From the January 2008 issue of Wealth Manager Web • Subscribe!

Finding a Boss

At some undefined but recognizable point, having a firm's founder administer a growing business can become a drawback. Professionals like accountants and attorneys have wrestled with this problem for years, but those firms can draw on their peers' experiences and are able to recruit from a pool of experienced managers to fill positions. Because many wealth management firms are only starting to reach the point where they need full-time administrators, however, the dilemma is new territory for the profession.

The four firms profiled here have successfully created a managing principal or chief operating officer position. In two cases, one of the firm's wealth managers assumed the role. In another case, a staff member with back-office experience took the job, and in the fourth instance, the firm hired outside the industry. Without exception, the firms attribute much of their current success to the manager's skills and the impact of reorganization.

The Reluctant Manager

Peggy Ruhlin, CFP, CPA/PFS, didn't want to be a manager when she started working with CFP Jim Budros 20 years ago. The plan was to work with clients and grow the firm and by 2000, they had largely achieved those goals. Subsequently joined by Dan Roe, who also became a principal, Columbus, Ohio-based Budros, Ruhlin & Roe was successful, even though the principals' approach to management was casual. They would talk about what needed to be done and then wait for a volunteer to take on the task. Frequently that volunteer was Ruhlin, who would "step into the void" and resolve the problem. Some principals' meetings were designed to foster strategic thinking, but those sessions tended to focus on short-term issues. Around 2000, the three owners began to realize that their lack of a formal management structure would hamper the firm's growth. "We all came to the conclusion at the same time that this was just getting away from us," says Ruhlin. "There were no systems or consistent procedures, and if we wanted to continue to grow the firm, we had to make a commitment to treating this 'practice' as a business."

They hired a consultant to facilitate their strategy meetings, and the resulting conversations led them to consider creating a distinct administrative/managerial role. They initially considered hiring a professional manager from outside the firm, an approach several other large wealth management firms were pursuing at the time. Roe didn't like that approach, however. He said he did not want to pay $200,000 a year to someone who didn't understand financial planning and wealth management who would need two years to learn what the firm did, Ruhlin recalls. "At that point Roe said, 'I think one of us needs to take on that role,' and all eyes immediately turned to me," she says.

Because she had no prior management experience, Ruhlin had serious misgivings. She also worried that reducing her client-related work would diminish her perceived value to the firm. Ultimately, however, she agreed to take on the role--but only for two years; if she didn't want to continue after that period, she could go back to her previous role. Seven years later, Ruhlin spends roughly 75 percent of her time on administration. The arrival of a fourth principal, John Schuman, facilitated Ruhlin's transition to management. He began assuming much of her client-focused work, and revenues and profits held steady during the transition. The firm's growth continued, and the business now has 33 employees and $1.3 billion in assets under management.

Ruhlin admits that the first two years in her new role were challenging, and that participating in an executive coaching session helped develop her skills. She now plans and completes three or four major annual initiatives that can range from developing a consistent "brand" image for the firm to creating career paths for associates. Ruhlin stresses the need for ongoing communication among the principals for any firms considering a similar structure. "My partners all trust that I'm doing what needs to be done, but they're not really quite sure of what I do back here in my office," she says. "It's really important to keep them in the loop so that they know what I'm doing.

The Post-Merger Manager

In 2001, two Illinois firms, Balasa & Hoffman and Dinverno & Foltz Financial Group, merged to become Balasa Dinverno & Foltz. Before the merger, the two firms managed roughly $450 million of combined assets, and management duties were spread among the principals. "We didn't have a dedicated manager then," says Armond Dinverno, JD, CPA, CFP. "At that point, we were too small to think about it."

As part of the merger discussions, the principals considered the new entity's management structure. As a result, Dinverno and Mark Balasa, CPA, CFP, began serving as co-presidents. They agreed that Dinverno would spend more of his time on administration as the firm grew. Although Dinverno had run his own business since 1986, he had no other experience managing a professional services firm. And while he had a "passion to build a great business," he was reluctant at first to reduce his client workload. In fact, he only began to cut back on client work when the combination started to become overwhelming. "It probably started becoming more of an issue around 2005," he says. "Year by year (since then), I've continued to pare those responsibilities as the firm has grown."

Dinverno's reluctance to scale back on client-related activities isn't surprising, of course. He notes that most wealth managers don't get into the business because they want to manage a large firm. They are motivated instead by the prospect of working with clients, but eventually, someone must manage the business or its growth will stall. When asked if he and his fellow principals are satisfied with the decision to have him focus on administration, Dinverno points to the business's post-merger growth: Today the firm employs 25 and manages $1.5 billion for approximately 700 clients, and Dinverno spends 75 percent of his time on administration. "Ultimately, somebody has to have management responsibility," he says. "The firm must come before the individual preferences of the partners. We have great people, great retention, and a growing company that speaks to the overall success of our firm."

