For advisory firms, more owners = more success

IN/Moss Adams study shows top-performing firms have wider distribution of ownership; ‘big motivation tool'

Feb 4, 2011 @ 4:08 pm

By Andrew Osterland

It's a difficult decision for solo owners of advisory firms to open up their business to new ownership. But it pays off, according to results of the latest InvestmentNews/Moss Adams Financial Performance Study of Advisory Firms.

One of the key characteristics of top-performing advisory firms (the top 25% of the 612 firms surveyed) was a relatively wider distribution of ownership. Top performers — as measured by factors such as faster revenue growth, higher margins, better client retention and more-successful acquisition of new clients — had a median of 40% active owners as a percentage total head count at the firm. That compares to a median 25% for all other firms.

“Broader ownership clearly differentiated the top performers,” said Kelli Cruz, director of custom research at InvestmentNews and moderator of the “Instilling an Ownership Mindset” panel at the TD Ameritrade conference in San Diego.

The results from the Moss Adams survey suggest that more owners provide more and better resources for practice management and particularly business development.

“It's very hard to grow with a small group of people. You have to delegate responsibilities,” said Anthony Shembri, a partner at Clarfeld Financial Advisors Inc.

Mr. Shembri's firm started as a tax-planning and accounting firm, and expanded into financial planning and investment management. It now focuses on serving C-level corporate executives and manages $3.45 billion in assets for its clients. A pivotal factor in the firm's successful growth was expanding the ownership. “We realized we needed to open our business structure up to more people,” Mr. Shembri said. The number of people with equity stakes in the firm expanded to 15, from 8, over the last several years. “It's been a big motivation tool for us, empowering people to make a difference.” (Watch a one-on-one interview with a top RIA on his firm's secrets of good ownership.)

Panelist David McKinley launched his advisory firm, McKinley Carter Wealth Services, as a sole owner in 2003. He expanded the firm in a series of four mergers-and-acquisition transactions, issuing stock to incoming principals in two of the transactions. The firm, now managing just over $500 million in assets and employing 25 people, has three partners owning 85% of the firm. Mr. McKinley said he also attempts to foster a “philosophical” sense of ownership in the rest of the firm's employees through semiannual retreats and conscientious efforts to communicate with employees and act on their ideas.

“Our organizational structure is based on what we think is people's best and highest use,” Mr. McKinley said. In his case, he now spends the bulk of his time managing the practice rather than dealing with clients.

The delegation of responsibilities and the broadening of ownership interests is no easy step for advisers used to flying solo. But in the long run, giving others a stake in the firm can help you take a business to the next level. “I wanted to accomplish more than I could do by myself,” Mr. McKinley said.


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