There are more wealthy people in the United States and around the world than ever before, which means there are more people who need financial advice than ever before, which means there is tremendous potential for growth for those advisory firms that can efficiently meet the needs of this highly demanding clientele. As observers of the profession have been pointing out for years, that means an increasing level of competition from large brokerage, banking, and insurance firms that have the economies of scale to serve this audience.
Those firms that are looking to capitalize on this potential growth have to determine the business model that works best for them. For those looking to develop more than a solo, silo, or ensemble practice, that often means bringing in management professionals. Mark Tibergien, Bob Clark, and others have written in these pages about the turning point faced by many firm founders where they have to decide if they want to concentrate on running their business or on advising their clients.
It’s a difficult decision to make and one that many owners seem to put off. According to the 2007 Moss Adams Compensation and Staffing Study, only 4% of firms planned to hire professional management in either 2006 or 2007.
John Waldron, who founded Waldron Wealth Management in Pittsburgh in 1995, got to the point where he needed help with the business side of his firm several years before he actually did anything about it. Lucky for him, when he was finally ready to take that plunge, the perfect candidate for the job was the person who first suggested the idea to him. It all started when he met Krishna Pendyala on a flight home to Pittsburgh in 1999.
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Five years later Waldron asked Pendyala, who had since become a friend and a client (see John Doesn’t Do PowerPoint sidebar) to take on the job. Although his professional and educational background had absolutely nothing to do with financial services, his experiences as an entrepreneur and business consultant convinced Waldron that he had the ideal complement of skills to meet the challenge of instituting business systems for Waldron Wealth Management.
Before offering Pendyala the position of COO, Waldron assessed the situation and decided that at the firm’s current revenue level and the number of contacts that Pendyala brought with him, that Waldron Wealth Management would be able to bring him on board without any negative impact on the bottom line. What he hadn’t counted on was Pendyala’s intense desire to begin a new career as a professional life coach.
“Usually a professional life coach builds a private practice one client at a time, much like an independent advisor,” Pendyala says. “I didn’t want to do that, so I made a deal with John: ‘You allow me to become the coach for all your employees and I’ll do the crap for you. I’ll be your COO.’”
Pendyala joined the firm, which then had 42 clients and $185 million in AUM, as its eighth employee in August 2004. Today there are 16 employees, 75 client relationships, $750 million under management, and $2 billion under advisement.
In order to effectively act as Waldron Wealth Management’s COO, Pendyala felt the first step should be for him to get to understand who the clients were. So he had Waldron outline each of the 42 clients, and how they came to the firm. “Each one was different,” he says. “I was stumped. I was expecting two or three value groupings.”
After struggling to find some common denominator, Pendyala finally arrived at the first of the firm’s three core values, what he calls client-focused innovation. “For each prospect, this firm does something unique, solves a problem that is not too easily solved, before they become a client.”
The next value on the list is something every business, not just an advisory firm, strives for: impeccable service. For Waldron Wealth Management, providing that service with a personal touch is a little bit more challenging than for most. While most advisory firms draw the majority of clients from an immediate geographic area, according to Pendyala only 16% of Waldron’s clients are actually from Pittsburgh. The rest are in Philadelphia, New York, Washington, and scattered around the country. “Most of our clients don’t visit us in person,” explains Pendyala.
Since very few potential clients actually come to the office, the first impression is made by the person answering the phone. Yet Waldron had no receptionist. So Pendyala made hiring the right individual for that position a top priority, going so far as to conduct preliminary phone interviews with 72 candidates. He reasoned that how they sounded and handled themselves on the phone would be the most important attribute, certainly a much more crucial factor than their appearance.
The third leg of the values triangle is flawless execution. “Competitive edge is what really brings you a client, but it’s in the prospecting phase that competitive edge shines,” he says. “After that, how you execute the important functions is more important. It’s the operational issues that become very important in sustaining a client relationship, because if you screw up there it shows.”
Building a Culture
Creating the operational systems to help Waldron Wealth Management transition from an advisory practice to a business enterprise is what Pendyala figured would be his biggest task, but first he had to lay the proper groundwork.
“It took about 15 months putting the right culture in place,” he recalls. From an organizational standpoint, he saw Waldron Wealth Management as a “green field.” “They had great people, great ideas, and great clients, so what I did was formalize the strategy and build around it the three critical components–the people, the processes, and then the use of technology.”