At the end of last November, I had the privilege of moderating a panel of advisors at the Investment Advisor Moss Adams Advisor Summit in Washington, D.C. Having returned from Madrid the day before on a 12-hour flight via Chicago, I was, shall we say, not at my best. Fortunately, the three advisor/panelists, each of whom had sold their practices in recent years, were brilliant. Moreover, by my three measures of such things, the session was a great success: the room was packed, nobody got up and walked out, and at the end, attendees kept asking questions until the conference MC–Editor-in-Chief Jamie Green–gave us the universal finger-across-the-throat sign to wrap it up.
The reason that session resonated with the nearly 200 advisors in attendance, at least what I can remember of it, was the panelists themselves–Greg Sullivan, whose former Sullivan, Bruyette, Speros, & Blayney in McLean, Virginia, became part of Harris Bank in 2002; Duane Grady of Cornerstone Wealth Strategies Group in Bethesda, Maryland, who became one of United Capital Financial Partners’ first acquisitions two years ago; and Dave Huber who, only six months prior to the conference, sold his Huber Financial firm outside Chicago to Mesa Financial in Minneapolis.
Not only were they thoughtful and articulate advisors who have gone through what nearly every advisor in America is at least thinking about these days, they were surprisingly young: with ages ranging from mid-40s to mid-50s, and each had owned a very successful practice. Yet they had decided to take some (or all) of their equity chips off the table long before they were ready to quit working. While each had their own reasons for doing so, the group consistently referred to the myriad benefits of being part of a larger corporate structure–greater financial resources, constructive accountability, a more formal business structure, and practice management guidance and support. Combined with the fact that these sales have had a positive impact on the growth of each firm, it makes one wonder whether consolidation might be a good solution for more independent advisory firms than one might think.
It’s Helpful to Have a Parent
As readers of these pages may be aware, I have never been a big fan of independent advisors (who want to keep working) selling their practices to institutions or corporations, no matter how much they offer. The short version of my argument is this: If you’d be happy working for a bank, you’d probably be working for one already. Yet hard as it might be to believe, there seems to be a growing body of empirical evidence that suggests I might be wrong about that, at least for some advisors and some institutions, including the rather compelling testimony of the advisors on my panel in D.C.
The panelist with the most experience being owned was also the most successful at least as measured by firm growth–Greg Sullivan. When Sullivan and his partners sold out to Harris Bank five years ago, they had $800 million in client AUM, making them one of the largest independent firms in the country at that time. Today, they have some $2 billion in AUM, which represents an annual growth rate of about 21%.
Now, a 20% growth rate over the past five years is not uncommon among successful advisory practices. But when your starting point is $800 million, a growth rate that high is harder to sustain. Greg attributed his firm’s success, in no small part, to its affiliation with Harris Bank. He was quick to point out that the bank has been as good as its word about leaving the advisory firm alone to service clients and select investments in the manner that made it successful in the first place (which considering the impulses of banking institutions and the experience of some other similarly acquired firms is no small feat). He went on to say, however, that it’s been the introduction of the bank’s more formal business culture that has lead to his firm’s growth, and perhaps more important, also increased its profit margins.
Getting Down to Business
It seems that even when you report to people who are likely to go along with your suggestions, the process of having to present your plans is a great motivator for creating good plans. What’s more, presenting a strategic plan every year, together with goals and timetables, implies an accountability that just simply makes things happen. Being part of a professional business culture makes everyone at the firm act more like, well, professional business people.