Ispend much of my time talking about, writing about, and counseling advisors on the advantages of forming ensemble firms. So when my friend and former client, Glenda Kemple, announced last January that she was leaving Quest Financial, a firm she co-founded 15 years ago, it was a powerful reminder of how important it is for advisors to think about where they really want to go before they start building a practice to get there. I call this creating your Personal Definition of Success, and the more successful you are at identifying your PDS, the more successful you’ll be as a financial advisor.
Glenda Kemple and Woody Young were financial planners in Dallas who formed Quest Financial Services in 1987 (and were profiled in IA in August 2001). Although they were more committed than most to building a business, like most planning “firms” Quest was initially just two advisors sharing office space and some overhead. Each had their own clients, generated their own revenues, took home their own profits, and made their own choices about the support they needed. “If I wanted a better computer system or additional help,” recalls Kemple, “I just paid for them myself.”
Quest had a business plan from the beginning, and the partners had a buy/sell agreement in place, both of which put them ahead of most planning practices. Says Young, “We both had some business experience, which gave us a head start. But the reality was we had our own fiefdoms. It was a typical ‘eat what you kill’ environment.”
They continued this way until December 1997, when Young had a series of heart attacks followed by quadruple by-pass surgery. While his recovery went well, the impact on his business left a lasting impression. “I had a team in place,” he remembers. “But they were rookies. None of the other planners had ever even met my clients.”
What’s more, there wasn’t any basis to compensate the other planners for working with Young’s clients. Kemple helped out where she could, but she had her own burgeoning practice to run. They realized that their firm needed to evolve further.
At this point, Kemple and Young asked me to take a look at Quest. I did, and made three observations, as gently as I could. First, their buy/sell agreement had many holes, one of the most significant of which was that it didn’t nail down how the practice would be valued. I pointed out that a crisis is not the time to make that kind of decision. Second, I told them that their practices weren’t worth nearly what they thought. That was because, third, their “firm” wasn’t really a firm at all. To truly create a firm, and realize the economies, the client service, and the value that a true firm offers, they would have to integrate their separate practices into a structured business.
That’s just what they did. “When we combined our practices,” says Young today, “it wasn’t evolutionary, it was revolutionary. We learned that the whole could be better, and of more value, than the parts. Clearly we were much better together.”
A Rocky Start, Then Smoother Sailing
At first, it wasn’t easy for them. In the initial meetings with the two principals and six other junior planners who would become partners in the firm, everyone was defensive, protecting their own turf. But gradually, as they worked through the issues, and thought about the benefits, a transformation took place, and everyone started to think first of the good of the firm.
For the eight advisors who formed the new Quest, including Young as CEO and Kemple as head of business development and marketing, and the now 30 or so employees of the firm, it has been a success by many measures. They’ve weathered the tough times of the past few years, retained their clients, and kept revenues high. “We instituted systems so that all our financial plans look the same, all our asset allocation looks the same, and we successfully transitioned our clients from being reliant on us to working with other planners,” says Kemple. “All our clients are now Quest clients.”
Adds Young: “The payback has been substantial. We do better work, our clients are better served, the firm is more profitable, and we’re having more fun.”
Well, most of them are having more fun. And therein lies the problem. An advisor whose general identity is defined by and wrapped up in his or her professional life will likely find it difficult to relinquish the autonomy enjoyed in a solo or small firm. Becoming part of a larger organization offers advantages, but it also may well mean a work life subject to more rules and restrictions. For an established advisor who has long enjoyed autonomy, conformity can create an unattractive environment.
Unfortunately, that’s where Kemple ended up. “I didn’t feel like it was my firm anymore,” she says. “When you start feeling like an employee, it’s not as much fun. You get the ego recognition for being the top producer, not from building a business.”
The Flip Side of Success