From the November 2008 issue of Investment Advisor • Subscribe!

Hitting the Milestones

Make the time to plan for the future; the results will be well worth the effort

By Rajini Kodialam and Rudy Adolf

n life, milestone events--a marriage, the birth of a child, a round-numbered birthday--prompt us to pause and take stock. We may ponder the past or dream of the future. We might be inspired to continue on the path we've laid, or to investigate new alternatives. Whatever action we take, it's frequently accompanied by a thoughtful analysis of what we've accomplished and what we hope to achieve in the years to come.

Business milestones provide much the same opportunity, though it's easy to overlook them in the bustle of day-to-day operations. Consider the following scenario: You set out on your own to become a registered investment advisor (RIA). Years go by--and when you look up, you realize that you're now running a good-sized firm. You might be preoccupied managing operations rather than--or in addition to--working directly with clients. Your firm may have expanded into business areas that no longer fit your mission--or that fit better than your original efforts did. You may have clients who are concerned about your business succession plans. Perhaps without noticing, you have passed several key milestones that define your business, and you're approaching several new ones.

We at Focus Financial Partners have helped many of our partner RIAs plan for and manage these milestones. The key, we've learned, is recognizing that you are entering a new milestone and asking yourself at each stage some crucial questions to take stock of where you are and where you want to go.

Becoming an RIA

Launching an RIA firm isn't something smart entrepreneurs approach lightly--and it's not for everyone. Success in this field requires a unique combination of business skill, financial acuity, comfort with risk and a passion for client service.

Mike Glor and Roger Wade were attorneys working at Ayco in the early 1980s. They loved what they did, but their jobs changed dramatically when it was bought by American Express. (Ayco was bought by Goldman Sachs in 2004.)

In search of a corporate environment that would accommodate their entrepreneurial instincts, Glor and Wade joined another firm. Though they quickly became dissatisfied with the new company, Glor and Wade gained valuable experience in marketing to individual clients. The financial acumen they attained at Ayco, along with their newly acquired marketing expertise, gave them the confidence to strike out on their own. They founded GW & Wade in 1986, and have achieved considerable success: The firm, which offers private wealth advisory services in Wellesley, Massachusetts, and Palo Alto, California, has more than 50 employees and over $2.7 billion in assets under management.

Bob Kresek, on the other hand, took a very different route. Bob had an extremely successful career at Hewlett-Packard. He'd always been interested in the investment advisory business, and his interest was piqued further when he searched for a qualified advisor to give him advice and wound up dissatisfied with his options. Moreover, he had successfully built other businesses before, so he felt comfortable with his abilities as an entrepreneur.

Kresek brought these experiences to bear when he started Founders Financial Network, which provides wealth management services to Silicon Valley executives. Among the keys to Kresek's success were his commitment to seeking education in the field prior to startup, and a close relationship with a successful, established RIA who served as his mentor. He also recognized that he would be making a real commitment to this company, likely the final venture of his professional career, "I knew I was making an investment in a business that would serve clients for years to come, rather than trying to make a quick buck."

Others become RIAs after fruitful careers as brokers. This move may provide the advisor with greater potential profitability, independence and flexibility in serving clients--and, in these tumultuous times, may also reassure existing clients concerned about the security of their assets.

Running the Business

Once you've decided to become an RIA, you face another significant milestone: getting your firm up and running. Shepherding your business through this demanding time--and hiring the staff you need to keep it growing--can be trying.

One of the largest challenges for RIAs--as it is for all entrepreneurs--is the sheer time commitment required to run a young firm. That commitment begins with your due diligence process before you officially launch your advisory firm. While you may be itching to start working with clients, it is essential first to create a detailed business plan and investigate your competition. The plan should define your market opportunity, or the niche you will fill, and it should include financial and staffing projections for the next several years, a marketing plan and the concrete steps you must take in order to launch the business.

When CPA Marty Resnick founded Resnick Investment Advisors in 1990, his market niche was clear: he targeted mass-affluent consumers who need advice-based investment services just as high-net-worth individuals do. His instincts were right on--but he nonetheless spent the first three years working "nonstop" to deal with changing technology systems and ensure that he could produce enough revenue to pay his small staff.

RIAs are likely to face other challenges during their firm's first few years as well. If, unlike Glor and Wade, you don't have experience in marketing to individual clients, you may need to seek out professional marketing advice.

You'll know you've achieved some measure of success when you find that happy clients are referring friends, family members and business colleagues to you but, despite your best efforts, you cannot find a way to absorb additional clients. You might even find yourself contemplating a vacation--which will raise the question of who, exactly, will handle clients' inquiries while you're out of town, manage their portfolios and oversee other aspects of your practice's day-to-day operations.

Strategic decisions such as expanding your staff require a clear understanding of your firm's mission, core clients, and client service model. If your business plan and mission statement have been gathering dust for the last several years, it's time to clean them off. Read them carefully and see what needs to be updated. Think carefully about your overall business strategy, as well as the tactics you use to implement it. If your mission has shifted, determine whether you truly want to follow the mission as it exists on paper. You may be happier with the way the company mission has evolved informally over time--or you may decide to redraft your mission entirely, based on what you have learned during your first years in business. Think about your client service model and, as Moss Adams advocates, you will likely find that you have to evolve beyond a sole proprietorship to a mature ensemble.

You don't need to take all of these steps every time you replace an administrative assistant. But when you're contemplating a major move, such as completing a merger or taking on new partners, this exercise can provide you with valuable perspective on your--and your firm's--best interest.

