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Building the Business 101: Meet the Partners

Why did they merge their firm with another? They found kindred spirits in their new partners.

Veena A. Kutler and Annette F. Simon, 02/22/2007

This monthly series of articles describe the many steps and occasional missteps we have taken in building our financial advisory business, Garnet Group LLC. Garnet has more than 90 clients, $300 million in client net worth under advisement, offices in Bethesda, Md., and Boston, and eight staff members. Veena Kutler, CFA, and Annette Simon, CFP, are the principals managing the Garnet office in Bethesda.

Since the official announcement of our merger in last month's column, we've received a good deal of feedback from our readers--and a lot of questions. Many of our fellow advisors have wondered why we would choose to sacrifice any of our independence and share our business with another firm in another city. In our previous article, we discussed several of the issues that led to the decision, but in truth, we would never have considered merging as viable growth strategy if we had not found partners as compatible, smart, and experienced as Lisette Smith and Tanya Rapacz of Smith Rapacz, LLC.

Shared Approach and Values
We began discussing the possibility of a business alliance with Tanya and Lisette more than two years back; but just over a year ago, we launched a more serious process of decision-making, negotiations, and paperwork leading to the formation our new entity, Garnet Group LLC. From the start, all four of us have agreed that the structural and philosophical similarities between Mosaic and SmithRapacz helped the merger take shape and coalesce.

Some those similarities were uncanny. Both firms opened their doors in the fall of 2000-- meaning both started out in the difficult bear market that lasted until 2003. Both firms are fee-only and comprehensive in their approaches, with an emphasis on proactive client service and ongoing relationships. Like Mosaic, SmithRapacz adhered to a diversified investment strategy based on asset allocation, DFA funds, no-load mutual funds, and exchange-traded funds. All of the principals wear multiple hats, and we place a high value on achieving excellence in our professional lives without sacrificing the quality of our family lives. All of us are moms who, on a daily basis, integrate our roles as advisors and entrepreneurs with meeting the demands of our seven children ranging in age from 2 to 21.

Backgrounds
While Veena came to the financial advisory business from the institutional investment world and Annette made a career change from management consulting, Lisette has spent her entire 20-year professional career in this business. A Boston University MBA, she teaches at local CFP programs and works with the CFP Board on developing test questions for the CFP exam. Lisette co-chaired the 2005 NAPFA NE regional conference in Boston and served on the board of ICFP, the predecessor organization to the FPA. She has served as an arbitrator for the NASD Office of Dispute Resolution, helping to resolve matters arising between investors and securities firms. She is a member of the board of directors, serving on the strategic planning committee, of Volunteers of America® of Massachusetts, a non-profit human services organization. Lisette is an avid cyclist and enjoys spending outdoor time with her husband, son, and family dog.

Tanya has a strong interest in history, language, and literacy. She is a Wellesley College alumna and has worked as a volunteer in literacy programs for more than 10 years. After college, armed with a degree in Russian studies, Tanya followed the path of other liberal arts graduates and entered the business world, where she found that her abilities in organization, writing, and communication were welcome. Tanya was a securities litigation consultant, providing investment analysis to attorneys and government agencies with cases involving investors and brokers. As part of that role, she testified as an expert witness before NYSE and NASD panels. She also worked at Standard & Poor's, where she created educational newsletters and Web sites for banks and mutual funds. She then joined the financial advisory firm where Lisette worked, found that they worked well together and decided to join her in partnership. Tanya is the youngest of the four Garnet principals and the only one with a preschool child. She enjoys hiking in her spare time, as well as spending time with her growing family.

Different Starting Points
While it took the two of us, Annette and Veena, only a handful of lunches and NAPFA study group meetings to get to know each other before diving into our partnership, Tanya and Lisette had worked together for a year before deciding to open their own firm. Both had worked in Boston at a long-established high-net-worth financial planning and family office firm, whose average client net worth was north of $5 million.

Lisette was at this firm for 12 years where she developed extensive experience working with wealthy families and counseling them on a full spectrum of issues--ranging from help in leasing a car to high-level philanthropic strategies. At the time of her departure, Lisette was the director of financial planning, responsible for all planning. Tanya was a planner at the firm, working closely with Lisette. Seeking independence and better work-life balance, they decided to branch out on their own in 2000. Both of them loved the hands-on, multidimensional, family-office service they had provided at their old firm and wanted to keep that work structure intact at their new firm.

