they’re spawning new competitors with an insider’s edge. Of all the concerns about a firm’s growth, this one is the hardest to resolve, because ambitious people usually do want to have their own busi- nesses. Yet we’ve seen many examples of firms that have provided a legitimate career path, including the opportunity for ownership or partnership, and consequently have retained outstanding people to help the business develop. This is the model used successfully by other professional service firms such as accountants and attorneys.
Through the use of restrictive legal agreements, the firms are also usually able to protect their client base from poaching by a disaffect- ed former employee or partner. Even better, through the deliberate development of a career path and human-capital plan, the firms are able to create skilled professionals who see as much or more oppor- tunity inside the firm as they do outside.
These issues arise regardless of a firm’s size. They show up in dif- ferent ways in a solo practice, but they do exist to some degree. The elite firms have recognized these pressures and have structured their organizations to use size to their advantage instead of battling them from a position of weakness.
The Multidisciplinary Model
The multidisciplinary model entails an integrated combination of skills that allows advisers to take a more comprehensive approach to the financial lives of their clients. Financial advisers of this type are usually relationship managers and have surrounded themselves with experts in relevant areas such as risk management, investment man- agement, financial planning, and estate planning (see Figure 4.7).
Of course, the disciplines represented on the team depend on the business’s strategy and the predominant needs of the clients served.
For example, if your optimal clients are business owners in transition, you may need to surround yourself with experts in management suc- cession or family dynamics to assist with the emotional issues that inevitably arise. If your optimal clients are dentists, you might include on your team experts in dental-practice management, since this is such an important part of the clients’ wealth creation.
The point is that you work from the client in, rather than the service out. Using a client survey process, as described in chapter 3, you can begin to define the expectations and needs of your optimal client.
FIGURE 4.7 Multidisciplinary Model
C L I E N T
Relationship Manager
! Develops the relationship with the client
! Can be either generalist or a specialist
! Has primary responsibility for all client work
! Can bring in other experts to serve specialized needs
Client Service Team INVESTMENT SPECIALIST
Recommends investment solutions
RISK-MANAGEMENT SPECIALIST Recommends insurance
strategies
PLANNING SPECIALIST Prepares financial
plans
Source: © Moss Adams LLP
The limitation of the multidisciplinary model is that it provides fewer opportunities for development of career paths. Typically, spe- cialists stay within that role rather than evolving to primary relation- ship managers. Although this route may be acceptable to them, the challenge for you is to develop enough relationship managers to help you grow and attract more primary client relationships.
Some multidisciplinary practices create multiple teams that are all relationship-oriented, then either outsource the specialties or treat the specialists as staff positions. From an organizational perspective, this means that the line positions (the advisers and relationship managers) focus on selling and serving clients; the staff positions (the technical specialists) focus on supporting the advisers and relationship manag- ers. This is an effective way to leverage your business as well.
The Leveraged Model
The variation diagrammed in Figure 4.8 seems to be the strongest model in terms of driving growth and building capacity, leverage, expertise, and client focus. We call this the leveraged model.
In the leveraged model, the senior financial advisers play a strate- gic role in client service, while the associates (or junior advisers) serve
FIGURE 4.8 The Leveraged Model
Associate Adviser
Associate Adviser
Administrative Support Administrative
Support
Associate Adviser SENIOR FINANCIAL ADVISER
Source: © Moss Adams LLP
a tactical role. The senior financial adviser develops new business and leads discussions about critical planning and implementation deci- sions that the client must make. The associate implements the plans and is the primary day-to-day contact with the client.
We’ve found that wealth managers operating alone can effec- tively manage between sixty and ninety primary relationships; pure investment-management firms may not be able to manage as many relationships if they have numerous accounts per client, but each firm can define the number for itself. In either case, by building out the leveraged model, the team is able to manage two to three times more client relationships than an adviser working alone.
This approach also provides the context for a career path. For example, a professional staff member can come in as an analyst or a planner, rise to the next level of senior analyst or senior planner, then to financial adviser, and ultimately to senior financial adviser. These are just suggested titles, but the idea is that the roles and expectations, and therefore the compensation, changes at each level. Upon master- ing one level, an employee is eligible to be promoted to the next, providing the firm’s economics and business needs support this.
In either the leveraged model or the multidisciplinary model, clients belong to the business, not to the individual advisers. Each staff person should be asked to sign a restrictive covenant agreement, which recognizes this fact and protects the firm against the possibil- ity of its members hijacking clients. The team approach also helps protect the adviser against defectors, because the client relationships run deep and broad and are not tied to a single individual.
Compensation to the participants in the team—especially the professional staff—should be a combination of base salary plus incen- tives. Base compensation will rise for the members as their responsi- bilities, experience, credentials, and contributions increase. Incentives should be tied to team success and individual performance, revolving around critical benchmarks such as client satisfaction, revenue per client, profit per client, and gross profit margin of the team.
It’s important for leaders of such teams not to assign low-priority clients to the associates. A decision should be made about which clients you’ll serve and why, and the whole team should be focused on serv- ing optimal clients. Each client will have a manager and a co-manager,
with the associate serving in the latter role. It is prudent in this model to stagger the associates in terms of years of experience—for example, one to three years, three to five years, and five to seven years. This allows you to gradually build internal successors and involve others in the development of their juniors. This process also provides you with an opportunity to observe how your associates are evolving as leaders and managers. The different levels of experience and tenure also provide for a natural progression in their development. That is not to say that an analyst could not leap frog the financial adviser in the career progression, but if done right, the staff becomes almost like a laddered portfolio.
The downside of this model is that it tends to involve a higher level of fixed costs in the beginning, especially costs related to staffing and infrastructure. But that is the power of leverage. Once you break even, your return over and above labor costs goes up exponentially. The basic difference is that solo owners can get a reward only for their own labor; in the ensemble model, owners can get a return for other peo- ple’s labor as well. This is not to say the ensemble model is exploitative.
In fact, it’s entrepreneurial because you’re leveraging resources—in this case, human resources—to add value for your clients while at the same time focusing on your own unique abilities.
Implementing the Leveraged Model
Every business plan begins with a vision. Where do you want to be five years from now? What type of organization will you need to build to achieve these goals? What are the gaps in your business between now and then? What specific, measurable action steps must you take to close these gaps?
Begin by evaluating your organization, then deciding which strategic framework is best for you. This means defining the opti- mal client and the client-service experience. Once that’s clear, it will be easier to define the positions that must be staffed and the other resource commitments that must be made.
From there, you can build your economic model. If you know, for example, that you want to keep your direct expenses at 40 percent of revenue and your overhead expenses at 35 percent of revenue, you will be able to build a model that tells you how much revenue you
need, generated by how many clients at a certain level, who get a certain level of service.
To help you determine the compensation for different staff positions, the best resource in the wealth-management business is the compensation and staffing survey published by the Financial Planning Association (FPA) every other year (www.fpanet.org). This is a good foundation on which to build your economic model to determine what it will take for you to achieve critical mass.