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.

He also pointed out that access to Harris Bank’s various professional staffs not only helped his firm to run better and more efficiently, but it also reduced some of the staff the firm needed. For instance, as you might imagine, the bank has a state-of-the-art human resources department. Now before you have the same “‘I’m-from-HR-and-I’m-here-to-help’-is-an-oxymoron” reaction that I did, remember that the bank has remained basically hands-off on the operations of the firm. But access to resources on benefits, compensation, contracts, recruiting, etc., not only adds a higher level of expertise to the firm, it also makes having some of that expertise in-house unnecessary. The same can be said for accounting, legal, and even investment management resources.

Greg also pointed out something that really surprised me: The difference in mindset between owning an advisory firm, and managing it for someone else (with incentives for success), actually helped him and his partners make better management decisions. “When a substantial portion of your net worth is tied up in the firm, your primary concern is keeping the doors open: you don’t want to do anything to rock the boat,” he said. “That can make you overly conservative. Once we were acquired, we were able to think more objectively about what needed to be done: admit that some people just weren’t a good fit, reorganize for more efficiency, and move into new areas. It just made us better business people.”

In fact, Greg really only had two complaints about his five-year partnership with the bankers. They recently mandated a name change name to Harris SBSB (which stands for Sullivan, Bruyette, Speros, & Blayney); and in hindsight, he would have preferred to sell the firm when it had $2 billion in AUM rather than $800 million.

It’s Profitable to Have a Parent

The other two panelists were equally laudatory about their, albeit shorter, experiences with being owned. Duane Grady experienced substantial growth in his two years, although he pointed out that going from the technology systems at Ameriprise to a smaller, startup firm was a rude awakening. Everybody agreed that any advisors contemplating selling should take plenty of time on their due diligence to find the right strategic partner (Dave Huber’s search took two years). Finally, all three counseled inclusion of a buyback clause in case your new owner gets acquired itself, and you don’t have the same warm and fuzzy with the new folks.

Overall, the message was pretty clear: The right corporate owner can make your life better and your firm bigger. Perhaps ironically, as Moss Adams’s partners Rebecca Pommering and Phillip Palaveev, and former partner Mark Tibergien (now running Pershing Advisor Solutions) are the stars of the Investment Advisor Summit, Moss Adams has come to the same conclusion. In its 2006 Financial Performance Study of Financial Advisory Practices, the Seattle-based accounting and consulting firm found that advisory firms that are owned by a parent are indeed more successful.

While the average firm in the Study grew 75%, from $778,000 in revenues in 2000 to $1.36 million in 2005, firms that were owned by a parent posted average revenue growth from $1.9 million to $4.7 million, up 150%. Even more striking, during those five years, owner’s income at the average firm remained basically flat, rising 8% from $253,000 to $273000; yet, among owned firms it more than doubled from $273,000 to $716,000, a jump of 162%. Concluded Moss Adams: “When we consider the financial results of acquired firms over the last five years… …we can see a pattern of dramatic growth and financial success.”

Moss Adams also found that firms with parents’ overwhelming edge came from the fact that they added substantially more professionals, averaging 10 new financial advisors and two full-time managers per firm over the five-year period. At the same time, they kept overhead down by adding only three staffers per firm. This is, of course, consistent with what we’re seeing in the advisory world today: Larger firms with greater resources are attracting a growing portion of young, experienced financial advisors. With the growth of firms of all sizes dependent on new, experienced advisors to handle additional clients, it seems that firms owned by parent companies have a sizable advantage. Perhaps the fast path to a larger firm really is selling out–if you can find a buyer who will let you continue to do the things that made your firm successful in the first place. It still doesn’t seem likely, somehow, but I’m keeping an open mind.


Bob Clark, former editor of this magazine, surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at rclark7000@aol.com.