Futurist

Pendyala’s background as a coach and mentor, business consultant, and technology entrepreneur with an engineering degree gave him grounding in all three areas. He feels that coming from a different industry–actually a number of different industries–gave him a fresher perspective than would likely be available to someone who has spent their entire career as an advisor.

One of his first observations was that many advisory firms had created procedures without first having an understanding of processes and workflow. “Procedures are the last thing,” he says. “You look at your workflow, you look at your processes, and then you define and derive a set of procedures.”

Pendyala says that if the original set of circumstances that created the procedure no longer is valid, then the procedures need to be analyzed and updated, but it seems that most firms, large and small, rarely take the time for such evaluation.

He cites as an example how most people, even those who have actually used a typewriter, don’t understand why the “QWERTY” computer keyboard is laid out the way it is. (Old-timers’ note: On the original manual typewriters, meaning pre-IBM Selectric with its typeball, the letters were on metal arms that moved forward when you depressed the appropriate key. It was determined that arranging the keyboard in the order with which we are all familiar prevented the typist from hitting the keys too quickly and having the mechanical arms become entangled.)

“We make sure we capture the context of the procedures, so that three or seven years from now, we can look at the context, and if the context has changed, you change the decision and not blindly follow something that has worked. You’ve heard the adage ‘Don’t fix what’s not broken?’ If it’s not broken but the context has changed, how can you say it’s still right?” he asks. “If the context changes it behooves us to look at what we’re doing. That’s something John Waldron says, ‘Let’s challenge ourselves before our clients do.’”

One of the processes that Pendyala has put in place to give employees a reason to challenge themselves is a variable pay program. It’s an idea that he’s been toying with for more than 10 years and feels that he’s finally nailed it at Waldron. The program centers on giving employees incentives to find ways to buy more time from their current workdays. His goal is to help employees find ways to work less, not get less done, and think more.

Twice each year all employees are evaluated in seven categories dealing with subjects such as compliance, dealing with clients, working better as part of a team, and, of course, buying time from the workday. To qualify for the variable pay program, the employee has to come up with an idea, implement it, share it with the team, and then write a report. The additional pay can be as high as 10% of the individual’s salary. Interestingly enough, Pendyala doesn’t see the additional compensation as a payroll cost, but as a “firm improvement” expense. He recently completed the evaluations for 2007 and says the firm paid out about 80% of the potential funds available.

As a newcomer to financial services, but by no means a neophyte to the business world, Pendyala is in a good position to make some observations about the advisory profession. One of the first things that struck him is the prevalence of what he calls a sole proprietor mentality. A typical independent advisor is an individual who leaves a wirehouse or some other institution and starts a business, maybe with an assistant. The first challenge comes when the advisor wants to grow beyond the size he can handle alone. “The model that I have observed to grow a financial advisory practice is that you multiply books of business, what Moss Adams calls an ensemble practice,” he says. “We didn’t do that.”

In setting up Waldron Wealth Management, John Waldron (who has an accounting background) realized that in that model each advisor only deals with his own clients and is limited by his own skills. Instead, Pendyala reports that Waldron decided that “what I need in my firm is people with diverse backgrounds, not duplicate books of business,” says Pendyala.

Although Waldron had the vision, he wasn’t able to see it come to fruition until after he hired Pendyala to help turn his practice into a business enterprise. Pendyala says that “When I [looked at] the financial advisor and financial assistant model that you find so common in the industry, I said, ‘This doesn’t work for me. Strategic advice and operational execution are equally important.’”

When anyone becomes a client of Waldron Wealth Management, a team of at least three players is assigned to them–a wealth counselor, who serves as the strategic advisor; a financial manager, who provides operational and administrative assistance; and an investment specialist to manage and advise on their assets.

When Pendyala first joined the firm, Waldron suggested that he be a team member and take on some client duties. But Pendyala, who says he has no desire to be a pinch-hitter, says that would be like sending the coach into the game. “So we made a strategic decision that I would not get on the field,” he says. “On the other hand, I deal with a lot of client situations from a coaching standpoint.”

A big part of Pendyala’s attention is spent helping various team members make the most of their client communications. With most of the clients being in another part of the country, clarity of written communication becomes even more crucial than in many firms. To make sure the wealth counselors and financial managers remain on message, Pendyala reviews e-mails and letters to clients before they’re sent. “It’s not for proofreading,” he says. “It’s about angle. It’s about communication.”

Among the First, Not to Be the Last

Pendyala knows that professional managers, not to mention coaches, like him are but a minuscule portion of the advisory business. We just haven’t reached the tipping point that will lead to a revolution in firm structure. That’s because, Pendyala suspects, many firm owners still don’t understand the value that professional management brings to the table. “They see this as a finite, zero-sum game,” he explains. “Because of this sole proprietor mentality, when it comes time to hire professional management, they see that as a cost that will cut into their profits. They don’t see the growth.”

To back up his point, he cites Mark Tibergien’s presentation at the recent Investment Advisor/Moss Adams Advisor Summit, where Tibergien cited one study he had worked on that showed that any firm that hired a general manager or COO doubled their revenues in two years. In the three years since Pendyala has been on board at Waldron Wealth Management, revenues have more than tripled, a fact to which he credits John Waldron’s foresight in hiring the right professionals for his team. Without a professional manager to create the conditions to allow those professionals to thrive, it’s unlikely the growth could have been so dramatic.

E-mail Managing Editor Robert F. Keane at [email protected].