“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.
Advisor says: Thanks for your recent article on how to grow a practice by downsizing. I used the capacity calculator you offered and was surprised to see how much more productive I could be by transferring a significant number of lower-value clients to someone else. What really struck me, however, was the number of hours I devote throughout the year to non-relationship-management activities. Even if I did transfer out 100 or so clients, I still am left with a huge amount of time required for administration, compliance and other tasks.
That got me to thinking that there must be other advisors in the same boat as me. I have always been a “lone wolf,” so to speak, and proud of the fact that I built a pretty good business largely by myself. But now, I am wondering if I should try to find someone with similar issues and team up with him or her to share resources and free us both up to do what we do best. I think I have another 10 to 15 years to give to this business; but who knows – partnering with someone now might even lead to a succession plan.
Coach says: i am glad you found our simple calculator to be useful in helping you to see how you could accelerate your business at the same time as you decrease the number of clients on your roster – as well as cause you to take a critical look at how you are spending your time every day.
Over time, it is easy to fall into the habit of wearing your “management” hat more often that your “advisor” hat, particularly in a practice in which you do most things yourself.
Your question caused me to reflect on a conference presentation I made in late 2009 on the future of the financial advisor. We were just emerging from the market meltdown of 2008-09, and there was legitimate concern that we would see a large exodus of advisors due to the serious disruption in their businesses. I took the position that while we would lose a number of advisors, those who remained would be better prepared to make hard, business-like decisions about their practices. Nothing galvanizes advisors to critique their efficiency like a good market crisis!
I predicted at the time that we would see a “proliferation of partnerships,” in which two to five advisors would come together for economies of scale, reduced direct costs, shared resources and, perhaps, succession planning. It is now five years later, and I admit we haven’t really seen the mini-explosion of partnerships I anticipated. I attribute that outcome to markets having pretty much gone straight up since then, and those strong advisors who survived the crisis feel less compelled to change their business model.
That said, many of my recent conversations with advisors have been about mergers, partnerships and succession planning. The aging advisor demographic has something to do with this trend, as does the increased compliance burden (brought on by the client relationship model and Canada’s anti-spam legislation), the popularity of low-cost exchange-traded funds and reduced client loyalty. All are causing thoughtful advisors to look at the future of their businesses. More and more advisors are thinking, as you have, that they might do better in a team environment than by continuing to go it alone, regardless of whether they plan to be in business for the next two years or 20 years.
Merging your practice with another doesn’t have to mean completely giving up control or entirely abandoning your “lone wolf” ways. You obviously aren’t ready to sell your business, so why not continue to build value by joining another advisor who can bring fresh talent, new ideas and additional resources that can move your combined business forward at a pace you’d unlikely achieve on your own?
There are innumerable opinions about how to make a partnership work. Here’s my take, based on successful partnerships I have both experienced and observed:
– Define your vision
Paint a word picture of what you want your practice to look like three, five or 10 years down the road. Ask yourself:
– How large do I want my business to be? This could be in terms of revenue, assets or number of clients.
– What role do I want to play personally? For example, marketing genius, supersalesperson, investment guru or renowned financial planner?
– What do I want my practice to look like? Consider the types of clients, products and services, and compensation model.
– What will the client experience be like?
– Determine the gaps between where you are now and where you’d like to be
You got your practice to where it is today by doing many things well. What you need to do now is identify the “pain points” that are keeping you awake at night and the obstacles that are preventing you from achieving the full potential of your business.
– Look for complementary skills
There is little value in forming a partnership with someone who is just like you – who has the same skills and weaknesses. The biggest producer in town may not be the best partnership candidate if he or she doesn’t bring something to the table that you don’t already have.
Partnerships should go both ways, so think about what you can offer a potential candidate to help his or her business.
How does your contribution stack up against what you are hoping to get from your potential partner? You may be a financial planning software whiz, but to an advisor who needs marketing help to attract new clients, that skill may not matter very much.
– Start the conversation
Beginning with your No. 1 candidate, arrange informal conversations to explore the possibility of some sort of alliance. You needn’t be too detailed at this stage; all you want to do is gauge interest and narrow your list of potential partners. Bear in mind that the most reluctant applicants often turn out to be the best candidates because they already have a very good business and don’t see any need to change. Your job, then, is to open their minds to the challenges of continuing business as usual and the opportunities that might reside within a partnership.
– Do your due diligence
Even if you think you know your preferred candidate well, take the time to check him or her out through channels such as public records, social media, industry connections and mutual clients. Sign non-disclosure agreements jointly and trade relevant information. Conduct mock client meetings to show each other how you describe your value proposition. Look at sample business plans. Talk about investment philosophy and client service strategies. Identify your common ground and differences.
– Prepare an offer
Once you both are satisfied that you have the best candidate and that the other is motivated, put your combined thoughts into a memorandum of understanding, a non-binding document that spells out the major points of agreement.
Prepare a high-level business plan for your joint venture to ensure expectations are aligned. Anticipate that your merger is unlikely to go exactly according to plan. You need to set goals, but keep them flexible.
– Decide who’s the boss
It would be nice to assume that all disagreements around matters such as contribution, compensation and use of resources will be settled by mutual accord. However, in my experience, the strongest partnerships work partly because there is a “final authority” who manages disputes and, if need be, casts the deciding vote in the event of a deadlock.
– Document the deal
Have your lawyer create a written agreement that covers everything from compensation and leadership structure to integration process. Include an outline of how the merger will be unwound should that point be reached.
– Create an integration plan
Staff members from both sides will want to know their place within the merged entity. By laying out a clear plan at the beginning of the process, you will relieve their anxiety and improve their co-operation and loyalty.
Finally, of course, choose your partner carefully. You are going to depend on them, for now and for your legacy.
George Hartman is managing partner with Elite Advisors Canada Inc. in Toronto. Send questions and comments to ghartman@eliteadvisors.ca.
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