Financial advisors who choose ensemble practices over a solo practice understand the enormous leverage opportunity of sharing staff, technology and operational costs. Through an ensemble practice, advisors can achieve economies of scale simply not possible through a solo advisor practice, which can increase the profitability margins of each advisor in the ensemble.

An ensemble practice may be an arrangement that is nothing more complicated than multiple advisors sharing the same office (and attendant costs) to a true team-oriented approach that elevates the individual performance of each advisor and results in a stronger, more productive business endeavor.

Benefits of an Ensemble Practice

There is a range of valuable benefits that come with forming an ensemble practice.

• The economies of scale available through an ensemble practice can better position advisors to succeed in a world of unrelenting fee compression.
• A broad mix of expertise and skills can allow an ensemble practice to more effectively attract new clients and produce higher revenues from each client relationship. For instance, a solo advisor who doesn’t have the expertise to advise on stock option strategies or manage a fixed income portfolio may lose that client’s entire business. With a diverse set of capabilities, the practices are able to win prospects or fully service existing clients with sophisticated needs.
• The ability to serve more clients, especially higher net worth individuals, increases the value of a practice.
• Advisors who work with other advisors are always learning and engaging in social interactions in ways that a solo advisor is unable to.
• An ensemble arrangement makes it easier for principals to receive a share of profits during retirement and facilitates succession planning.

How to Build an Effective Ensemble

There are several key issues to consider when one begins to contemplate starting or joining an ensemble practice.

Perhaps the most important is of personal and professional alignment. Do you share the same values, goals and vision of the prospective advisor-partner? Do you like them? (Nothing is worse than having to work with someone whose personality or behavior is incompatible with yours.)

Another factor to consider is what you want to accomplish from forming an ensemble practice. Do you want to grow a large practice, or is it a means to be able to better balance your career with your personal life?

Advisors will also want to think about the relative construction of the ensemble practice. For example, multiple highly successful advisors in their 50s will likely create a very profitable firm, but it is unlikely to grow or be able to tap new market niches. Whereas a mix of experienced successful advisors and young, ambitious advisors may help the practice reach new investor markets and grow at a faster pace.  Read the Millennial Financial Advisors article for more on how younger advisors driving permanent change.

For a list of benefits and drawbacks to both types of practices, check out an article we published on the topic: Solo Advisor Versus Ensemble Advisory Practices.

Please reference disclosures: https://blog.americanportfolios.com/disclosures/