It wasn't long ago that Larry Rothenberg had the kind of problem most advisors would kill for. Sometime in 2004, he recalls, his team, which then consisted of three senior financial advisors, three junior FAs and six client associates (CA), was growing so fast that some important inefficiencies were becoming apparent. The RVH Group was closing in on $1 billion in assets and generating roughly $5.5 million in revenue that year, but a reevaluation of priorities was overdue. Rothenberg — the group's rainmaker — recalls that he was spending only about half his time with clients, not an ideal ratio for the rainmaker of a team focused on affluent families, executives, business owners and other wealthy professionals with high-touch service requirements. The other 50 percent of his time, Rothenberg spent doing administrative tasks like managing staff, planning events, communicating with management and tracking expenses. His staff of associates, which carry a number of degrees and industry designations, were also mired in administrative work that got in the way of their ability to effectively provide good service to clients.
“I eventually threw up my hands and said ‘This is nuts, I can't keep doing this,’” Rothenberg says. For more than a year, he'd been venting about the team's issues with long-time client and close friend, David Farber. An entrepreneur with a long list of successful start-ups and company fixes, Farber had first-hand experience with the growing pains business owners experience. So, with RVH's business bursting at the seams, Rothenberg asked Farber to join RVH as the team's business manager.
Today, sitting in the corner office conference room on the 40th floor of 2 World Financial Center, Merrill's flagship office where RVH occupies a wall of offices overlooking the Hudson River, Farber and Rothenberg recall those first days of the new partnership. “We pretty much bared our souls,” Rothenberg says with a laugh about the day Farber came in to get a close look at the real guts of the business. “We showed him everything — the good, the bad and the ugly.” As he expected, Farber found a lot of inefficiencies — and confusion. “As a team, the production, the assets, the expenses, the investments in the business, none of it was easily obtainable. There was a lot of guesswork,” says Farber. But this is a common problem for larger teams, he says. “The traditional FA/CA model where the FA finds business, serves clients, conducts plans, talks to specialists, etcetera, and the CA handles this other set of traditional tasks — opening accounts, communicating with the back office — that doesn't work at this level.'' At least, it doesn't work well. “You need to try and put people in the appropriate slots, get them doing what they're good at, what they enjoy doing,” he says.
Take Rothenberg. “Larry is really great at attracting clients and new business. He should spend 100 percent of his time doing that,” says Farber. And today, he does. In fact, all of the group's six FAs are now focused exclusively on serving clients. In addition, two investment associates and one intern run what they call “the think tank,” which handles the group's analytical work, leveraging Merrill's product, research and back-office resources for the team, preparing client reviews and presentations, generating financial plans and asset allocations and working with outside CPAs and estate planning attorneys. Separately, RVH's seven CAs have been split into two groups, three “quarterbacks” who deal directly with an assigned FA, as well as with clients, three CAs who do operational tasks, and one CA who does administrative work. “We have a tremendously talented group of CAs, but they were answering phones, handling travel arrangements, typing and printing out letters as well as handling clients and interacting with Merrill's back office,” says Rothenberg.
As for Farber, he is paid a percentage of total production credits, so he benefits when the team does well. He spends roughly half his time meeting with the CAs and investment associates, and he conducts monthly and quarterly partner meetings for senior FAs where they discuss each member's production, the team's profit and loss forecasts, results and strategy. Rothenberg loves it: “David puts together the whole agenda and hands all of us this package chocked full of information about our business. We learn so much from every meeting, it enables us to keep refining the practice.”
Still there were some rough patches at first, as team members got used to the changes in roles. “In fairness, I don't think everyone saw where I was going with it,” says Farber with a laugh. (Rothenberg recalls one distressed CA walking into his office, demanding to know whether Farber was replacing him.) Personalities were another obstacle. “We have three very different senior FAs,” he says. “So matching FA and CA personalities up hasn't always been easy. There were a few changes in the first couple years.” Ultimately, Rothenberg says Farber's knowledge and experience and the fact that he and Farber had a previous relationship made deferring to a new leader easier. “Giving up control over the business would be very hard for most FAs. But I don't think the three senior FAs ever second guessed him. We just let him do his thing.”
For more than 20 years that thing has been starting up and fixing small businesses. A CPA by training, Farber began his career with what is today KPMG, but he says he had a strong entrepreneurial urge that dated back to his days as the business manager of The Rutgers Daily Targum, one of the country's oldest college newspapers. In the 1980s, he started an investment bank, which he sold in 1989, fleeing “the consolidation of Wall Street” for more interesting jobs elsewhere, he says. With a partner, he started an office equipment business in New Jersey, which he sold to a public company in 1995 in a stock-for-stock deal. That's when he met and became a client of Larry Rothenberg, who was a retail broker at the time with Lehman Brothers, the firm handling the deal. After that, he and a partner sold a string of movie theaters in New Jersey to Regal Cinemas; experimented with a couple of technology startups; and began a 5-year project to turn around a cosmetics manufacturing company. “Throughout my career, my role in all of these businesses has been to partner with the drivers of the businesses, like Larry [Rothenberg]. I've always been on the other side, the COO, the finance side of things. I've built my career making that side more effective so people like Larry can do what they do well,” he says.
Today, the RVH Group — with $8.25 million in production in 2008 and $1 billion-plus in AUM — is held out as a model within Merrill Lynch. Rothenberg just returned from Japan where he was asked to speak to Merrill's Japanese financial advisors about the RVH model. Farber, too, has been consulted by other Merrill FAs, even helping FAs interview their own prospective business managers. He says it isn't easy for a lot of FAs “to see 2-5 years out” in a process totally unlike the one they have now, to have “that vision,” as he calls it.
Rothenberg may not have gotten “the vision” either in the beginning, but he does now. “Not only has the practice grown, but unlike five years ago, we have our arms around the business. We really know what's going on,” he says. He says clients have noticed the increased attention he's giving them, too. “For me, my quality of life has gone up exponentially because I can focus on the business,” he says. “By separating and specializing the group, he's allowed the group to have more of a boutique feel, but with the power and resources of Merrill Lynch behind it.”