What Meg Green was thinking when she purposefully shed $40 million of assets

Elizabeth’s Note: The question of whether and how advisors are creating businesses of lasting, transferable value occupied RIABiz readers a few weeks ago, after consultant Mark Hurley released a report claiming that only 2% of advisors’ practices have any potential for developing enterprise value. Hurley is a deliberately provocative writer. Mark Tibergien, CEO of Pershing Advisor Services, says “He’s the only bull I know who brings his china shop along with him.” But there is plenty of evidence that advisors ought to pay more attention to the business side of their businesses. I’d heard Meg Green spoken of with admiration by other Royal Alliance advisors, and other women advisors. The discipline she brings to decisions about her practice is eye-opening.

Plenty of advisors talk about winnowing their practices down to the clients who fit their business strategies, but few follow through – especially in this economy, when every asset under management seems too precious to give away.

A year ago, Meg Green, one of the nation’s highest-profile female advisors, actually took the step that many advisors merely consider with her eponymous firm. She spun off about $40 million worth of her $500 million of AUM, selling that portion of her business to another Royal Alliance advisor [see details below].

“Not all the bodies were really profitable in my model,” Green said. She focuses her 11-employee business on clients with $2.5 million to $10 million of investable assets; the average account in the segment that she sold was $160,000.

Unusual discipline

The discipline with which Green approaches her practice is fairly unusual in the world of advisors, even large ones. She has also set up a clear succession plan; and is now in the middle of opening an office in Los Angeles that is precisely designed to fit the next phase of her life.

Though rare among advisors, those actions are typical of Green, said Mark Tibergien, CEO of Pershing Adviser Services. In his previous role as a business consultant, he worked with her to value her firm.

He says it takes a certain amount of courage for advisors to take somewhat extreme measures, like cutting off a business’s tail, or facing up to the reality of aging and death.

The signs have been plenty lately that advisors, never great at these tasks to begin with, are having a harder time coming to grips with them since the recession.

Expense factor

Recent research by Tacoma, Wash-based FA Insight found that operating expenses at large firms with revenue of more than $3 million annually was about 35% of revenue in the past, but last year rose to 45-46% of revenue.

Typically, said both Tibergien and Eliza De Pardo, principal and director of consulting at FA Insight, advisors pay attention to the factors that affect their net margins: volume and controlling costs. Fewer pay attention to the metrics that affect the gross profit margin: pricing, production, product and service mix, and the client mix.

To address the client mix question, Tibergien suggests doing a client audit, segmenting your clients in as many ways as you can think of: by size, geography, age, and source of wealth.

Take a look at the different market segments and the profitability of each.

Fulfillment

“Then ask yourself: ‘Which do I find the most fulfilling? Which pays the highest gross profit margin?’” he said.

Advisors who don’t want to spin off an entire segment of clients may consider making 10 or 20 referrals every year to another trusted advisor.
“One of the reasons Meg’s decision is a good one is that she decided she was not going to invest in clients that did not fit her model,” Tibergien said.

Green has a high-touch approach with her business. Her clients are not assigned to individual advisors; in regular meetings, the team divides up the tasks for the various clients.

“With the bigger clients, I don’t think two months go by without a contact,” she said. “For instance, one of my clients is having a face lift. I put a note to call in 5 weeks to see how she’s looking.”

The firm’s retention rate is 98%.

Grandmother’s priorities

Green is opening the office in Woodland Hills, California, because her two children live in Agoura Hills. She’s also just become a grandmother.
So, Green decided to open a small practice there, staffed by one advisor. She says she’s looking for a “mini-me” who will manage the assets of a few large clients, with a minimum of $5 million in investable assets.

As for the spin-off, Green sold the assets to Jeffrey Hamburger, president and CEO of New Century Financial Group out of Princeton, N.J. He operates the business Green sold to him as a satellite office called MG&A Financial Group. The transition was eased by the fact that MG&A (Meg Green & Associates) was a name that Green’s clients were familiar with; the company kept some of the branding, like the colors and the stationery the same.

That piece of the practice was valued at one times annual revenue and discounted by 20% to reach the purchase price. The two Royal Alliance advisors did the transaction without help from any outside parties.

With a more narrowly focused — and incidentally, more profitable — firm, Green is free to focus on the right produce mix for her higher-end clients.
She is intent on conveying the style that she wants to, which she calls, “gray flannel and pearls.” Her office is filled with wood furniture, and she keeps crystal water pitchers on the desks. Wire hangars are a no-no.

A little crazy

“Some people here might think I’m a little crazy.”

Apparently not her partner, Todd Battaglia. When he went on vacation, she carpeted and painted his office. He came back and told her that he was glad she did.

He joined the firm 12 years ago and about seven years ago the two laid out a careful succession plan. He owns 35% of the firm and has the option to buy 49% at the current value. If she decides to retire, they have an arrangement, similar to a mortgage, whereby he pays her principal and interest for the remainder of the firm for a set number of years.

“If he’s going to be buy more shares, he better hurry,” she says with a laugh. “The value keeps rising.”