I've Got Your Back

The image of the strong, silent loner is a powerful one in this country, but it loses some of its potency when applied to the modern brokerage industry as Ray Ferrara can attest. Ferrara started out his career as a solo practitioner in Clearwater, Fla. On Oct. 19, 1987, while on a business trip out of town, he caught first wind of that day's market upheaval when someone asked what he thought about

The image of the strong, silent loner is a powerful one in this country, but it loses some of its potency when applied to the modern brokerage industry — as Ray Ferrara can attest.

Ferrara started out his career as a solo practitioner in Clearwater, Fla. On Oct. 19, 1987, while on a business trip out of town, he caught first wind of that day's market upheaval when someone asked what he thought about the rapidly plummeting Dow.

Alarmed, Ferrara rushed back to his hotel room to get his messages from his harried receptionist back home. It took him almost two days to return all the calls from panicked clients.

For Ferrera, that was the first day of the rest of his professional life. He vowed to never again place himself in a position of having an empty home office. He made it his business to bring other people into the business — professionals who could not only pinch-hit for one another, but who would share clients, in case one person was, say, on vacation or decided to leave the firm.

Today, Ferrara's ProVise Management Group has about $700 million in assets under management and five partners and four planners. Each team member has a specialty and they work in two- and three-person teams.

“Clients now have a relationship with the firm, not just the advisor,” he says. “And that's been key to our growth.”

Team Philosophy

In case you haven't noticed, Ferrara has a lot of company. These days, firms all over, from the largest wirehouses to tiny independents, have gotten the team religion. About 50 percent of Merrill Lynch's reps are working in the firm's 3,000-odd teams, up from about 25 percent five years ago. About one-third of Smith Barney's advisors work in teams — a number that could grow to 50 percent in two years, the firm says.

“Financial advisors do more business, attract more assets and have higher retention rates with teams,” says Richard Orlando, director of the practice management consulting group for Merrill Lynch in Princeton, N.J.

But starting a team is definitely easier said than done. Indeed, running a successful team requires some skills that do not come naturally to the typical lone-wolf broker.

“It's a challenge for most financial advisors early on,” says Orlando. “Many come to the business to do their own thing.”

Then there's the matter of compensating team members, which, if not handled right, can lead to resentment and misunderstandings. Together with personality clashes and unrealistic expectations, it's almost a surprise that any team ever works.

Given those negatives, what's the big attraction, then? For one thing, teams are a great way to stop clients from jumping ship when a rep leaves the firm. Fact is, the best noncompete clause in the world can't convince clients to remain with a company if they were only there because of their attachment to a particular advisor. But, with teams, a client is more likely to develop a feeling of allegiance to the group.

“It ensures more of an institutional relationship with the client,” says Phillip Palaveev with Moss Adams, an accounting firm specializing in financial services based in Seattle.

It can also make you more efficient. Take Randy Herz and his brother, Matthew, partners in Herz Financial, of Boca Raton, Fla., and Farmington, Conn. About five years ago (three years after starting work in their father's 30-year-old firm), they decided to revamp their strategy and work as team rather than handling clients individually. Randy would focus on money management and insurance, while his brother would handle estate-planning issues. Now, Randy says, clients know which brother to call when they have a specific question — and that has greatly increased efficiency.

“We can handle a $30 million life insurance policy in a year, when it used to take a year-and-a-half,” he says. Randy says that business has doubled every year since 1998, thanks to his team structure.

Teams also have been shown to be effective magnets for very wealthy clients. The idea, of course, is that high-net-worth households tend to have complex financial situations and want to have one relationship that can address the many facets.

Little wonder, then, that Merrill has about 300 brokers placed in teams aimed at clients with $10 million or more in investable assets. “These clients have needs for retirement planning, risk management, charitable giving, estate planning,” says Palaveev. “No one advisor can successfully be a jack of all trades and attract high-net-worth clients.”

