Multifaceted Considerations
It took just three years for Todd Timmerman, who had worked in recordkeeping 27 years before founding advisory firm Retirement Plan Analytics, to become one of PLANADVISER’s 2018 Top 100 Retirement Plan Advisers, with more than $15 billion in assets under advisement (AUA).
Retirement Plan Analytics, with offices in Charlotte, North Carolina, built its team based on what large clients require, Timmerman says. He reckoned that small-plan sponsors—the market he was targeting—who received that level of high-touch service would appreciate it, as well, and tell their plan sponsor friends. “If you’re a fiduciary adviser, you need to understand what the clients’ needs are for processes, fulfillment and deliverables—and that then defines how you build your team,” suggests Timmerman, managing director of the advisory firm.
“This business is very different from most other businesses, because those usually are not operating in a fiduciary capacity,” he says. For example, “in technology, you introduce version 1.0, knowing you’ll improve it when you do version 2.0. But, in our business, you need to figure out how to build a team so you can do it right every single time.”
As Timmerman notes, there are many decisions to be made when building your firm, and each has long-term implications. For retirement plan advisers, that can mean considering: ownership structures; personnel organization and support; and product and service focus areas to be divided up among the team. Partners and products also must be examined.
“Regardless of your size or shape, intentional decisions about what you do in-house and what you delegate to a third party will dictate what services you offer, whom you hire, and how you develop staff to contribute to the firm’s overall success,” notes SEI in its paper “The Purposeful Advisory Firm.”
Five Keys to Growing Smartly
As your independent advisory firm grows, keep in mind these strategies for building out a team:
1.) Grow based on your business model. Top 100 advisory firm FiduciaryVest in Atlanta aligned its staff hires with the business model it had established. “If I had to choose one decision we made early on that I would attribute our success to, it’s that we decided to have a narrow focus [on fiduciary services] and deep expertise, as opposed to a broad focus and narrow expertise,” Managing Partner Philly Jones says. “If you are a real expert and you give clients white-glove treatment, you can charge more for that, because what you are doing is not a commodity.”
Likewise, Top 100 firm Strategies Capital Management (SCM), in Denver, made an early decision not to aim for being a high-volume shop, says Tom Gonnella, firm president. “We focus on a high-touch approach with clients, and most of our new business comes from referrals,” he says.
The high-touch approach has major implications for building both a team and a book of business. Gonnella estimates that his average cost on an employee runs 40% higher than at the typical advisory firm. “That’s because we typically want to hire people with at least 10 to 15 years of experience,” he says. To make that possible, SCM takes on no new clients that want to slash its fees. “Our fees are on the higher end of the scale but still in the range of benchmarks,” he explains. “If we need to get into a bidding war for a client, and we don’t think that the sponsor will appreciate the value we bring, that plan won’t be a good fit for us.”
2.) Prioritize keeping current clients happy. To offer first-rate service, Top 100 firm LeafHouse Financial in Austin focused first on bringing in client service and operations staff, says LeafHouse President Todd Kading. “The idea is that you need to keep your main focus on your existing clients,” he says, adding that his firm gets most new business from referrals. “We decided that if we put our energies into making sure we never dropped the ball with our clients, the new business would take care of itself.” Also, independent firms usually are started by advisers already having some success in the business. “So they may be the initial marketers, the initial growth engines,” he says.
Likewise, at Retirement Plan Analytics, which also gets most new business from referrals, Timmerman prioritized client service in his initial team-building. “If we serve our clients well, then we’ll get the referrals, and we don’t really need a business-development staff,” he says. “I have not made one cold call, and we now have 203 clients. I’d rather invest my money in consultants who work on an ongoing basis with our clients than in salespeople.”
3.) Understand the appeal of an independent firm. A growing independent advisory firm will often particularly struggle with hiring good client-service staff, says Geoffrey White, CEO of GRP Financial, an aggregator in Carlsbad, California. That is because many of the most talented people work for recordkeepers and get paid well at their current job. An adviser can compete with that by emphasizing the attraction of its independent culture.
“Some client-service people at recordkeepers would rather not just be a cog in the wheel,” he says. “If you are in client service at a recordkeeper, you may get assigned to 30 cases, and you do your thing and then go home at the end of the day. One client leaves, and you get assigned to another. At an independent advisory firm, you have a much more emotional attachment to the clients—these are your clients.”
Giving employees autonomy plays a big part in the culture of Strategic Retirement Partners, an advisory firm and aggregator in Chicago. “We find that most providers in the industry are not very flexible when it comes to work/life balance. We’re a family-first culture, and word of that has gotten around the industry,” Managing Partner Jeff Cullen says. “It’s also a very adult environment here, in that we don’t micro-manage people. There are many in the industry who are tired of being part of a corporate machine. We hire smart people and then stay out of their way.”
SCM spent considerable time building a flexible culture that helps attract and keep good staff members, Gonnella says. “Our pay and benefits are both above the norm compared with peer advisory firms. We don’t have a set number of PTO [paid time off] days, and I let employees manage that themselves. We also have a total rewards program that lets them pick out experiences they want to engage in, whether it’s a gym membership or a massage.”
4.) Build a team that provides balance. Good advisers usually have some key traits in common, but a solid team should have a mix of personalities. “[Advisers] are very friendly and amicable,” Cullen says. “They are relationship-builders and trust-builders. But those are not the same people who should be in charge of operations and processes. Those tend to be two very distinct types of people. If an adviser tries to do that [detail-oriented] work, he’ll spend lots of time doing things that he doesn’t want to do and he’s probably not very good at.
