From the October 2009 issue of Investment Advisor • Subscribe!

The Fast Track: An Odd Couple

A young, driven partner was just what he didn't know he needed

These days, many Baby Boom advisors are still interested in selling their practices, but with shrunken assets under management and depressed practice values--not to mention buyers negotiating as hard as any time since the dot.com crash--it's not as easy as it used to be to strike an acceptable deal.

That's why I decided to write about another practice case study this month, to tell Dave Shore's story. Although he wasn't even looking for an exit strategy, Dave literally stumbled on a unique formula that I wouldn't even have thought would work. It's certainly not for everyone, but it's been so successful that I now believe that his Marin Financial Advisors, LLC in Larkspur, California, represents a model that many solo practitioners should at least consider.

The Value of Networking

Shore's story ironically starts with Tim Harrington, who by 2002 had been in the field of global investment banking at Barclays Capital for 17 years. Tim came to realize that corporate investment banking wasn't his dream career, so armed with his CFP, he took what I would call the standard advice and became more involved in his local San Francisco chapter of the FPA to network and find the right situation for his new career. The way things turned out, he could be the poster boy for FPA networking.

Through his local FPA chapter, Harrington met many other advisors and eventually stumbled upon Dave Shore, a career financial advisor who had been running his own small planning firm for 10-plus years. About 10 years older than Harrington, solo practitioner Shore was experienced, established, personable, and successful.

Unfortunately, Shore was also not interested in taking on a junior advisor or a partner. In fact, he was quite happy with his $25 million AUM practice which afforded him the time to pursue outdoor interests like mountain biking, rafting, and windsurfing. As with many advisors, Shore's primary motivation (his Personal Definition of Success, as Mark Tibergien has been known to call it) was the lifestyle his practice afforded him: he was his own boss, was able to set his own schedule, was devoted to his clients, and generated enough cash flow to fund both his current lifestyle and his anticipated retirement. Shore was understandably happy with the state of his practice and saw little reason to change it.

For his part, Tim Harrington felt that due to the cost of building his own firm and going at it alone in the stringent compliance environment for RIAs, he would be better off joining an existing firm rather than starting his own from scratch. This is a common trait among both young advisors and career changers like him. It's in sharp contrast to the older generation of advisors--like Dave Shore--who were far more entrepreneurial and therefore far more likely to start their own firms. This contrast is one of the primary factors in Shore's and Harrington's eventual success, and one of the reasons that he felt that Marin Advisors was the right fit for him. Now all he had to do was to get Dave Shore to see it, too.

Legacy Issue?

I'm not sure it's clear to either of them exactly how Harrington got Shore to change his mind. I believe that, in part, Harrington touched that need which many successful solo advisors have in common: to pass along their knowledge and experience, mentoring the next generation of advisors. It also didn't hurt that he (like Don Corleone) made Shore an offer that couldn't be refused: Harrington joined Marin Advisors for little compensation, contributed $1,000 a month for his overhead, helped Shore with his existing clients, and recruited new clients of his own. Shore took Harringon's deal in February of 2003.

I know, it's not much of a deal for an experienced investment banker. Nor is it a comp package that I would recommend to advisory firms. By taking on all the risk of his own "employment," Harrington gave Shore virtually no economic incentive to help him succeed. Yet Harrington obviously knew himself, and had ample, well-placed confidence in his own abilities. Unconcerned about the downside, Harrington offered the deal he felt he had to, in order to put himself in what he believed was the right situation to give himself the greatest chance to succeed in his new profession. It's hard to argue with his results.

By year-end 2004, Harrington brought in a number of his own clients. Shore discovered a new motivation for growth that he perhaps had lost along the way (as many solo advisors do) and they began building the practice together. Two years later, the arrangement was working so well that Shore wanted to more appropriately reward Harrington for his contribution to the growth of this firm. Harrington responded that he hadn't become an advisor to make more money, rather to become an owner of a firm. It was a note that resonated with Dave Shore, and he offered to sell Harrington half his firm.

The terms of the acquisition were more than fair. But considering that it represented value in Marin Advisors, it was perhaps appropriate. Since the growth of the firm was the result of much of Tim's work and Dave's renewed motivation, Tim and Dave worked out a unique structure for this purchase that benefited them both greatly and compensated Dave for the work that he did in developing his solo firm prior to Tim coming along.

Proof in the Numbers

How did they do? At its high-water mark just before the subprime recession hit, Marin Advisors' AUM hit $170 million, a growth rate of more than 50% a year since Harrington joined the firm. Even though assets are down a small amount since then, the two partners' equity could be estimated at $1.2 million each--in Shore's case, up from $500,000 before Harrington came onboard, a gain of some 240%. At a more modest current growth rate of, say, 20% per year, the firm would be expected to be worth more than $5 million in the next five years or so. Oh, and the two advisors manage their current client load with the help of only a support advisor and a part-time operations person. They expect to hire another support advisor (one for each of them) by year end.

While Tim Harrington's impact on Marin Financial Advisors can't be overstated, I believe a significant portion of the firm's success can be traced to the differences between the two advisors. They are the proverbial odd couple: Shore is laid back, outgoing, and flies by the seat of his pants; while Harrington is intense, direct, and highly analytical. In Kolbe A Index language, (I am not a certified Kolbe consultant but I have some knowledge that comes from conducting hundreds of screenings for advisors and having Kolbe analyze them for me), Shore is a perfect 5-2-8-4 (the very typical-veteran-in-the-business score): more intuitive than analytical, decides quickly, and moves fast. Harrington is a classic 8-7-4-1 (a very typical financial-planning-career-changer score): loves research, is highly analytical, and very deliberate in his decision making. Together they are the perfect yin and yang in an advisory practice.

By allowing Tim Harrington to be Tim Harrington, rather than a Dave Shore clone, Shore enabled him to bring a new level of energy and enthusiasm to his business and to his practice of financial advice. That translated into a metabolic steroid shot for Marin Advisors. As I said, it's not a strategy that I would have recommended, say, five years ago. But Marin's success speaks for itself. For advisors seeking an exit strategy in the next five years or so, adding a young, driven partner who compliments their skills and personality can be, well, successful.


Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at angieherbers@cox.net.
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