Team Colors

As you might expect, teams tend to come in a few different flavors. One common variety is the junior-senior partner team, in which a less-experienced broker partners with a more seasoned rep, often because the senior member can't handle all the business alone. Palaveev calls such alignments “vertical ensembles.” In a recent study, he found that about 15 percent of team-based advisors fall into that group.

Teams aimed at developing long-term relationships with ultra-affluent clients usually take a different approach — one based on specialization. According to Palaveev, specialists make considerably more money than not only other advisors, but also other types of teams. In the study, specialists had $6,200 average revenue per client, compared to $5,600 for vertical ensembles and $4,400 for horizontal ensembles (firms in which advisors share paraplanners and other support staff, but not clients). Specialists also had average assets under management of $870,000 vs. $850,000 for verticals and $590,000 for horizontals.

“The combined skills and talents of the team build a more comprehensive practice,” say Palaveev.

While the most elaborate teams have five members or more, with expertise in everything from money management to derivatives, many adopt a somewhat less formal mode of specialization. That's especially true in practices with fewer people, like the four-person Burton Enright Group in San Francisco. Partner Peter Burton tends to handle asset allocation, while his partner addresses such issues as charitable giving and deferred compensation.

As mouthwatering as the numbers might be, specialization isn't right for everyone. A key factor is geography. Close to 85 percent of wealth in large metropolitan areas is concentrated in the hands of clients with more than $1 million in investable assets. In smaller towns and rural locations, most money is held by households with $500,000 to $1 million in investable assets, according to Palaveev. The upshot: Since it's those wealthier clients who tend to have the more complex needs — and therefore veer more frequently to specialist teams — if you're not in a major urban area, you ought to first consider the junior-senior approach.

Compatibility Test

Teams use a variety of techniques for deciding who works with which client. Herz Financial's approach is somewhat typical: One brother assumes responsibility for most of the client contact, while the other will do more behind-the-scenes work.

At other firms, new accounts will often work with the advisor they were referred to, along with another member whose skills best match the needs of the client.

Of course, the most critical issue is how exactly advisors in a team divvy up the money.

At Webster Bank in Waterbury, Conn., members of wealth management teams who bring in business get a fee. Then, whomever works directly with the client receives a bonus based on how long the client remains and how much money he brings with him. At Merrill, as at many wirehouses, the split is determined by how much of the business each person is contributing.

Still, tussles over who deserves how much of the spoils are a major reason for team breakups. “It's probably one of the biggest reasons a team fails,” says Mindy Diamond, president of Diamond Consultants, a Chester, N.J.-based search firm specializing in financial advisors.

She points to a 50-50 partnership, formed between what she calls “an inside man and a rainmaker.” In this team, it soon became apparent that one member was working much harder than other and that member grew resentful of the arrangement. When the contract was up for renewal, they split.

She also points to a junior broker with $20 million in assets under management, who, after two years on his own at a wirehouse, joined up with a senior producer handling more than $100 million under management. The deal: They would evenly split new business, and the less-experienced partner would get 20 percent of business from the others clients. What happened? The junior broker ended up spending almost all his time with his partner's existing accounts, so that he was unable to expand his own book of business. Finally, after a year, he opted out.

With considerably less power and influence than his former partner, he decided to leave the firm — and wound up taking a significantly lower transition package than he might have had he stayed on his own and grown his client base.

Probably the main reason teams break up relates to matters of incompatibility. As with any close working relationship — or marriage, for that matter — personalities clash, sometimes irreparably. That's more likely to happen in cases where advisors haven't worked in the same company and had the chance to see how their potential partners operate, or their teammates were handpicked by a supervisor. “If sales managers assign people to teams rather than let them do the selection themselves, the arrangements usually fall apart,” says Palaveev.

Ultimately, experts caution advisors considering the team approach to take it slow. Burton says he and his partner spent five or six years developing the network of outside experts he uses to supplement their team.

“It can take a year for a team to really jell,” says Orlando. In junior-senior arrangements, more-experienced members should give it additional time. “We meet many firms who bring in a second person to build a team and give them four months,” says Palaveev. “It can be three years before they really blossom.”

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