Early on, Kading and LeafHouse CEO Neal Weaver realized that they are more change agents than systematic followers of established procedures. But they also recognized that the latter is crucial in a retirement plan advisory practice.
“Many advisers think that if they want to grow in more than a straight-line method, they need to find a way to essentially copy themselves in hiring people,” Kading says. “But we’ve realized that, in the operations area, we need people with an M.O. that says, ‘I’m going to maintain the systems, maintain order and push back on unnecessary change.’ Because I’m someone who has a need for change, if I’m left to my own devices, I may make changes that aren’t necessary sometimes.”
5.) Know how to leverage yourself best. Kading and Neal have adopted management approaches recommended in the book “The E Myth: Why Most Small Businesses Don’t Work and What to Do About It,” by Michael Gerber. “He always says, ‘Work on your business, not in your business,” Kading observes. “So, Neal and I don’t do the everyday ‘blocking and tackling’ of our business; our team can do that. We work on the strategy of our business.”
When FiduciaryVest started, Jones played a very hands-on role. “Now, my role is primarily in letting go of things over time, so that my time can be better spent on client relationships,” he says. “The name of the game in this business is being able to leverage yourself and your time. You learn that you want to hire great people, but great people expect to have growth opportunities, so you have to continuously create those opportunities for people.
Cue the Aggregators
For independent advisers who successfully build a team, at some point it makes sense to evaluate whether to align with an advisory firm aggregator. “That’s something you keep revisiting,” says Jones, adding that FiduciaryVest has been completely independent since its 2005 founding. “The benefit of an affiliation is that you look much bigger than you actually are; you’ve got a depth of resources, and you maybe have a little less risk. But by remaining independent, we control our own upside, and there’s more of a direct payoff for wins. We also have more direct control over our business.”
Independent advisers currently have a major catalyst for evaluating their aggregator options, Cullen says: the now-defunct revised Department of Labor (DOL) fiduciary rule. “It may have been blown up by the courts, but the legacy is still there. For the very first time in our industry, we have an educated buyer,” he says. “CFOs [chief financial officers] and HR [human resource] managers now know who they should hire and who they shouldn’t hire. And they know they’re not displacing much of their risk if the company they’re displacing it to is a small organization.”
The largest end of the retirement plan consulting business—the national firms that work mostly with mega plans—already has consolidated, says Dick Darian, a partner at Wise Rhino Group, a consulting firm in Mount Pleasant, South Carolina, that works with advisory firms to increase their enterprise value. “If you look at independent advisory firms, it’s still very much a cottage industry,” he says. “That cottage industry is the last part of the DC [defined contribution] space that is going to consolidate.”
Anything that can be scaled in this space will be, Darian predicts. “Plan sponsors are asking all vendors, especially advisers, to do more for less. Aggregators give these advisers the ability to provide more services for a lower price,” he says. “If you’re an independent adviser trying to compete for business now, you’re feeling the pressure of the scale of the larger firms.”
The marketplace’s evolution and increasing fiduciary focus make it harder for an independent adviser to compete, White says. “To be in the game now, you need to have so much ‘skin’ as an adviser,” he says. “I think that even large independent advisers will need to be part of an aggregator to have the necessary efficiencies, brand, back-office support and ability to integrate new lines of business. If not, you just can’t compete on the basis of your brand or your scale: You’re one lonely shop, going against a massive company.”
Evaluating whether to align with an aggregator is both a right-brain and left-brain decision for an adviser, Darian says. It’s about a cultural and personality fit, and also about bottom-line realities such as daily workloads, the long-term financial payoff and, ultimately, buying into the broader vision of another firm.
Certain aggregators acquire an adviser’s business and provide heavy support, and others have a membership model in which the adviser remains independent and gets help running the business more efficiently.
“Ask yourself, ‘Do I want to continue building a business?’” Darian suggests. “‘How much independence and control do I want to maintain?’ If you decide to sell your practice to a large aggregator, such as CAPTRUST, that acquires practices, you have to accept that they’ve built an effective and efficient centralized model that works well, and it handles things such as fund reviews and creating reports. You give up a little control, and you focus on client relationships and selling.” Other firms, such as HUB International Ltd., “will buy your business and then leave you alone,” he says. “It doesn’t change anything, except it will provide you with some tools and services.”
Advisers who want to stay independent can affiliate with a membership-based aggregator such as GRP, which also will provide tools and services—e.g., relating to participant wellness and fee benchmarking—and investment research.
For the founding adviser, when his firm starts to see real success, “it becomes a lot more about managing the business, versus doing what he really loves,” White says. “If you talk to successful independent advisers around the country, they all say the same thing: ‘I want to get out of the day-to-day running of this business. I want to focus on helping plan sponsors and participants, which is what I love to do.’”
Strategic Retirement Partners has several different models as an aggregator, and Cullen says each tends to appeal to advisers of different ages and with a different practice size. “We have an acquisition model, we have a 50-50 partnership model, and we have an affiliation model,” he says. Someone in his 40s may prefer an affiliation or partnership, and someone in his 50s may prefer an acquisition. “Our goal was to simply attract the best advisers—and the best advisers are at different stages of their career,” he says. “We wanted a model that would be flexible enough to fit with where they are in their career.”
Art by Chris Buzelli