On Your Own

Kay Shirley knows solo doesn't have to mean alone. Since starting her firm, Financial Development Corp., in Atlanta more than 20 years ago, Shirley has remained the only producer in the company, with $289 million in assets under management. But she's done it with the help of no fewer than 12 support staffers, ranging from an assistant who deals only with administrative work pertaining to widows, to

Kay Shirley knows solo doesn't have to mean alone. Since starting her firm, Financial Development Corp., in Atlanta more than 20 years ago, Shirley has remained the only producer in the company, with $289 million in assets under management. But she's done it with the help of no fewer than 12 support staffers, ranging from an assistant who deals only with administrative work pertaining to widows, to a communications specialist.

“The best use of my time is to keep me in front of clients,” says Shirley.

Team practices are growing at a faster rate than solos, according to industry experts. Still, as Shirley can attest, a successful solo practice is not a thing of the past. But it takes the right strategies, smart outsourcing and use of technology, a streamlined administrative system and a realistic understanding of the limits you face. “I've never considered taking on another producer,” says Shirley. “I'm just fine the way I am.”

At the same time, as clients ask for more and more services from their advisors and the market continues its downward slide, running a solo practice can be a tough play. Without the ability to leverage other experts in your firm, there's a limit to how many clients you can manage. “At some point, your business isn't going to grow,” says Dennis Gallant, director of research at Cerulli Associates in Boston.

A joint study of 500 financial planning firms by Moss Adams (a Seattle-based CPA firm), the Financial Planning Association and SEI Investments, compared the top 25 percent of solo and non-solo practices and found that the revenue of successful solo firms was about half that of non-solos.

So why do it? Solo practitioners tend to have one thing in common: Desire to run their own show. “It's their own sandbox,” says Mark Tibergien, a principal with Moss Adams. “It's may be a small one, but it's theirs.”

That's what David Drucker found when he moved from Bethesda, Md., to Albuquerque five years ago and started Sunset Financial Management. For 15 years, he had run a financial planning firm with a partner. While the two got along well, Drucker had long felt unhappy with their choice of software and their broker/dealer. “No matter how good a partnership is, you have to make compromises,” he says. So, after he moved, Drucker launched a new firm, without any partners.

Once such a decision is made, how do you make it work? One key is following the right business strategy. Successful solo practices tend to focus on a particular niche, such as retired executives or long-term care. About 85 percent of Shirley's 1,600 clients, for example, are retired or soon-to-retire telecommunications executives. Over the years, she has cultivated that market by holding educational seminars at the employers of existing clients for employees expecting to retire in three to five years. About 50 percent of attendees tend to show up for a complementary financial planning appointment at Shirley's office. About 80 percent of those people generally become clients.

John Van Leeuwen, owner of IPA Financial Advisors in Portland, with $50 million in assets under management, focuses on dentists. Over the past seven years, he has attended four to five dental conventions a year, taught financial planning courses at local dental schools and made countless presentations to dental groups. Recently, he formed a subsidiary, IPA Financial Advisors for Dentists. “I feel like I'm more a part of the dental than the financial planning community,” he says.

How you manage your staff is also important. Kathleen Cotton of Cotton Financial Advisors in Lynwood, Wash., who works for four months of the year from Mexico and Europe, keeps a 75-page manual of procedures for her staff, which includes an estate planner and receptionist. She also offers incentives: 2 percent ownership of the business after three years employment and up to 10 percent after eight years. And, she pays about 15 percent more than the going rate for wages.

At the same time, with efficient use of technology, some solo practitioners don't even bother with staff. To keep costs down, Drucker, for example, runs his practice entirely with “virtual partners,” from a CFO (to do the number crunching) to his office assistant (to answer the phones). Consequently, profit margins are 70 to 90 percent, compared to 40 to 50 percent in his former practice, according to Drucker. Assets under management were $65 million, until recently, when he changed his business focus.

Thomas Vann, whose Castlerock, Colo., firm is affiliated with Royal Alliance, spends $3,000 to $5,000 a year upgrading his technology, so he doesn't have to hire an assistant. “If I hire people, I have to be responsible for their behavior,” he says. “I have no desire to be an office manager.”

Even if you don't run the business virtually, however, solo practitioners must lean heavily on outsourcing. Tibergien suggests farming out anything that's not part of your core moneymaking efforts.

Sherri Stephens, who run Stephens & Winton in Castlerock, Colo., for example, has relationships with three CPA firms and many small tax attorneys. About twice a year, she conducts seminars on such subjects as retirement planning and brings along an accountant and lawyer to discuss changes in the tax law. About once a quarter she teachers a seminar for attorneys and CPAs on financial planning issues.

Such tactics can mean the difference between running a struggling business or one that's making a comfortable living. Median pretax income for owners of successful solo firms was $235,148, compared to $49,804 for other solo firms, according to the Moss Adams study. Average revenue was $424,671, compared to $137,165, and average overhead was 34 percent of revenue vs. 50 percent, respectively.

Says Thomas Vann, who makes about $100,000 in net fees and commissions, with almost no overhead: “I have a very lean operation that provides me with a comfortable income. And I run it the way I want it.”

The moral: You might not make as much money running a solo practice as you would running an ensemble firm. But you might be happier.

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