From the April 2010 issue of Investment Advisor • Subscribe!

Soapbox: Solo or Ensemble? What's Best for You?

Time. Money. Ego. These factors present a choice--and often a conundrum--for every solo advisor who considers joining an ensemble practice.

Partnerships are often born out of a desire to gain scale--that is, to take on increased volume without increasing margin. Let's say practice A has one receptionist, one sales assistant, and one paraplanner, and practice B has the same three positions. If those practices combine forces, isn't it just common sense that only three or four staff would be needed? In addition, the practices could gain:

o Cost savings from renting one office instead of two;

o Power in negotiating with vendors;

o Time savings on everything from ordering office supplies to hiring staff;

o Camaraderie.

As the industry sees an increasing number of ensemble firms develop, more and more advisors will need to strike a balance between the demands of efficiency (following firm-wide processes) and ego (doing things their own way).

Ego is natural for everyone, and entrepreneurs tend to have a healthy dose of it. But ego often clashes with prescribed processes. Advisors who eschew being told what to do or how to do it fiercely guard their autonomy. Given a choice between following consistent processes (to achieve greater efficiency and, ultimately, financial reward) and doing things their own way, some advisors will choose the latter.

Long-time solo advisors who join a multiple-advisor firm may find themselves thinking, "I like my way better." Partnerships can fall apart simply because it feels too confining to do things one way, especially if it's not your way. The increased scalability that sounded so enticing to a former solo practitioner may lose some of its luster when he realizes that gaining scale requires compromise. The advisor must either embrace the process, possibly taking a blow to the ego, or buck the system, compromising the ensemble's efficiency.

Say, for example, that a tenured advisor joins a large firm. He benefits from the group's reputation, enjoys coverage when he's absent, has a built-in succession option, and reduces time spent on business management tasks such as approving vacation and conducting performance reviews. This, at least in theory, leaves more time for rainmaking and working with clients. There's just one problem: the firm he joins has a systematic process for producing quarterly performance reports and can't accommodate his desire for reports that present different data, allocations, and investments.

The bigger the firm, the greater an issue this can be.

Scalability requires having processes. Equally important, it requires following those processes.

If you're an advisor who seeks to join an ensemble, do your due diligence on the firm's processes to be sure that you can wholeheartedly adopt them. Find out how flexible the processes are and, if you foresee any major conflicts, potentially even negotiate exceptions.

If you're a partner in a multiple-advisor firm and you're struggling to comply with the firm's processes, ask yourself if you will ever be able to accept them. If not, you either need to spearhead an effort to change the firm's processes or acknowledge that the ensemble environment may not be ideal for your situation and personality.

If you want just a few of the benefits of an ensemble without changing your methods, processes, or preferences, consider a "halfway house" approach, where you share some aspects of a partnership, such as rental space, but keep all other aspects of the business separate. This offers limited scale but requires minimal compromise.

Paying for scale by sacrificing ego is worth it for some advisors, not for others. It's wise to assess where you stand on this issue before joining a firm. If you need to have things done your way, the solo approach may be best for you, even if it's not the trend.

Joni Youngwirth

Managing Principal of Practice Management

Commonwealth Financial Network

Waltham, Massachusetts

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