The single practitioner financial planner has been labeled a dead-end business in most parts of the world but a new study by US consultancy firm Moss Adams has found there is life in the old dog yet.

The death of the solo practitioner financial planning business has almost been taken for granted in a market obsessed with consolidation and growth. But, as per Mark Twain’s famous aphorism, reports of its death may have been premature. Rebecca Pomering, principal of US-based consulting firm Moss Adams, in an article published by Financial Advisor magazine in America, has revealed the solo model can and is continuing to be a successful business option for many financial planners. Each year Moss Adams surveys financial planning firms to determine the make-up of the most profitable business models. In the results from its latest survey, the ‘2005 FPA Compensation and Staffing Study’, Pomering says it is clear the best solo practitioners can achieve profitability levels that match those of the top quartile “ensemble” firms. Moss Adams uses the ‘ensemble’ tag to refer to businesses of two or more principals. “The financial results for these top 10 per cent solos, and even for the top 25 per cent, solos are quite impressive… both in dollar and percentage terms (i.e., operating income as a percentage of revenue),” Pomering says. From the study Moss Adams composed a typical profile of the top 10 per cent solo adviser firms it surveyed: • The practitioner has been in business for an average of 19 years. • The most common business model is the independent, fee-based or fee-only (45 per cent). • The broker-dealer affiliated model is the second most common business model (35 per cent). • The most common service model is investment consulting (35 per cent); financial planning is second (20 per cent). • These firms are managing US$135 million in assets, on average, with total revenue of US$900,000. • They have, on average, 161 clients. • The average staffing model includes one principal, 1.2 support staff and 1.1 administrative staff, for an average total of 3.3 staff members. Pomering notes that solo firms need to have revenue of at least US$500,000 to control overheads and achieve “operating leverage” the top 25 per cent of single practitioner businesses average revenue of US$750,321 while the top 10 per cent average US$940,497 in revenue. However, she says very few solo practitioners make it to the US$750,000 level. “It is very difficult to build a US$750,000 solo practice, while a US$2 million to US$3 million ensemble is a much more common and a much more systematic development,” Pomering says. “Some extraordinary individuals can achieve tremendous success in the solo model, while more individuals will probably get better results in an ensemble.” She says apart from achieving scale and selecting an appropriate client base the secrets to the success of a solo planning business are much the same as in other larger advisory practices. Her list includes: • Develop a consistent, repeatable client experience. • Work at your highest and best use. The keys are to delegate to support staff and find a way to leverage your time as much as possible by effectively utilising these support functions. • Pursue clients and growth strategically. A solo business needs to develop, implement and live by a business strategy just as much, or more than, a larger business would need to. This discipline is pivotal in the solo practices that have been most successful. • Deploy technology effectively. • Monitor your financials and other business factors. The best performing solo practices are also the best-managed solo practices. The Moss Adams study found, though, that more than a third of the top 10 per cent of solo firms were looking to add another adviser or other professional to the business as they realised the limits of working alone. Most of those solo practitioners looking to add another adviser wanted to hire an individual to service existing clients. Another 15 per cent of were looking to outsource professional functions, Moss Adams found. Pomering says while it is pretty clear that the ‘ensemble’ model provides the best opportunity for advisers to maximise their income the bottom line may not be the most important driver for many financial planners. “But if the question you ask every day is, “How can I make an impact while running a business that I love?” then you are asking a much more complex question,” Pomering says. “The ensemble model may be the answer. Or running a solo practice may allow you to achieve everything you are after.”

Leave a comment