No Man Is An Island

This article describes how so-called study groups -- the aggregation of several financial planning firms into a group that relies upon and networks with each other -- can give a small firm the power of a large one.

David R. Evanson

The Career Advisor, Fall, 2004

September 1, 2004- Increasingly, planners are banding together in so-called study groups for the purpose of developing and building their practices through information and idea sharing. The question is, would one of these groups work for you and should you join one? Advertisement

The answer is definitely maybe according to Brent Brodeski, a principal with Savant Capital in Rockford, Ill., and one of the founding members of Zero Alpha Group, a study group that is now eight years old and blossoming.

“We formed Zero Alpha Group eight years ago, because at the time we had a unique approach and philosophy and there were not a lot of resources to help us understand how to communicate what we were doing.” Back in 1996, Brodeski and his pals were on the bleeding edge of passive, index-based investing as a core offering inside of a total wealth management product. “I was reluctant to rely on the intellectual and marketing capital that was out there or available from Dimensional Fund Advisors [whose funds he was selling], because it was all freely available to competitors,” he says.

Now Zero Alpha Group has taken on a life of its own: Itzzs a legal entity, with its own budget, a client advocacy agenda, and a lifestyle component for its own members. But at its core, Zero Alpha remains what it started out to be: a wellspring of ideas for practice management development and growth.

Brodeski says there are several reasons to consider joining a study group. These include:

Cost Efficiencies: Brodeski says that in toto Zero Alpha Group members have some $3.3 billion under management. “We have been able to parley this into lower costs from some fund companies for members of our group. We have been able to get a position on Schwab advisory boards, and we have been able to get an audience with top executives in the industry such as Jack Bogle, none of which I think we would have been able to accomplish as individual firms.”

Access to Training and Education: Brodeski says that Zero Alpha has been able to offer its members access to some of the top training and consulting expertise in the industry, including Tiburon, Moss Adams and CEG because of cost-sharing arrangements. “Fees of $15,000 or more for one firm would be onerous,” says Brodeski, “But split eight ways, itzzs much more manageable.”

Benchmarking: Brodeski says that if you operate a small practice, you can be at a disadvantage against larger brokerage or planning firms, which have the scope and breath to benchmark performance. In a pack of several planners, you know where you stand, and how you stack up. But Brodeski says Zero Alpha has been able to benchmark the performance of its members on several variables, and enable each member to see how it is doing against the group.

Keep in mind though that people being, well, people, and sociology being an important force in world, means that while a study group might be a good idea for you, it doesnzzt mean that joining any study group will work out. There needs to be some commonality of purpose and philosophy for the experience to be a positive one.

First, says Brodeski, you should join a group where there is a common investment philosophy and you agree with what it is. “We just donzzt have discussions about what the best approach is – say passive versus active management – because we all agree on that,” says Brodeski. “We spend all of our energy and focus on practice management, client advocacy and developing a unified front.”

Next, he says that you should join a group where the members are all at the same or similar stage of development. It does no good to join a study group where your new best friends are all facing transition issues when you are facing start-up issues. “We all pretty much started out together,” says Brodeski. As a result, he says all of the firms in the group faced the same lifecycle issues at about the same time, and could share a more helpful well of ideas and experiences.

The stage of development can translate into time and financial commitments. For instance, Brodeski estimates that Zero Alpha members may spend three to four weeks a year focused on group activities, with hard costs of $30,000 and travel and entertainment costs of perhaps $20,000. Based on stage of development, these numbers represent either a manageable commitment to improving the practice, or a stretch.

Finally, Brodeski says that you should join a group where the members are all after the same experience. For instance, at Zero Alpha, there is a strong social element. “We like fine dining and we like great wine. And for us, this commonality builds a trust level that enables us to get naked and share not only our warts but also our best ideas.”

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