Independent advisory firms are beginning to look more like broker-dealers every day. That’s not a combination of words many advisors expect to read. But the plain fact is that independent advisory firms are becoming structurally more complex and disparate. The newest evidence of this trend is the growing movement toward multiple office locations.

In a recent white paper written by FA Insight for Pershing Advisor Solutions, we found that 50% of the country’s top 50 wealth management firms now maintain offices in multiple locations (for a copy of Creating Growth: The Rewards and Challenges of the Multi-Location Model, e-mail me at Another study on operating performance conducted three years ago revealed that 25% of all independent firms with assets over $100 million had at least a second location.

The good news is that advisory practices are beginning to look more like businesses. Not only are they driving growth from strategic plans, but they are developing processes around human capital, operating efficiency and client service. The bad news: not all of these processes are well developed, and opening additional offices exacerbates the problems.

Several symptoms of strain become more obvious when a firm adds a new location:

  • Inconsistent work
  • Cultural dysfunction
  • High staff turnover
  • Lower profit margins

According to the FA Insight study, the first challenges that multi-office firms experience stem from unclear protocols for how things should be done and inadequate quality control. These challenges affect every area, from how new clients are prospected and on-boarded to how recommendations are delivered and, in some cases, even to how reports are presented to them.

Cultural dysfunction occurs when a new location lacks the presence of a cultural carrier from the home office. New offices are often created because of an acquisition or lift-out from another firm. The leaders on both sides initially believe that because the deal looks good on paper it will work out culturally. In reality, the new people already have their own ways of thinking, speaking and behaving which are likely quite different from how the people in the main office operate. Tension builds. Communication breaks down. The new folks chafe at the requests and demands of the firm leaders and the relationship becomes hostile.

As a result, employees and even partners in the branch office often become alienated and eventually leave. The branch office tends to be much smaller than the headquarters so every departure is magnified. The office gets further stigmatized, making it even harder to achieve critical mass.

Higher Dysfunction = Lower Profitability
All of this dysfunction contributes to lower profitability for the branch and, consequently, for the firm. Start-up costs are high for a new branch even when new advisors bring in clients, assets and revenue. Investments must be made in office space, leasehold improvements, equipment and furniture, support staff and marketing in order to create a brand presence. The new office almost always takes longer to get to productivity than the parties to the plan originally anticipated.

That is not to say that a multi-office strategy can’t be successful. In fact, some form of branch office or multi-office footprint makes a logical step in the evolution of an advisory firm. Another office allows advisors to replicate what they’ve built successfully in one place and, over time, can give the firm operating leverage by expanding its base. Done consistently, a multi-location expansion plan can also result in higher overall profitability, access to talent pools in other markets, higher valuations upon exit and even more succession options.

But in order to do it right, advisors should implement the following best practices before opening a new location or, if a second office already exists, these steps should be considered.

1. Think strategically. With most business decisions, actions without context often produce unintended consequences. In the case of opening offices, we have observed that many of these situations occur by chance and not by plan. Sometimes reacting to an opportunity bears fruit, but more frequently, it bears heartburn. Questions to ask before expanding include:
a. In five years, what do we expect this office to look like (size, clients, assets, staff)?
b. How will this extend our brand?
c. What is the most logical location for another office based on our vision, mission and clients?
d. What will it cost, over what period of time, and what will be the payback?
e. Who will lead it and how will we evaluate their success?

2. Organize according to your strategy. A common mistake is to structure the office around the capabilities and interests of the person who will lead it and the other talent there. This creates an advisor-centric operating model instead of a process-centric model, resulting in inefficiency, errors and inconsistency. Clearly defining what you are trying to accomplish and designing the local organizational structure around that strategy helps to create a more profitable, more leveragable office. When contemplating the structure, also determine what could be addressed in the headquarters. The more the local office can be geared toward procuring and serving clients rather than the more commoditized aspects of running an advisory firm, the greater the chance of having a profitable operation. Further, narrowing the scope of what is done in the branch enhances the firm’s ability to create scale and redundancy in certain positions.

3. Manage full time. A branch office is a different kind of animal from the main office. People working in satellite locations often feel ignored or slighted by people in the headquarters. This is further aggravated if they depend on the main office for support in any way, such as in producing financial plans or basic operations. In addition, people who work outside of the main office oftentimes do not see or experience the same developmental opportunities. Making a branch office operate smoothly requires the presence of dedicated management who ensure that the brand promise, culture and processes are carried out consistently, and that individuals in the branch are developed and rewarded at the same level as those in the main office. This is also an expense, but the cost of turnover, mistakes and dysfunction over time is greater.

4. Don’t over-diversify. Related to strategy and process, avoid stretching your resources over too many markets either geographically or by type of client. When dealing with a varied client base with different advice and service needs, you strain your infrastructure and run the risk of confusing the local market as to what you are offering and who you are serving. A branch is the tip of the spear in creating a local market, not a cumbersome 2” X 4”. Be as specific and targeted as possible to generate brand awareness, rather than exhausting yourself trying to find and serve the right market.

The study created for Pershing—Creating Growth: The Rewards and Challenges of the Multi-Location Model—revealed that every firm with multiple locations has a different approach: some centralize, some decentralize; some open offices to serve migrating clients, others do so to create new markets. For advisory firms that have built a strong brand in their local markets have implemented efficient processes for how they do business and have clarified their strategy, a new location can be an effective means of growth—if conceived properly and executed according to a plan.