Initially, just as we had done in Bethesda, Md., Tanya and Lisette worked from home offices and met with their clients and prospective clients at restaurants, client's offices, or at clubs around the Boston area. They quickly realized that prospective clients, assuming they were rookies because they didn't have offices, were questioning their credibility and experience. Shortly thereafter, they sublet space from a CPA firm, before renting space in a small but stylish executive office suite in the Faneuil Hall area of downtown Boston, where they are located to this day.

The Smith Rapacz Business Strategy
While the Mosaic business model evolved over the years as we learned from our triumphs and mistakes, Tanya and Lisette had a clear vision of the range of services that a high-end family needs from its financial planner and established their client service process and business structure accordingly. Here's what it looked like at the start:

  • Flat retainer fee based on net worth. We know very few advisors who used retainer fees in 2000. It has only recently become much more fashionable. Tanya and Lisette's foresight and innovation in this regard was one of the things that impressed us from the outset.
  • Invoicing and payment by check rather than fee-debit.
  • Comprehensive financial planning covering the full spectrum of financial needs with an emphasis on scenario analysis and modeling.
  • Ongoing client relationships as well as one-time financial plans.
  • No asset management.
  • No employees other than the support services offered by the executive office suite.

Thanks to well-developed ties within the business community and their unique business model, which other advisors did not perceive as direct competition, Tanya and Lisette benefited from strong support from the Boston financial-advisory community and a steady stream of client referrals. Soon, they were busy juggling the needs of a variety of clients.

Over time, as their practice evolved so did the business structure. Initially, Lisette and Tanya thought that they could best add value for their clients by focusing entirely on their financial planning. They did not accept investment assets or direct portfolio management responsibilities--although they were comfortable performing risk analysis on existing portfolios. Over time, clients began to request asset-management services. Tanya and Lisette saw that they could provide real value to their clients by implementing solid investment management strategies, and chose Fidelity as their custodian. Like us, they rely upon a diversified asset-allocation strategy, using DFA funds, no-load mutual funds, and ETFs. 

Three years ago, Smith Rapacz took the same plunge Mosaic took in 2005 and hired its first staff member. Like us, the principals realized that they were spending every waking moment on their growing business--hardly the goal they had in mind when they left their previous employer. Today, they have a full-time planner and a part-time client service manager on staff.

The Merger
Last year, when we made the decision to merge and create a new entity, the principals of Mosaic and Smith Rapacz were in very similar situations--serving comparable clienteles and managing our businesses in manners that were very much alike. We were experiencing the same successes and bumping into the same obstacles. And all of us were all looking around to see what would constitute the logical next step in the growth of our businesses. After many hours of discussion, negotiation, and much less painful compromise than you might think, we agreed that this unique two-city merger was it!

"We anticipated that the merger would bring several benefits--scale to offer improved systems, expense sharing, and a stronger profile in the marketplace," Tanya says. "I am looking forward to more practice efficiencies as we continue the process of comparing our procedures."

Phase I
Since Dec. 1, we have begun successfully operating as one company in a variety of ways:

  • Launched a new joint Web site.
  • Completed buy-sell agreements (which we are in the process of funding).
  • Started a Garnet 401(k) and profit-sharing plan with a Roth 401(k) option.
  • Convened the first meeting of our joint investment committee.
  • Share a range of Web-based software solutions, including financial planning analysis and a CRM and document management system.
  • Designed and purchased marketing materials--cards, client folders, handouts.
  • Retained a compliance attorney and filed a single Garnet Group ADV.

Phase II
This spring, the four of us will meet to discuss phase two. For now, we know we'll continue to work toward creating a consistent Garnet client experience between the two offices. We're already looking at ways to align all of our service offerings, planning processes, meeting schedules, and investment decisions. While the two offices operate very independently today, we're open to the possibility of dividing some of our activities along functional, rather than geographic lines at some point in the future.

Two years ago, none of us even uttered the word "merger"--that scary idea was not even on the table. The process we've gone through has taught us that every once in a while something that seems foreign and even unspeakable can turn out to be just the thing to take your business to the next level.

Next month we will discuss client categorization and preferred niches.

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