One way to expand beyond sole proprietorship is to initiate a merger of equals. HoyleCohen, a comprehensive wealth management firm in San Diego, was founded as two separate RIA firms. Kevin Hoyle and Joe Cohen have served clients since 1983 and 1980, respectively. When the two began discussing a merger in June 2001, their individual practices were growing rapidly. Cohen's firm was small, with just him and two assistants. Hoyle's was a bit larger, and in dire need of a day-to-day manager. It soon became clear that neither firm alone had the resources to achieve the growth its principal desired--but that together Hoyle and Cohen might be able to thrive. The merger was completed in January 2002, with the new firm focusing on wealth management for southern California families.

Marty Resnick took a different approach. After working for several years as a sole proprietor, Resnick realized he needed to add staff. He initially limited new hires to CPAs like himself. But as his practice grew, Resnick began to see the value in hiring people with different skill sets. Like many RIAs, Resnick ultimately created client-service teams in order to remove some of the administrative burden from the investment advisors on his staff. Today, Resnick Investment Advisors boasts three managing directors, including Resnick, each of whom is also a partner in the firm. Resnick and his counterparts allocate responsibilities in a way that leverages each of their key strengths, with one of them focused on managing the operations of the office and existing clients, one dedicated to investment strategy, and one actively attracting new clients to the firm.

Of course, you always need to make sure that servicing clients continues to remain your number one commitment. At GW & Wade, the founders quickly realized that a team approach would work best for them, allowing client relationships to continue to grow while training and developing future talent who could help service clients as well. As one satisfied customer says, "GW & Wade has grown exponentially since I became a client 17 years ago. But I still believe I have a plan tailored to my needs and a team of people I can call if I need to."

Growing the Business

As your firm matures, you'll likely see ways to expand its service offerings. With your business plan as a guide, you can determine whether particular opportunities are a good fit for your practice. At this point another significant milestone may be reached: the acquisition of another company or the launch of a new business within your own firm.

Consider the example of the Buckingham Family of Financial Services. Two real estate investors and two CPAs founded the company, after they recognized that clients had financial planning and investment management needs that their respective firms could not meet. Just two years after launching the firm started BAM Advisor Services, a turnkey asset management provider that helps accountants and other professionals create their own RIA firms.

BAM cites data from independent research firm CEG Worldwide showing that while only 17% of CPA partners offered investment management services, nearly half planned to offer such services within three years--and every firm that offered such services planned to keep doing so.

Positioning your company for growth may mean temporarily shrinking it. After Kevin Hoyle and Joe Cohen created HoyleCohen, they analyzed the combined firm and their products and services to eliminate redundancies. Hoyle and Cohen eventually sold some less profitable lines of business--boosting profitability, and allowing them to hire a CFO and an operations manager.

As the firm sets out to become the premier wealth management firm in San Diego, HoyleCohen has begun attracting like-minded teams to join them. The first to join is CullingtonHill Advisors LLC, an advisory firm that works closely with high-net-worth women and couples. Elisabeth Cullington joined HoyleCohen as a senior wealth advisor, and brought four of her team members with her.

The deal was a key part of HoyleCohen's growth strategy--and it provides benefits to clients as well. "It takes time to understand how high-net-worth women handle money, what their insecurities about money are and what they really need from their money," says Cullington. "It means giving them not just financial but also emotional support. Joining HoyleCohen allows me to spend more of my time doing just that."

Planning for the Next Generation

HoyleCohen's sub-acquisition strategy also serves another purpose. It helps ensure that the firm will exist for generations to come. Therein lies another crucial milestone for RIAs: establishing a succession plan. "Once you have achieved success as an RIA, it is crucial to move from building a business to building a business that will last," says Mark Tibergien, managing director of Pershing Advisor Solutions in Jersey City, New Jersey. "Developing the next generation of leadership is paramount to the continuity of your business and to your clients."

While business continuity is important in every industry, it's especially crucial for RIAs. Your clients want certainty that their assets would be safe and properly managed if anything were to happen to you. For HoyleCohen, succession planning meant bringing on Mark Delfino as chief operating officer. A former management consultant and hedge fund developer, Delfino joined HoyleCohen last year specifically to grow the business and help develop and execute a succession plan, with assistance from Focus Financial Partners. "Joining Focus was the catalyst for us to stop just paying lip service to succession planning," says Kevin Hoyle.

One of Delfino's early contributions was to clarify the path to partnership for junior members of the firm. Some long-term employees were slightly taken aback when they realized what it would take to become a partner at the firm--but these changes have resulted in important, beneficial conversations with employees about what they want from their careers at HoyleCohen.

The team at Buckingham Asset Management has taken a similar approach to succession planning, taking time to identify the characteristics they seek in future leaders of the firm. Buckingham has established additional levels of partnership in order to build the pipeline for succession. And, like HoyleCohen, the firm has clarified the path to partnership.

Joining Focus Financial Partners was a catalyst for succession planning at GW & Wade, just as it was at HoyleCohen. With the help of Focus, GW & Wade's founders created a financial infrastructure that provides opportunities for younger employees to buy into the firm's management. "Our previous model didn't give employees the chance to buy a significant portion of equity," says Glor. "Now we've got younger people in management, which provides peace of mind for our clients--and ourselves."

Whether you're looking for peace of mind or just a better handle on your business, focused attention to the milestones you've reached--and those you still hope to achieve--can create powerful results. Take time to assess where your firm stands in relation to its own milestones. Your business will be more successful for your efforts.


Ruediger (Rudy) Adolf is founder and CEO of Focus Financial Partners, a leading international partnership of independent, fiduciary wealth management firms. He can be reached at radolf@ffpar.com. Rajini Kodialam is a co-founder and senior VP of practice management at Focus. She can be reached at rkodialam@ffpar.com.
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