Advice and the Advisor

From Boutique to Supermarket: When Financial Firms Decide to Expand

Alec Foege,|Special to

When Rob Francais was a tax specialist at Deloitte & Touche in the 1990s, he helped people sell family-owned businesses and, in the process, helped them become more affluent families. But Francais — now CEO of Aspiriant, an integrated wealth-management firm based in Los Angeles — noticed at the time that many of the families he assisted “didn’t have knowledge of how to manage their liquid assets.”

That observation informed Francais’s decision to co-found Quintile Wealth Management in 2002, a Los Angeles-based firm that helps affluent families manage investments and day-to-day finances. Under Francais’s watch as CEO, Quintile eventually grew to a 35-person firm with $2.5 billion in assets under management.

Confronted with the question of how to diversify his firm’s service offerings to achieve further growth, Francais considered the options, which included creating new departments internally, forging a joint venture or partnership, or merging with another firm.

These days, many small- to medium-sized financial advisers, particularly those that have experienced success, are looking to add new areas of expertise as a way to broaden their client base, such as estate planning, retirement services, tax preparation and education funding.

“It’s tempting to advisers to expand their offerings,” said Rebecca Pomering, CEO of Seattle-based Moss Adams Wealth Advisors, a division of Moss Adams LLC. After all, as Pomering puts it, financial advisers “think about diversification at our core.”

But transforming your firm from a boutique operation into a financial supermarket isn’t always the right answer.

“You really have to understand what you’re trying to achieve from a strategic perspective,” said Francais, before opting to delve in to new areas of expertise.

Francais and his partners ultimately decided in early 2008 to merge with Kochis Fitz, a San Francisco-based wealth management firm that specialized in managing wealth for corporate executives. The resulting firm was renamed Aspiriant.

Today, Aspiriant offers investment management, wealth planning and family-office services with 120 investment professionals, $6.8 billion in assets, and a place on Barron’s list of Top 100 Independent Wealth Advisors for 2012.

Along those lines, Pomering recommended that advisers “not add things to their offering that they can’t be an expert in.”

Options to Outright Expansion

For example, just because a firm does investment planning for individuals doesn’t mean they should move into doing investment planning for businesses. “That’s a really different business,” she said. “It can’t be a sideline. You need to invest in it significantly.”

Many advisers can’t afford to hire the level of extra talent needed to perform those new functions.

In addition, requests from existing clients for additional services aren’t a reason alone for deciding to offer them.

“’We had one client ask for it,’ is not a reason to add something,” said Pomering. If the requested service is not core to the adviser’s practice, a better option may be to outsource that specialty.

Another option is to create a joint venture or a partnership with another firm you trust, which has definite pluses and minuses.

“There is less of a commitment to do an integration of services,” said Francais. But if there is a revenue-sharing arrangement, “where does the value come from?” Furthermore, it can be more challenging to execute on joint projects, and disclosure issues sometimes emerge. On the other hand, he said, “There is less commitment involved, so you can separate if it’s not going well.”

For more robust firms, however, a merger might make the most sense.

“If you try to grow specialty groups organically, it’s hard to generate critical mass, core competencies and the proper amount of scale,” he said.

Pomering added that sometimes a hybrid of multiple growth strategies can also work. Moss Adams, she explained, began as an accounting firm that decided to offer wealth management

services, and then added estate planning, investment banking and life insurance.

When Outsourcing Makes Sense

But the firm has chosen to outsource other functions, such as healthcare, and property and casualty insurance. “They’re not core to what we’re doing for our clients,” she said. Moss Adams also recently began a formal partnership with Sound Options and SNAP for Seniors, two established providers of elder care.

Pomering said financial advisersultimately need to focus on what is best for their clients, and not simple traipse into new specialties based on the interests of its executives or the identification of a trend.

A unified cultural outlook also helps.

Francais said Kochis Fitz’s clients were more concerned than Quintile’s with how to manage their stock options and retirement portfolios, but both firms employed certified financial planners and accountants who could do everything from tax preparation to estate planning. Together, as Aspiriant, they were able to grow the firm’s service line.

“Our decision to merge was very intentional and very strategic,” said Francais. “It was a growth strategy, and it was a getting-better strategy.”

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