It’s easy to understand the solo practitioner model – in the earliest stage, an advisor gains credentials and licensing, and begins the journey of attracting and serving clients, with or without support staff. Over time, this sole proprietor may find one or more other solos that see the world, more or less, the same way and, collectively, they decide to come together but maintain separate Profit and Loss statements. Working in silos, each of them individually-owns their own practice. They share services and expenses as a way to reduce costs and gain economies of scale, but while working in silos like this has benefits, it is not one of the Super Models destined to provide more advantages and lasting value.
A Super Ensemble may, on its face, look similar to a traditional ensemble, but the nuances are important – and substantial. Crosspoint Wealth Advisors, and other Super Ensembles, are actually more sustainable than a typical ensemble where the advisors are still holding on to the remnants of their solo or silo practices. For Crosspoint, while the path forward had some unknowns compared to the status quo, the decision to move forward was viewed as a permanent commitment – they took steps to “burn the boats” so there was, essentially, no turning back at a certain point.
Sometimes several practices merge into one. They start to have consistency in terms of the client-service experience and in terms of the brand. Super Ensemble business owners share equity in one practice; but, unlike the True Enterprise Model (see Case Study on EMM Wealth), Super Ensemble operations tend to be advisor-heavy and advisor-focused.
Silos Be Gone
Let’s pull back the curtain on Crosspoint Wealth Advisors to see if the differences become more apparent. Two-and-a-half years ago, there were three advisors who felt a sense of kinship and trust. They were sharing space (a building that they owned together), some office expenses and a company name. While they did do some joint work together, they were running three separate businesses, with three separate clienteles.
Today, they have 18 months of success operating as a Super Ensemble – and no regrets. Since becoming a Super Ensemble, they have had success expanding their team, their opportunities, and their revenue, in a very short period of time.
These siloed advisors began to think really seriously about the possibility of a formal merger in January of 2015. As partners, they would need to come up with an agreement that felt right in every way. On July 1, 2015, all revenues came into Crosspoint. The co-owners had equal salaries and benefits. But, from day one, their compensation, their cashflow, was equal and even – this is great and very hard to do.
“When you take a trip with some friends, it’s really hard to keep track of the pennies,” said Tom Dafnos one of Crosspoint’s co-owners. “Sometimes I buy, sometimes you buy. Who’s getting gas this time, etc. – but in general if you try to do more than your part it’s a successful trip and you have a lot of fun. Our commitment to one another was we would do more than our part.”
“Originally, we were an expense sharing partnership, and there were five of us,” added Brent Dunn, co-owner. “Then a couple of guys had a chance to move to a different and better situation for them and then all of sudden we had three guys sharing the expenses, but the expenses didn’t go down 40 percent. I think we looked up and said, ‘that didn’t work very well.’ That foreshadowed what the future might look like and even though we were really good business partners in the cost-sharing scenarios we realized that the shift when the other advisors moved on was not a great result.”
Getting the Right Mix
Early in the process, one of the three advisors “self-identified” as not a good fit for the Super Ensemble idea, so the trio came up with a plan to move forward without disrupting his practice. Later they reached an agreement to buyout the majority of his practice creating another win-win milestone in their journey.
Later, a younger partner with strength in asset management was identified, and he joined the business as the third partner.
“When we began to look toward official merger territory, we analyzed the business that we were bringing into the ensemble and saw that we had a differential in input; so we made an accommodation for that differential,” Dunn said. “Once that combination was made, which was a series of payments over three years, we could put all of that aside. We are now even, if that’s the right word. There are no second thoughts — we made the decision, it was a good one to start with, and there is simply no looking back.” Expenses are now all in one bucket. The partners are all on salary, topped off with profit distributions.
Another element they addressed was team compensation. Prior to forming the ensemble, there were different methods for compensating staff. In order to create a culture of one company and one team, they implemented a new compensation philosophy that includes salary and a quarterly incentive plan allowing everyone to participate in the company‘s success. The entire firm is compensated this way, from owners to the newest employee.
A consultant helped them create, from the solo employees, this single support team for the firm. And, interestingly, while most Super Ensembles push away from a broker/dealer and become RIA-only, Crosspoint maintained its IBD relationship with Lincoln Investment Company.
“A big part of why Crosspoint has been successful in making the transition is because they stayed focused on the importance they believed this would have for their clients,” said Marty Miller of Clear Path Consulting, the professional who helped Crosspoint structure their new Super Ensemble. “They had a purpose bigger than each of them individually as to why they wanted to make this work. That’s part of the magic here – because if you don’t have a compelling vision pulling you forward there are some potentially tough stages where you might head for the hills.”
Restructuring the team went smoothly for Crosspoint because they had strong people with diverse skill sets. The team also recognized the need to standardize processes and were a great help in doing so. This impacted everything from how they utilized their CRM, how they prepared for client meetings, and developing a united approach to asset management and reporting.
Since forming the ensemble, Crosspoint has also added an additional administrative role and another para-planner on an advisor track. While the partners are still learning to think like one entity, they are united in a purpose and they have a lot of respect and trust for one another. They put all of their finances together and are officially one firm.
