If you've been in this business for even just six months, you've probably heard about the benefits of being part of a team by now. And that's true no matter what kind of firm provides your paycheck — independent, RIA or wirehouse. You've probably heard that, say, clients are never wanting for attention or expertise from a team practice. Very little falls through the cracks. One guy's strengths compliment the next guy's, and, as a group, they make up for their individual weaknesses.
But what qualifies as a team, and how do teams actually work in practice? Consider the independent rep who uses a para-planner to draft client letters, the wirehouse advisor who has access to an in-house expert in executive compensation, and the RIA who uses a cameo appearance from his chief investment officer to wow a prospective client.
Tens of thousands of advisors have full-time colleagues with whom they interact daily, and on whom they count for everything from administrative help to guidance in setting up multi-million dollar portfolios. But how many of these advisors are really working in teams? For consultant Chip Roame, the test is whether the “team” would keep the client if his main advisor were suddenly to disappear. If that's not the case — if the business would move elsewhere — “you can't call it a team,” says Roame, managing principal of Tiburon Strategic Advisors in Tiburon, Calif.
But if there are thousands of “team” arrangements out there, they are certainly not all created equal. In fact, in our conversations with advisors and consultants, we found that most teams probably correspond to one of three stages — basic, advanced or fully evolved — usually at least partly determined by the size of the groups working together and the sophistication of their clients. And while the fully evolved team is the most successful and desirable, even the simplest of teams may be worth forming.
Stage 1: Basic Teams
Jay Diamond has been working with his partner, Bill Bowman, for 18 years, but they do not keep a combined book of business. When one of them scores a new client, the assets get added only to that partner's book. “I don't really work on or share clients with Bill,” Diamond says. “That's where it stops.” They do often double-team their wealthiest clients, however, with the five other junior advisors who work at their firm, Stratford, Conn.-based Investmark. They also have some sales and support back-up, and these individuals sometimes interact with clients. Their approach seems to work: Diamond and Bowman consistently rank among the top producers in the Commonwealth Financial Network.
Investmark is typical of how a lot of advisor teams operate, especially in the independent space. While some overhead costs are shared, the principal advisors keep their clients separate. This nullifies some of the vaunted benefits of teaming up. But even these basic team structures confer benefits, consultants say. They make it easier to recruit young talent, since teams have administrative needs that give college graduates a chance to learn the business gradually instead of having to build a book from cold calls. And in a business that can be painfully lonely, teams can help with morale in both good times and bad.
Indeed, one of the biggest obstacles to team formation is all the doctrine that has grown up around the idea. “I go to these conferences and I hear someone saying you have to merge your businesses and have joint decision-making,” says consultant Roame. “I think, ‘What planet does this guy live on?’ There are some baby steps toward teaming that serve everyone well. If we stop dreaming these crazy scenarios we might see more of it happening.”
Another misconception about teams regards size — specifically the idea that advisors need to be managing several hundred million in assets in order to even think about starting a team. In fact, says Tim Welsh, president of consulting firm Nexus Strategy, teams can make sense with as little as $80 million under management. In many markets, that asset level would support an advisor, an account manager and a portfolio manager — a good start, he says.
To be sure, the ad-hoc structure of teams at Stage 1 creates some challenges. Their relatively small scale means advisors usually have to turn to outside resources for special services like estate planning, undermining their efforts to market themselves as one-stop shops. Also, because the advisors continue to work independently, the client experience may not be consistent, says Dave Welling, vice president of advisor practice management at Schwab Institutional. Finally, the senior partners on these teams may struggle with general management issues, such as who is responsible for hiring and firing the junior people and administrators, how and when to restructure people's responsibilities, and how compensation should work.
Diamond says Investmark is grappling with some of these issues. “We do not have it all figured out,” he says. “It's a work in progress. Forever.”
Stage 2: Advanced Teams
It took Joel Bogenschuetz four years to decide that he was ready to be part of a team. Bogenschuetz (pronounced “BOGEN-shoots”) liked the idea of working with a more senior advisor at Morgan Stanley. But he wanted to become more established in his own practice before he joined a team, and he wanted to be sure he could trust his team members. Then, in 2005, Bogenschuetz read Jim Collins' book Built to Last, which discusses how great companies become successful. And a light switched on in his head.
Three years later, Bogenschuetz — along with two other advisors, Mark Simon and Judy Timm, and an associate named Shelly O'Shaughnessy — comprised a thriving four-person team in Morgan Stanley's Green Bay, Wisconsin office. The four did $1.2 million in production last year, a jump of 20 percent from 2006.
