“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.



> Forming A Partnership.

Advisor: In a recent column, you wrote about what to look for in a dealer firm, particularly if the reader was considering making a change. This topic has occasionally come up among the members of an informal study group in which I participate.

This group is made up of a few experienced financial advisors from our firm who are based in the same city. In fact, at our most recent meeting, we used the points you made in your column as the basis for a more specific discussion. The good news is that no one in our group really wants to leave the firm that many of us have been with for a considerable number of years.

We did, however, identify a few things we would classify as shortcomings — all of which would cost money to rectify, which we are pretty sure our sponsoring firm isn’t likely to fund because it’s not a part of the firm’s business model. We receive a high payout on the understanding that we pay all our own expenses; in fact, it was that model that attracted us to the firm in the first place.

Inevitably, our discussion led to another conversation among some of us about forming a partnership in which we could combine our resources to reduce our individual expenses and pay for the technology, marketing, additional staffing, etc., we think we need to take our businesses to the next level. It would also help with our individual succession planning if we had a ready-made solution to help clients transition from a retiring advisor to an active one. What do you think?



Coach says: First, I am flattered that my comments provided some structure for a thoughtful discussion about such an important topic.

I am also pleased that the conclusion was to stay with your current firm and to look for other ways to maximize the potential for your practices.

The question about whether or not to partner with one or more advisors is one that is coming up more and more these days. I believe the 2008-09 market meltdown and its corresponding negative impact on many advisors’ income certainly had something to do with that. In fact, I have encouraged a number of advisors I am coaching to consider partnership as an option for the long-term viability of their businesses.

Choosing the right partner — or partners — is a challenging task, and many attempts have failed because insufficient time was spent at the front end of the decision-making process to make sure there was a good “fit.”

Obviously, there are many things to consider, such as personality, trustworthiness, ethics, and so on. In fact, the qualitative aspects of what makes a good partner outweigh the quantitative ones and could easily fill a book, let alone a column. Given that you are considering potential partners from among a group whose members are already well known to you, let me assume that you are satisfied with the qualitative side of the equation and that the economics also make sense to you.

This frees me to ask another important question: “What type of partnership do you want?”

To help you answer, take a piece of paper and draw a horizontal line across it. Imagine that this line represents a continuum of advisor practice models. On the extreme left end of the line, write “sole practitioner”; on the extreme right end, write “professional ensemble”; in the middle, put down “silo partnership.”

So, what’s the difference between these?



> Sole Practitioner. This one is easy. It’s how most of us started in the advi-sory business and, even today, this model encompasses the largest percentage of non-employee advisors in the business. As you have described your practice, this where you are now, so we’ll only use it as a basis for comparing the other two partnership options. Commonly, in the sole practitioner model:

> you are the sole source of business;

> you receive all the revenue and you pay all the expenses;

> you are responsible for everything that goes on in your practice, even if you have a support team;

> the “client experience” is whatever you decide it will be — and some days are better than others;

> you have no leverage in the advisor role — no one can “sub” for you, if needed;

> your competition is external.@page_break@> Silo Partnership. This is also often called the “eat what you kill” model and is the most common partnership arrangement among advisors today. If you are in one of these, it means:

> you have one or more so-called “partners”;

> you receive all the revenue you generate, but share some expenses according to a formula;

> you do not share clients with the other advisor or advisors;

> each partner’s responsibilities mirror those of the others (you do the same things);

> the “client experience” varies with each advisor;

> there is little, if any, leverage with others in the advisor role;

> your competition is internal (from your partners) as well as external.



> Professional Ensemble. This the rarest form of partnership, yet many would consider it the purest. Under this model, it is most likely that:

> you will have one or more practitioner-partners with complementary skills and knowledge;

> you share all the revenue and all the expenses;

> you share all clients;

> each partner has assigned responsibilities for some aspect of the business management;

> the client experience is consistent, according to an agreed-upon process;

> there is maximum opportunity to leverage others in the advisor role;

> you have no internal competition. External competition applies to the firm, not to you individually.

Given these general descriptions, put a big “X” on the line you have drawn at the place you think best represents what you want from the partnership. Chances are your ideal model might lie somewhere between two of our continuum’s models.

For example, you may like the philosophical approach of sharing clients among partners with complementary skills to broaden your ability to serve clients, but you would like to follow that approach in the future only — that is, not with your current clients.

So, your mark would be somewhere between “silo partnership” and “professional ensemble.”

Alternatively, you may want to keep all your revenue and pay all your own expenses, but would be willing to contribute to a marketing program that promotes the “partnership” — even though there is no sharing of clients.

Then your “X” would be somewhere between “sole practitioner” and “silo partnership.”

This seemingly simple exercise will help you crystallize your thinking about what type of partnership will suit your needs. It will also enable you to identify like-minded associates by asking each other:

> What do you do best?

> What do you most enjoy?

> What do you want to get from this?

> What are you willing to give to this?

> What value do you place on others’ work?

> When do you lead best?

The final question — the one concerning leadership — is an essential one to ask. In every partnership I have ever seen, there comes a time when tough decisions have to be made that affect the freedom of the individual members to operate. If consensus can be reached, that’s great; however, if not, someone has to cast the deciding vote. So, in those situations, you’ll have to have a previous agreement as to “who’s the boss?”

A business partnership is often compared with a marriage and, thus, should only be entered into if you are confident of a lifelong relationship. In fact, business partnerships are, in many ways, more complex than marriages. In addition to “’til death do us part” component, we’d have to add a “’til disability, distrust, disappointment, disillusionment, disproportionate, etc., do us part” clause.

A good “pre-nup” agreement is essential to describing the terms and conditions of the partnership’s working arrangement, expense-sharing and what happens in the event someone wants out of the deal — or you want someone out of the deal. I also suggest your agreement include a “no harm, no foul” clause that allows anyone to opt out without penalty after a trial period of, say, one year.

Research among financial advisors has shown that properly created and managed partnerships generate more revenue, greater profitability and higher client satisfaction than sole proprietorships. For these reasons, I am a strong believer in synergistic partnerships — if the right people with the right expectations join together under the right circumstances with the right agreements in place. IE


George Hartman is president and CEO of Market Logics Inc. and a senior coach and facilitator with the Covenant Group. His latest book, Blunder, Wonder, Thunder: Powering Your Practice to New Heights, was published in January. Send questions, comments and opinions on any aspect of practice management to
george@marketlogics.ca.