Stewardship as a Driver
As a reader, you may be thinking, “why would several independent advisors with good individual P&Ls working in a traditional ensemble look to a Super Ensemble?” Dafnos explained it this way: “Really, there were two primary reasons we decided to officially merge. One was we felt we had relationships with clients that were important and that we needed to honor those. Those relationships are built upon trust and friendship – more than investment management. We dove deeply into families, generational issues and finding ways that parents can navigate their way into an estate relationship and eventually their kids end up being our friends, too. With those great relationships over the years, we were getting increasing questions. Clients were asking, ‘what will I do when you retire?’ Brent and I felt a responsibility to find a path to honor those relationships.”
“The second reason we merged our individual practices into one business, was this epiphany: I’m not going to be an advisor at some point … I’m going to be a client. A shocking realization, I know, particularly because my wife is younger and it’s likely that she will outlive me – I don’t want her to be looking for an advisor when she’s in her 80s-90s.”
Dafnos saw that If he was going to honor those two things, he needed to set aside his pre-conceived notions and look to create something with someone he trusted (co-owner and former silo member, Brent Dunn). He realized, as did Dunn, that he wanted to build something that would last far beyond him. “We’d like our business to be around for 100-years,” Dafnos said.
“We have a lot of good relationships with firms that are our competitors really,” added Crosspoint co-owner Brent Dunn. “One day, I talked to a peer about their 100-year business plan. I’m pretty sure our mouths dropped open. We didn’t have one yet, but we did like this idea of ‘let’s build something that could potentially last a long time like that.’ The word stewardship means different things to different people, but for Tom and me, we began thinking in terms of the relationships we had with clients and the relationships we had with staff. Without a longevity plan, if someone in the firm just retired, people would lose their jobs and clients might end up not being served well. So, it was really a stewardship decision. We began thinking about how blessed we’d been with the ability to earn a good income and take care of good clients. The formal merger looked like a better path forward.”
Industry greats such as Mark Tibergien, who is now CEO of Pershing Advisor Services, have long said to advisor groups, “You know guys, it’s not just about you. It’s about the clients you serve and one another and your team.” For Crosspoint, with the new co-owner structure, we can clearly see that has been a key driver and motivator for moving to a Super Ensemble and more formal business structure.
Trading Cashflow and Freedom for Equity and Peace of Mind
Of course, it’s not all sunshine and roses. There are always hurdles and accommodations to make when changing a business structure. “You are giving up freedom in some ways,” Dunn said. “Freedom to do what you want, when you want, how you want – but you also gain freedom when you feel responsible for these relationships, these clients. It’s wonderful to know that if I leave for a week there are talented and competent people in place that can handle things. So, you have policies and procedures. You have more responsibilities and you do things for your staff as well as your clients. On the other hand, you gain significant freedom in that you know things are well taken care of when you’re not there, which is a pre-cursor to when you’re not there permanently. Those things are all in place now.”
“One of the first things that occurred to me was that we’ve always been pretty careful about our expenses but part of the new plan involved adding significantly to staff,” Dafnos said. “So, we’ve taken on risk, responsibility, complexity, which are all hurdles of sort that we had to navigate. Right at the beginning we made a significant hire and re-structured our staff, all of whom had previously supported us individually in our silos.”
Dafnos is right: one of the big adjustments when moving to a Super Ensemble is realizing that you will be trading some cash flow for building equity in something bigger.
As a solo practitioner running your own P&L, you might find someone to buy your practice when you are ready to “exit stage right”– or maybe not. Clients may decide to leave if they don’t see a clear succession plan. In a Super Ensemble, you will be investing a certain amount of cash flow into an entity that will have value and will help when you leave the firm.
“That redemption or buyout is part of my retirement plan,” Dafnos said. “So, it is very much like what we ask our clients to do – which is to take the long view. We’re on a long-term path with a high probability of success. The decision for me was not how deep to put my toe in the water – in this business model you are fully immersed or you’re not. It’s kind of like burning your boats; you have a higher likelihood of success, than if you leave the oars in the water. So, the business merger really meant that we were ‘all in.’ We are fully committed.”
Into the Future
Dafnos and Dunn, along with their newer partner Doug Evernham, are still refining their roles and responsibilities. While they all provide leadership, they look for the advantages of a divide-and-conquer approach based on their individual strengths and enjoyment. Their trust, shared values and shared vision have allowed them to navigate these conversations extremely well.
Happily, for Crosspoint, acquisition of new clients has been remarkable. They grew about 78 percent in 2017 over 2016 so that has helped to counterbalance some of the other financial commitments such as staffing and infrastructure. And, as the management team looks toward the future, there is an even brighter horizon.
Read the Super OSJs case study: Super OSJs, Like Stratos Wealth Partners, Offer “Supported Independence” to Entrepreneurial Financial Advisors
Read the True Enterprise case study: True Enterprises, like EMM Wealth, Provide a Unified Experience to Clients and Stand the Test of Time