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More Solo Advisors Are Joining Forces

By Joan WarnerMiriam Rozen February 12, 2014

Flying solo in the financial-advice business has never been a cakewalk, and mounting compliance costs are making it even tougher. According to Cerulli Associates, the number of sole practitioners has shrunk over the past five years, especially among independent broker-dealers, where multi-advisor practices are up 55%.

But for wealth managers who have been running their own shop, joining forces with another advisor isn’t easy either. Comparing it to marriage, experts say the best way to avoid grief is to live with any potential partner for a while before tying the knot. “A partnership with the wrong person can be very painful,” says Philip Palaveev, CEO of Seattle-based consultancy the Ensemble Practice. “There is no better way of destroying your life.”

Palaveev recommends that solo advisors tired of going it alone find what amounts to a roommate: someone to share the costs of assistants and infrastructure. Clients and their assets stay separate unless and until the two are ready to create a legal partnership. Even a roommate arrangement can triple a solo advisor’s annual pretax income, Palaveev says. And eventually, it can “lead to bigger and better things.”

That’s how it happened with LPL affiliate Ballou Plum Wealth Advisors in Lafayette, Calif., which has $270 million in assets under management. In 1996, Lynn Ballou ran into Marilyn Plum at a copy shop. Both were running their own practices; Ballou had just moved into a bigger office and offered to lease the extra square footage to Plum, who wanted to move to a better neighborhood. Within a week, they were working under the same roof.

Lynn Ballou
In time, says Ballou, “we heard each other on the phone talking to clients, since we were across the hall from each other, and we started to realize we had the same vision of financial planning.” They began asking each other to step in and respond to each other’s clients when they were tied up. By the end of their first year sharing quarters, they decided to merge their practices.

“It’s very hard and expensive to be a solo practitioner,” says Mindy Diamond, president and CEO of advisor recruiting firm Diamond Consultants. Much of the recent merger activity among advisors, she says, flows from solos recognizing their expenses will overwhelm them if they don’t find at least one partner.

Tom Valverde, head of business development for Pershing Advisor Solutions, says that although statistics on mergers between solo advisor practices are hard to come by, “we’re seeing more of these, and we think it does make sense.” Combining practices can address a lot of problems, he adds, including succession planning and the unwieldy compliance requirements for advisors who manage less than $100 million in assets. “Regulatory reform has made it tougher for smaller practitioners to move forward,” says Valverde.

Still, combined practices work well only if the whole is greater than the sum of its parts. Valverde says one-on-one mergers succeed when the partners’ client bases and skills are complementary. And of course, they “have to be aligned on how they see their future,” he says.

That kind of alignment may be elusive. After all, solo financial advisors are independent, entrepreneurial types with a penchant for “being the supreme leader,” says Mark Hurley, CEO of the Fiduciary Network, a Dallas firm that finances wealth-management transactions. Furthermore, he says, “two small independent practices don’t create a lot of scale” when they merge. Hurley thinks there are better alternatives for solo practitioners who want to make more money. “If you’re an older advisor, you join up with [a network like] United Capital,” he says. “If you’re younger, you find a large wealth manager in your market, contribute your business and eventually build up equity.”

Some solo practitioners find ways to cut expenses without giving up their sovereignty. Martin Mazorra and Chris Murray are listed as partners at Private Wealth Advisors, a firm in Fresno, Calif., with $160 million in AUM. But while they share rent and utility costs, and occasionally cooperate in philanthropic activities that burnish the firm’s reputation, they otherwise don’t collaborate. Every client who walks through the door belongs to one or the other.

Mazorra says that in his previous attempts at full partnership, the eventual unwinding of clients and assets created too much pain. He never wants to go through it again. Now, he and Murray “are pretty much committed to doing our own thing,” he says.