Once upon a time, the financial planning industry was primarily made up of solo practitioners. They took root as independent firms in local communities, and populated the ranks of independent broker/dealers and custodians. They became industry leaders heading organizations like the IAFP, the ICFP, and NAPFA. Many built nice incomes and books of businesses they were able to sell to others who came to share a similar dream.
Then one dark and stormy night, a new platform emerged called "silos." Advisors who were consumed by rising costs and the growing burden of compliance decided it was time to hook up with others who were fighting this oppressive regime of low growth, no depth, and an inadequate succession plan. Silos shared office space and sometimes staff. They started referring to these associates as "my partners." These practices existed among independents and wirehouses, insurance agencies, and banks. The compelling draw of a silo practice was to use a common structure to pursue one's unique way of serving clients.
Yet many advisors continued to have a nagging feeling that all was still not right. They gave up their independence hoping that the silo arrangement would help them navigate through the maze of a more complex business. Buy/sell agreements were written; long-term leases were jointly signed; staff was hired. But in many cases, advisors found themselves in business with people they didn't like--but couldn't fire. Others found they were in business with people they liked but couldn't leverage.
For many there has been a new awakening: the creation of a practice with multiple professionals who work together in harmony in an "ensemble," to serve a common type of client, if not the same clients. The ensemble can provide operating leverage, a career path, and economies of scale that allow advisors to invest efficiently in infrastructure. These structures have spawned an expanding community of large practices that seem to be growing quickly and efficiently.
The downside of this model is that advisors find they have to work hard at relationships with others in their firms, and will be evaluated by people besides their clients. As one advisor put it, "the scariest thing about going from silo to ensemble was the realization that it was no longer about me; I now have to be responsible to others; I have to hold up my end."
In the end, however, that advisor and his colleagues judged the reward to be worth the pain. They discovered that each member of the ensemble lifted the others up when they were down and that the consistency in their practices allowed for an overall improvement in efficiency and effectiveness.
In a comparison of silos to ensembles, we found that integrated ensembles generated 50% more profits, 33% more revenue per professional, and over 200% more revenue per client--all while serving half as many clients. So is it worth it? It depends on the problem you are trying to solve.
Are You a Silo or an Ensemble?
The power of a cohesive brand and integrated approach has surprised many who have committed to the building of an ensemble. Studies Moss Adams has done for the FPA, NAPFA, Schwab, 1st Global, and others continue to validate the economic leverage that occurs. Yet many resist this natural evolution because they have grown up believing in self-reliance, and that the key to success is to accumulate a bunch of clients until you earn enough money to start reducing your client base.
The first step in the evolution to ensemble firms is to recognize the inefficiencies and inconsistencies in silo practices. There are many, many firms that operate under the belief that they are a cohesive firm, but when you look under the hood you find that there are parts missing. How do you know that you're a silo and not an ensemble? Ask yourself these four questions: Are all staff evaluated by the same standard and do they work together? Is each advisor in an "eat-what-you kill" mode, or do you have an integrated reward structure that is triggered by both firm success and individual contribution? Do you systematically work together on clients, or is it more random? When you refer to your business to others, do you use phrases like "my practice, my clients, my book, my paraplanner?"
If you answer these questions honestly, you may feel a shiver of acknowledgement that things could be done differently, and perhaps better. There's also an anxiety that collaboration on staffing, compensation, clients, and positioning could be setting yourself up for a truly unpleasant existence. So ask yourself again, is overcoming the inefficiency and ineffectiveness of a silo existence worth the pain of change?
If the answer is yes, then there is a natural linear process for creating the optimal ensemble model.
1. Agree upon a strategy and vision for the business as a whole.
2. Based on that vision, construct a client service experience that can be applied consistently.
3. Break down the service experience into its components so that you can see a workflow.
4. Use that workflow to identify the proper roles for staff members.
5. Build an organizational chart out of this analysis along with the current financial metrics.
6. Project growth and evaluate how that growth will impact your organization--how many people doing what types of functions will you need based on the number of clients you serve.
7. Establish measurable goals and hold each other accountable for moving closer to achieving those goals each year.
Of course, this is all easier said than done. Advisors naturally worry about the implications of this change, such as rising costs, loss of management control, loss of client control, and worries about the quality of other advisors. In reality, however, most silo firms are already experiencing distress in each of these areas and have not conceived of a plan to solve them.
It's important to recognize the benefit of creating a clear vision statement among the principals before proceeding and equally important not to view the vision statement as an academic exercise but as a powerful tool that will help you decide where--and where not--to allocate your time, money, management, and energy. In most silos, each advisor has his own vision of what business he is in, which clients he wishes to serve, and which solutions he prefers to offer. These choices are often defined by personal comfort level rather than a conscious business decision.
So as you begin thinking about the business you collectively want to be in, ask these questions: Do you have an up-to-date vision? Do you have competing visions? Is your vision in line with everyone's personal definition of success?
If you can reconcile disconnects in your views of the business, then you will have a much better framework for making strategic decisions on what people you need, how you should pay them and for what, the products and services you need to offer, the appropriate way to charge for what you do, and the best way to market your firm.
This visioning process also helps each advisor decide if being part of an ensemble is really right for her, and if these partners are the right ones with whom to build her business. When we go through this exercise with advisors contemplating an integrated approach, we often find that there is at least one in each group who cannot comfortably give up the notion of individual fame and fortune for the sake of the team, or who cannot surrender her preferred approach to business in order to be part of a common brand, consistent client service experience, and a way of delivering advice. This doesn't make that person bad, but it usually makes it difficult for the others to be successful in creating the business they desire.
Regrettably for many, the temptation is to compromise a non-solution that panders to the big dog who doesn't want to change so as not to lose that person's revenue production (or uplifting personality, or friendship). In the planning session, the intransigent one will often give lip service to the concept of ensemble, but in execution will do everything he can to resist the change. If you observe this behavior, you must make the decision to either get out of the relationship with this person, or accept the fact that your business will never evolve to the true ensemble state.
The exception is when an advisor is near retirement and consequently has little motivation to change the way she's operated. In these cases, you may consider grandfathering this senior advisor to allow her to continue practicing in her familiar form until she retires. Be sure that there is a timeline for this and an expected transition plan for her clients or you will face the same problems described above: distractions from your vision will impede achieving your goals.
The evolution from silo to ensemble is a big step, but its effect on a practice is truly profound. Most advisors who have made the leap find the economic and work-style rewards worth the investment in the transition. While there may be short-term pain in the form of lost momentum, partner disagreements, and changes in workflow or staffing, this is one of those significant moments of deconstruction that elite firms endure in order to construct a business that will help them to achieve new heights.
Mark Tibergien is a nationally recognized specialist in practice management for financial services firms, and partner-in-charge of the Securities & Insurance Niche for Moss Adams LLP, the 10th largest CPA firm in the U.S. You can reach him at firstname.lastname@example.org.