No doubt that financial services firms strongly encourage their advisor ranks to form teams or partnerships because it works to the firms’ advantage: it makes the assets stickier and harder to move and in general, means that clients will receive a more well-rounded experience. But, the question I am often asked is whether the formation of a team or partnership is actually better for the advisor.
How does forming a team/partnership serve an advisor well?
- It allows the advisor more freedom: Knowing that a likeminded individual is always there to mind the store can be quite comforting.
- It offers greater bench strength: The best partnerships form so that 1+1 can = 3; so that one’s strong financial planning and analytical expertise, for example, can be married with another’s strong business development skills to form a presumably perfect match.
- It offers a succession plan for all parties: Clients and advisors alike benefit from knowing that if their advisor is hit by the “proverbial bus”, someone is there to take over. And, with the “sunset” programs most firms offer to retiring advisors as a way of allowing them to monetize their life’s work, having a partner to leave the assets in the care of is a critical component.
- It offers the ability to share resources: Advisors often complain about lack of dedicated support because they don’t have enough production to warrant it. But, joining forces with or becoming a larger team with greater revenue and assets allows you access to additional sales support, marketing resources, technical expertise, etc.
- It offers greater overall enterprise value: The quote “A rising tide lifts all boats” comes to mind as a business managing $1B in assets is much more valuable than one managing half that amount.
How can forming a team/partnership hurt an advisor?
- It’s like a marriage: All parties must be very sure that this “work marriage” has been vetted from all angles—and that everyone sees the world in the same way. Many would-be partnerships look great on paper, but all too often we see them break up because it turns out that in terms of culture the pair was not as compatible as first thought. The dissolution of said marriage can be quite time consuming, expensive and detrimental to the overall business.
- Every decision needs to be approved by someone other than you: For advisors that like having sole control, a partnership can mean difficult waters to navigate, and an extra captain at the helm.
- Team agreements supersede the Protocol: While it ties all parties to their firms in yet another way, the team agreement is the controlling force. “If there is a team agreement, and the entire team does not transition, the team agreement will control the solicitation of team accounts,” says Thomas B. Lewis, Esq., an expert in the area of advisor transition. In the absence of an agreement, if the departing advisor has been with the team less than 4 years, he may only solicit those accounts he introduced to the team. “This is often a contested area as different team members claim they originated the accounts,” posits Lewis.
If formed in the right way – and with a whole lot of forethought and certainty – the formation of a partnership can be accretive and positive. In my view, the best partnership arrangements are ones in which each partner maintains his/her own book of clients, just relying on the other(s) for back-up and support, but not ownership. Why? Because this allows each partner their freedom and autonomy should things not work out and it prevents putting clients through something akin to a child custody battle, forcing them to choose which advisor they want to remain tethered to. And, if, at some point, the partners should decide to split and one partner decides to leave the firm and go elsewhere, it prevents the uber-damaging scenario of being offered a much decreased transition package because there is concern that the assets are not solely managed by that advisor.
Much like any relationship, you need to decide whether “tying the knot” and creating a partnership or team is truly in everyone’s best interest—because “for better” can become “for worse” very quickly, and such knots are often quite difficult to untie.