Evensky tap dances on options as planner industry shifts

He is considering three options for Evensky Brown & Katz, which oversees $300 million: joining a conglomerate of advisers such as Canada's Assante Capital Management; combining with another firm; or raising capital to expand the practice and bringing in a chief executive to run it. The bow-tied adviser from Coral Gables, Fla., believes the financial services marketplace is getting more competitive and is planning to radically overhaul his firm to keep up. Mr. Evensky's thinking is driven by two major, related issues confronting financial planners: How to create a business that can keep up with growing competition and how to create a valuable practice that can be sold to fund retirement. That's no small feat, considering that few small shops have full discretion over the assets they manage. If the founder retires, what's to stop the clients from bailing? "We think the world is changing and we need to make a change," says Mr. Evensky, who is 57 and founded his firm 15 years ago after putting in stints at Prudential Bache and Drexel Burnham Lambert. "We are seriously exploring the alternatives." Given Mr. Evensky's stature in the industry -- he recently completed a term as chairman of the Certified Financial Planner Board of Governors and is widely quoted in newspapers and magazines -- his success or failure will be closely watched. "Harold is a smart guy," says Mark P. Hurley, president of Undiscovered Managers, a Dallas-based mutual fund firm. "Strategically what they're doing makes sense. The industry is facing a whole set of forces that are going to change it materially." Many of Mr. Evensky's concerns about the future of the financial planning industry echo the conclusions of Mr. Hurley's widely read 1999 study, "The Future of the Financial Advisory Business and the Delivery of Advice to the Semi-Affluent Investor." In a nutshell, the paper -- and Mr. Evensky -- argue that as banks, brokerages, insurance companies, online firms and other players target the financial planning business, advisers in a few years will be forced to spend more on marketing, offer more services and cut their costs. Ultimately "40 to 50 firms are going to be very substantial," says Mr. Hurley. "Now's the time to move." Besides trying to remain competitive, Mr. Evensky also is trying to create a business that can command a significant sum when he retires. His wife and partner Deena Katz is 49 and partner Peter Brown is 59. "We've all thought about the fact that since we spend 120% of our time on this, this is our nest egg and our future," he says. "Developing the value is important." The practice could fetch more than $5 million in a sale, depending on who the acquirer is, observers say. Banks, for instance, pay a higher premium than other planning firms. Such transactions are often paid for with a combination of cash and stock.

Control a key issue

Mr. Evensky wouldn't say which course he is leaning toward, but he says he wants to maintain autonomy of the firm to continue having one-on-one relationships with clients. A planner who knows Mr. Evensky well believes he prefers independence. In this model, Mr. Evensky would raise capital to expand into new business areas and bring in an executive team that would manage the firm as a business. "I think that he probably wants to capitalize on what he perceives to be the value of his name," the planner says. "I think he would want to be independent unless the money was good enough." If Mr. Evensky decides to go it alone, he would like to bring inhouse many of the functions -- such as estate planning and insurance services -- that he now farms out. "We do estate planning review but we have contracts with estate planning attorneys and pay them," says Mr. Evensky. If maintaining independence isn't possible, one potential merger partner is Assante Capital Management of Winnipeg, Manitoba, which is trying to build a national wealth management practice of financial planners. Next quarter, Assante plans to strike alliances with 20 high-end planners across the country. "We've talked to John," Mr. Evensky says, referring to John Bowen, president and chief executive of Assante Capital Management. Mr. Bowen declined to comment. A third option is to merge with one or more other financial planning firms. Obvious candidates for this include members of the Alpha Group, a peer association that includes representatives of 12 firms across the country. "Anything's a possibility," Mr. Evensky says. "We've got very close friends in Alpha but there are a lot of other firms and practitioners." The one definite thing for Evensky Brown & Katz is that change is inevitable. The firm was hesitant about pursuing that path, but now is resolved. "We were reluctant because we like doing our own thing," Mr. Evensky says. "But we think we need to do something."