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| > The Practice > Practice Builder |
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| Building the Business 101: We Decide to Merge |
| by
Veena A. Kutler and Annette F. Simon
| 01-25-07 |
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As of year-end 2006, our firm's name is no longer be Mosaic Wealth Management. We merged our business with Smith Rapacz, a Boston-based fee-only advisory firm. Our combined new firm, Garnet Group, has more than 90 clients, $300 million in client net worth under advisement, offices in Bethesda, Md., and Boston, and eight staff members.
As regular readers of our series know, we prize our independence and ability to grow our business organically and by directing our own growth path. Our announcement that we have merged our firm with another advisory business to create a new entity may come as a surprise. However, we believe that this decision, two years in the making and undertaken after considerable deliberation, is the logical next step in our development.
Why Merge?
The process began about two years ago as we reviewed Mosaic's greatest challenges and brainstormed on how we could overcome them. At that time, the obstacles that we identified were rapidly increasing of overhead costs and resource constraints:
Rapidly Increasing Overhead
Our software and technology costs were high and growing. Like many small advisors, our largest expenses item were computers and software licenses.
Employee costs were significant and included not just salaries and benefits, but full-time office space to house a staff. At the time, we had no employees and relied upon outsourcing for specific tasks. As we cautiously explored the hiring process we wondered how much more efficient it might be to spread the cost of a support staff over multiple advisors.
Compliance had become a real burden and appeared likely to continue in only one direction. It seemed ridiculous and unfair that solo and small practices like ours should have to dedicate the same hours and dollars to compliance as a much larger firm would spend. But this was the reality, and we had to accept it.
Resource Constraints
Our ideal clients--high net-worth individuals and families--required a broad range of client services and on-going attention. Without employees, we realized it would be virtually impossible to do all the work ourselves while keeping up with the knowledge and innovative ideas needed to continue servicing clients at a high level--especially if we hoped to grow our business.
Also, as a small firm we were aware that if anything happened to the two of us our clients would be left with a gap until they could find a new advisor.
Our First Attempt--The Alliance
Wouldn't it be great, we mused, if a group of like-minded NAPFA advisors could form an alliance that allowed us to pool our resources and share some of our redundant expenses? We had no desire to sell our business or enter into a merger that would in essence leave us employees of a larger firm. But the idea of affiliating with a group of respected colleagues in order to achieve operating efficiencies and greater marketing presence was definitely appealing.
After debating the pros and cons between ourselves, we made a list of other small NAPFA firms outside our own geographic area with whom we might want to form an alliance. Our criterion: people we liked and whose values, philosophy, and interests we thought were similar to our own. We then approached this very short list to see if they had interest in discussing the creation of some kind of loose affiliation.
Of the group we first contacted, four firms were interested enough to participate in a conference call exploring the idea. It turned out to be a very free-flowing call somewhat reminiscent of the parable about the blind men and the elephant--our individual conceptions of what the alliance should be ran the gamut from a formal marketing alliance to an informal study group. We left the call shaking our heads at how misguided we'd been to think we could reel in a group of entrepreneurial-types. However, we did note that out of the people on the call, Tanya Rapacz and Lisette Smith seemed to have a business model and approach most like our own.
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Veena A. Kutler, MBA, CFA, and Annette F. Simon, MBA, CFP, are the founders and principals of Garnet Group LLC, a fee-only wealth management firm with offices in Bethesda, Md., and Boston. Both are NAPFA Registered Financial Advisors with more than 30 years of financial planning and portfolio management experience between them. Garnet serves the needs of high-net-worth individuals and families in the Boston and Washington, D.C., areas. The authors are not an employee of Morningstar, Inc. The views expressed in this article are the authors'. They do not necessarily reflect the views of Morningstar. |
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