It seems to be the latest phenomenon: Advisors who are contemplating a move entertain the idea of assembling a group of unrelated advisors – friends with whom they’ve discussed the idea, colleagues they don’t currently partner with and even advisors from other firms – and moving en masse to a common destination. These advisors are not necessarily motivated by interest in expanding a team or forming a new partnership. Their hope is that one book of business has a higher value and/or is “more important” to another firm by association with friends who are likewise interested in talking to the same firm.
The idea seems to be gaining popularity as more advisors are contemplating moves. As part of their natural conversations with friends and colleagues, they are sharing some of the details of their quest, often generating the thought that there might be some strength in going together. One advisor knows another, and soon a “pseudo team” is born.
Joining forces with other like-minded advisors who share a desire to make the move has many advantages. For instance, it allows them to perform their due diligence in tandem, gain scale and recreate the team environment from where they originated. But do benefits like these outweigh the potential negatives of working as a larger yet only loosely connected group?
Taking a closer look, there are 5 points that can help advisors who are considering this approach go into it based on reasonable expectations.
1) Adding leverage to the deal
Deal economics are structured based on individual production, therefore if the only reason for approaching another firm as a group is to negotiate a better deal, this will not be successful. A firm must evaluate an advisor’s business based on its individual merits: How much is fee-based, the size of the accounts, what the compliance record looks like. Unrelated advisors won’t be in any better position to negotiate superior deal terms simply because they agree to go through the process together. Nonetheless, a group representing exponentially more in production and assets gets noticed and remembered and is impactful to a local office.
2) Launching a new office
If the goal is to create a new presence – for example, a satellite office for a firm that’s not in the area (regional firms still have an appetite for this) – then having a ready-made pipeline of advisors who want to be a part of it is a huge advantage. In some cases it may be a necessity, if not certainly more realistic. Firms typically require anywhere from $2mm to $5mm in production in order to consider a new presence. They are unlikely to move forward with such a plan until there is a strong commitment demonstrated in the requisite amount of assets and production.
3) Providing a breakaway opportunity
Is it possible for a group of industry colleagues to come together to build an independent wealth management firm, yet continue to retain their respective separate businesses, like a co-op model? Certainly, there are clear advantages to being able to share space and other resources, plus split the costs based on combined revenue, assets and human capital. Yet another advantage is that a “team” allows an advisor to create a more substantial presence—a bigger firm look and feel while preserving the ownership of his individual practice.
The challenge is in establishing team protocols, such as defining how decisions will be made and resolving any potential conflicts. Does everyone get an equal vote? While this might be fair, it can be inefficient, time consuming and ultimately counterproductive for every decision to put to a group vote. It’s equally important to understand what happens if the arrangement doesn’t work out—how are shared resources to be split? Most groups would benefit from using a third-party industry expert in creating the optimal structure.
4) The added ability to divide and conquer
Does sharing the responsibilities of the exploration process with a pal or two saves time and energy— that is, each person being responsible for some part of the due diligence process and then comparing notes? It sounds good in theory and may work during the preliminary gathering of basic information, but what goes into choosing the best firm or business model is part art and part science. Determining if the right cultural fit is there is a very personal and somewhat subjective decision that will require focus early on.
5) “Take me with you”
There are advisors who simply won’t move on their own. They aren’t willing to do the legwork or they are stuck due to inertia, living under the assumption that nothing better exists. But when a buddy shares what he’s considering, they don’t want to be left behind. They may even “tag along” to a colleague’s meeting. Friends can be a powerful motivator: If not for the friend, they would likely remain stuck. However, it is critical to avoid allowing this additional advisor to disrupt your momentum or create unnecessary distractions.
Why not form a partnership?
In some cases operating side-by-side in this new model, and not under a formal team agreement, may be a way to see if an eventual partnership makes sense or if there is potential for a future merger or acquisition of the separate practices. For others, they like the familiarity and collegiality of working among people they like and respect but don’t want to join the businesses in a more substantive way.
It’s challenging enough for even the strongest and most longstanding formal partners to be on the same page when it comes to any major decision. Each business is unique and every advisor has his own set of goals and deal breakers. Advisors who have not worked as partners and developed a process for making decisions face greater challenges in coming to a consensus as a group.
Not everyone wants to be a trailblazer. The good news is that the changing landscape has opened up a new world of opportunities for advisors to define how and where best to serve their clients and their own business goals. A model such as this offers advisors a potentially less risky option, providing some security and strength in numbers, as well as the ability to tap into shared perspectives, so long as they go in eyes wide open, and with reasonable expectations.
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