone else."

Holding down the fort alone means remaining accessible to clients via e-mail while she's on vacation. If she is not available for some reason, she arranges for them to contact another financial planner she trusts.

Although Steinmetz has considered hiring another professional, she worries about "getting someone who would learn the ropes for six months and then leave." And even though she acknowledges that partnering with another firm or joining a larger one might help cut administrative costs and maximize her income, she would miss the personal interaction she has with her clients.

It also seems to be the ticket for many other financial advisors too, says Mark Tibergien, principal, Moss Adams LLP in Seattle. "Solo practices will always represent the largest percentage of the financial planning profession," he says. "Most people in this business are fiercely independent and would simply rather not have to answer to other people. That may mean playing in a smaller sandbox, but the important thing to them is that it's their sandbox."

For some practitioners, playing in a smaller sandbox means forgoing economies of scale. A recent study, "Financial Performance Study of Financial Advisory Practices," conducted by Moss Adams says profit margins at financial planning firms are being squeezed by rising overhead costs, which increased from 38.5% of revenue in 1999 to 44.1% in 2001. The study warns that size is "becoming an increasingly important factor for profitability ... Many of the overhead expenses are fixed and larger revenue size means that the firm can leverage those fixed expenses to achieve better margins."

Staying solo does not necessarily mean second-tier financial status, just as heading up an ensemble firm does not always translate into greater efficiency or higher compensation. Overhead expenses as a percentage of revenue was slightly lower for solos than for the ensembles, an indication that not all practices that expand reap the benefits of economies of scale they envision. And owners of top-tier solo firms (those with pretax income per owner in the top 25% for the group) enjoy an average income of $235,148 a year, considerably higher than the average for both solo and ensemble firm owners.

And then there's the question of just what a solo is. Between the one-person shops and the dozen-professional practices lies a vast middle ground of financial advisors who, while they employ one or more professionals, are the only ones with an ownership stake in the business and who attract all or most of the firm's clients. To some of them, giving up solo status really is a two-step process. The first is usually hiring one or more professional-level employees to handle client contact, administration or investments. The second, which many never reach, is sharing the risks and rewards of equity ownership.

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