The Bogenschuetz Group is typical of advanced teams in that there is a shared book of business — the $140 million they have under management is a team asset. While the initial split was based on what the team's three advisors brought to it, each gets an equal share of any assets added in the future.
The Bogenschuetz Group is also typical of advanced teams in that it reflects an explicit effort to combine people with complementary skill sets and backgrounds. Bogenschuetz, 32, is a designated estate-planning consultant who just got his CIMA certificate. He is also one of the group's two certified financial planners. Timm, 55, is the other CFP, and is also CIMA-certified. Simon, 50, the advisor who first approached Bogenschuetz about forming a team, is a Rule 144 specialist and the group's resident expert on insurance. O'Shaughnessy, 39, has 16 years of experience in banking, and is the go-to person for all loan and mortgage-related questions.
Before agreeing to work together, the four took personality tests administered by Morgan Stanley. They liked the results.
“It's not an accident that our team is two females and two males; two people in their 30s and two in their 50s,” says Bogenschuetz. “We all have the same core principles and beliefs that ultimately end in serving the client. But we get to that point from different experiences — it's four sets of different eyes looking at each client's portfolio, rather than just one.”
As an example of the team approach, Bogenschuetz tells of a client for whom Timm had already worked out an asset allocation strategy and selected money managers — core strengths she has as a trained investment analyst. Timm asked Bogenschuetz to help with some estate planning questions, O'Shaughnessy to refinance some of the client's loans and Simon to work on a second-to-die life insurance policy.
These weren't services “that any of us couldn't have provided on our own,” Bogenschuetz says. “But we couldn't have done it with the same ease.”
Stage 3: Fully Evolved Teams
In the battle to win the most profitable clients, Jeffrey Gerson starts off with some advantages — 10, to be exact. That's the number of people Gerson works with in the midtown Manhattan office of The Gerson Guarino & Meisel Group, which he figures will produce about $10 million in revenue this year. Each of the team members has a clear role, and Gerson explains what they are as he escorts visitors, including prospects, around the office.
Gerson's group, with its large number of members, has a high-touch feel that matches the expectations of its sometimes phenomenally wealthy client base. Like other fully-evolved teams, the high-touch feel stems from the fact that it assigns at least two or more advisors to each client; between those advisors and the other contacts they establish at the firm — administrators, operations personnel and specialists in areas like investments and taxes — “every client probably feels like they have three or four people,” attending to them, says Tiburon's Roame.
This double- and triple-teaming serves two purposes, according to the companies that do it. First, it helps the client, who gets “the benefit of multiple professionals' insight and talent,” says Tim Kochis, chief executive of Aspiriant, an RIA with $5 billion under management and a matrix approach to pairing its advisors. But the multiple-points-of-contact approach also benefits the firms, in that clients end up feeling their relationships are with the firms, not with individuals advisors, who may ultimately strike out on their own.
“Clients are never in a situation where they don't know well at least one of the professionals they're working with,” says Jeff Lancaster, a principal with Bingham, Osborn & Scarborough, a San Francisco-based RIA whose clients are mostly in the $3-million-and-up range, and who all have both a principal and a so-called portfolio manager assigned to them. “We're never in the position of calling a client and saying, ‘Hey, we know that so-and-so left the firm, and that you don't know anybody here. Why don't we get together for lunch?’ “
Bingham Osborne is also typical of Stage 3 teams in that it has a structure reminiscent of a law firm or accounting firm, with junior professionals helping the senior-most people, and with the explicit expectation that hard work will lead to promotion. Bingham Osborne also employs a general management team — including a chief operating officer, Carol Benz — to oversee marketing, compliance and staff development and free the advisors to focus on client relationships. “Among bigger firms, we often see that as a best practice,” says Schwab Institutional's Welling.
Also indicative of a Stage 3 team are the in-house specialists that Bingham Osborne employs, including an investment committee that sets policy on things like asset allocation. This doesn't mean the firm's senior advisors don't have their own areas of expertise. Lancaster, for instance, is a crackerjack tax planner, and among the firm's seven other principals are experts in areas like stock options (useful given Bingham Osborne's proximity to Silicon Valley) and setting up endowments.
Still, Lancaster is modest about what all these resources amount to. “There's no magical black box here that our clients are lucky to access,” he says. “Candidly, we're just trying to serve people like crazy.” The real effort is on not making mistakes with clients' money. “We actually use that phrase internally,” he says: “Just don't blow it.”
For profiles of these three teams, visit our website at http://registeredrep.com/team_profiles_august_08.