The Emerging Manager

Chatham, N.J.-based RegentAtlantic Capital found its chief operating officer internally. The company was the result of a 1996 merger between two firms with a combined $250 million of assets under management and 10 employees. Today the firm employs 32 and manages roughly $1.7 billion for 850 clients. The principals attribute a good portion of that growth to the decision to have Jennifer Papadopolo--who originally joined the firm as a high school intern in 1990--assume greater administrative duties: Director of Operations in 2001 and Chief Executive Officer in 2005.

Papadopolo became a full-time employee of the firm in 1994. She started with David Bugen, CFP, one of the principals, as a client service administrator, handling account paperwork. She subsequently began working with clients, but discovered that she had no desire to become a wealth manager. "We realized that I was better at the administration and operational end than the client end," she says. "As we grew, Chris Cordaro (a principal and wealth manager), who had been doing much of the administrative work before developing a larger client base, realized he didn't have the time, so I just took over. I started to do more of it, and at some point it became more valuable for me to [be on] the operational end rather than servicing clients."

The firm's principals welcomed Papadopolo's efforts. Bugen says the founders recognized they could not serve an increasing number of clients unless they had someone with better management skills than their own managing the firm full-time. "You have multiple issues: Human resources, technology, compliance, legal, accounting, payroll--all of those," he says. "None of us were trained on how to handle that. Because it takes lot of time and effort, it really limited our growth."

Although she has an MBA, Papadopolo notes that the transition from co-worker to manager status was challenging because her new role required evaluating other employees' performances. That was a critical duty, however, and one that Bugen believes was vital to the firm's success. "One thing that Jennifer did very well that we--the other principals--didn't do very well was to hold people accountable and to make sure that we achieved our objectives," he says. "If you weren't contributing, Jennifer would ensure that you either started to contribute or she'd free up your opportunities. The rest of us didn't have the courage to do things, to address the hard issues, that moved the company along."

The Professional Manager

In contrast to these experiences, John Ueleke, CFP and CEO of Legacy Wealth Management in Memphis, Tenn., hired an outsider. Ueleke founded the firm in 1982 and began focusing on portfolio management in 1990. During the ensuing decade, Dick Vosburg--since retired, but the firm's chief investment officer at the time--handled most of the administrative chores. But as the firm grew, and the managerial workload increased, Ueleke and Vosburg began discussing the need for someone to focus more intensely on administration. Their initial search efforts were low-key; one potential candidate they considered seriously didn't work out.

In 2004, however, a highly qualified candidate appeared quite unexpectedly. James Isaacs, a client of the firm, had extensive experience in administration and operations management for several large companies. That year, his employer had requested that he relocate from Memphis to California, but Isaacs was unwilling to move due to family considerations. He called Ueleke to express an interest in working for Legacy. Ueleke was thrilled at the prospect of hiring him but at the same time, skeptical. "After I picked the phone up off the floor, I said, 'Jim, I can't afford you. I know what you make,'" says Ueleke. "He said, 'Well, we can talk about it.' So we talked for, I don't know, probably three months. He finally convinced me that we couldn't afford not to bring him in."

Isaacs joined Legacy as chief operating officer in 2004. One of the hiring conditions was that he would have an opportunity to buy into the firm after a year, assuming the firm was satisfied with his performance. Although Isaacs lacked experience managing a small professional services firm, his large-company experience turned out to be a valuable asset. "Management is management," says Ueleke. "When you manage large warehouses and have thousands of orders going out every day that must be exactly correct, you have to pay attention to all of the details in order to make things work. Jim approached our business that way. He saw where we were doing things well and where we weren't doing them well; what we could improve upon, and what we were missing."

Ueleke firmly believes that hiring Isaacs helped propel Legacy's growth. Today the firm has 22 employees and manages $560 million of assets--a figure that has been growing by more than 20 percent annually in recent years. Ueleke's advice on bringing in an external manager: Clearly identify the job's duties and be sure the person shares your vision. "First and foremost would be to get someone who is a good match from a cultural as well as management standpoint," he says. "I don't believe that [the person] needs a lot of expertise in the financial services industry, but they must have a high level of curiosity and an ability to learn."

Ed McCarthy, CFP is a freelance writer in Pascoag, RI.

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