Thank goodness we diversified

My business partner and I founded our registered investment adviser from scratch nearly 30 years ago. By, say, 2015, when we’d achieved $2 billion in assets under management, we were, we believed, in the perfect position.

We had a great business model and wanted to grow the business by expanding our geography. But we came to understand that with each new office we opened, as our responsibilities kept increasing, so did our expenses. 

That’s because it takes money and staff and time to grow a firm in each new city. In addition, we were, in a sense, going against the very advice we’d long been giving our clients by tying up too much of our money in a single investment.  

When we looked around, at first reluctantly, we realized something: We’d hit a ceiling, and we didn’t have the same risk tolerance in our early 50s as we did in our early 20s.

A little backstory: About 16 years ago, in addition to our RIA, my business partner and I founded a reverse mortgage company. We grew it into the third largest in the U.S. before selling to a Fortune 500 company.

The cautionary aspect of that was that even though we’d both agreed to stay on and continue to run the mortgage business, within a year we’d both left. It was a terrible cultural fit and we didn’t want to experience that ever again.

Jump ahead to 2020, and, as regular readers of my columns here know, the selling of a majority stake in our RIA 2½ years ago ranks among the best professional decisions of my life.

It turns out that we found the perfect merger with private equity.

In certain circles, people hear “private equity” and pause. But not only is it a great cultural fit that finances our expansion and strengthens our infrastructure, because our partnership is with investors and because they have faith in what we do, they generally allow us to run the firm the way we always have. And that allows virtually everyone involved to benefit from the flexible mergers and acquisitions we’ve done the past two years.

“Flexible” means our partnerships run the gamut from principals who want to retire (but protect their clients and staff) and principals who just want to be advisers (and not run offices or manage staff), to principals like my business partner and myself, who want to be part of something nationwide that helps as many people as possible live rich and meaningful lives.

As long-time advisers and principals ourselves, my business partner and I are intimately familiar with the needs and goals of people like us.

Of our eight transactions, it would be difficult to succinctly describe all the various outcomes we’ve produced to help our fellow principals achieve their ideal professional transitions.

But with everything that “perfect partnership” with private equity has brought to us — the security, the flexibility, the autonomy and growth — it may not have been until the coronavirus pandemic that we realized just how perfect a situation it really is.

Case in point, over a 10-day period in March, we took our 220 employees and 17 offices and transformed them into a single remote (and efficient) entity. Even five years ago, when we were lean and expanding and we’d thought we’d hit our stride, it’s unlikely we ever could have accomplished anything close to that.

As the markets nose-dived in March and we were ordered to “shelter in place,” my partner and I were so grateful we had a strong capital partner behind us. We couldn’t imagine what it would be like to have to shoulder the entire burden alone.

[More: You’d better increase your service offerings, or else find partners who can help]

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $8 billion in AUM.