Advisor partnerships are still relatively uncommon in Canada’s financial services industry, but the arguments in their favour are convincing.

Research shows that team practices are generally larger and more profitable than sole proprietorships, says Julie Littlechild, president of Toronto-based Advisor Impact Inc. “If you want to grow a substantial, profitable business focused on high net-worth clients,” she says, “there’s a strong case for establishing a partnership.”

Simply put, you’re much more likely to succeed in business with a partner than without one, says David Gage, co-founder of business mediation firm BMC Associates in Arlington, Va., and author of The Partnership Charter: How To Start Out Right With Your New Business Partnership (Or Fix The One You’re In). And that’s true among financial advisory practices as well as for businesses in general.

Gage cites a study by Milwaukee-based Marquette University’s Center for the Study of Entrepreneurship, which examined 2,000 companies. The study found that among top-performing, “hyper-growth” companies, 94% were started by partners, while only 6% were founded by solo entrepreneurs. In contrast, solo entrepreneurs had founded almost half of the low-growth companies.

The most compelling advantage of partnerships is their potential for creating synergy, says Gage: “By pooling their strengths, partners not only ensure the viability of their business, they also expand its possibilities.”

Adds George Hartman, CEO of Toronto-based Market Logics Inc.: “If you bring together two or three people who have complementary talents, it allows you to be greater than the sum of your parts. As a result, you can attract clients with more complex issues who will pay more.”

So, if you are sold on the benefits of forming a partnership, where do you begin? Start by choosing a partner — one of the most important business decisions you will ever make.

The essential elements of any successful partnership, Gage says, include a good fit between the partners’ personalities; similar values; compatible goals; clear expectations; and mutual trust and respect.

Cathie Hurlburt, a senior financial planning advisor with Assante Financial Management Ltd. in Vancouver, has worked in partnership with her husband, Mike Berton, since 1994. She recommends that you seek a partner with complementary — not identical — skills.

“People often want to partner with someone like themselves, but you really need a partner who can fill in your gaps,” Hurlburt says. “Recognize your weaknesses, and find someone who does those things better than you do.”

Hurlburt and Berton are very different people: he’s more diplomatic and analytical, while she tends to shoot from the hip. Because of their different styles, they often divide clients by personality. But despite the partners’ differences, they have shared values and common goals.

“That’s crucial, along with maintaining clear communication,” Hurlburt says.

Joanne Goodrich agrees. She and partner Rick Livingstone, investment advi-sors with Burlington, Ont.-based Goodrich Livingstone Wealth Management, which operates under the RBC Dominion Securities Inc. banner, have been partners for seven years.

ALIGNED VALUES

“Your values must be aligned,” Goodrich says. “Inevitably, you’ll run into difficult times along the way. And if your values aren’t completely shared, trouble erupts.”

Goodrich and Livingstone have a written agreement that addresses the potential dissolution of their partnership, plus eventualities such as the possibility that one of them might be unable to work for an extended period. They also have a “soft” contract — an understanding — about other issues, such as the ebb and flow of their workload.

“There are times when one of us puts in more hours than the other,” Livingstone explains. “A written agreement can’t cover everything, and it’s important to have an understanding about situations like that.”

Like many advisors in horizontal partnerships, Goodrich and Livingstone had worked together — in their case, at DS — before joining forces. Working together first is a good way to find a business partner, Hartman says, because you have an opportunity to observe each another’s work habits and ethics first-hand.

Alternatively, you can ask branch managers, wholesalers and other advisors for their recommendations.
@page_break@Once you identify a prospective partner or partners, Gage recommends you spend three days together talking in depth: “Discuss the partnership in detail and then do scenario planning — brainstorm about everything that might challenge you as partners and create guidelines [for] dealing with those scenarios. For example, can partners hire spouses? What about that star son or daughter? Which employees will report to which partner? How will you delegate?”

If you decide to proceed, Hartman recommends you make a one-year, no harm/no foul agreement: “That usually takes the form of a letter of understanding rather than a contractual agreement, and outlines what happens if the arrangement doesn’t work out. At the end of the year, discuss how it’s working and whether you’ll go forward. If so, you should cement the arrangement with a legal partnership agreement.”

The origin of partner conflicts can frequently be traced directly to the drafting of such documents, Gage says: “Partners often get a false sense of security from legal documents and think they’ve done everything necessary to prepare for the partnership. While that’s important, it’s not enough.

“You need to go into a level of detail about your expectations that such documents don’t approach,” he continues, “issues such as work hours and money. What happens if you become highly successful and one partner wants to reinvest in the business while the other wants to take more money out of it? What happens as you get older and one partner wants to reduce his hours while the other wants to maintain them?”

EXIT STRATEGY

Most partnership agreements also lack clear exit strategies, Gage says: “They usually contain something about a buyout but lack detail. And that can make all the difference.”

While partnerships can offer financial and operational benefits, there are psychological benefits as well. For starters, having a partner means being able to share the emotional burdens and responsibilities of business ownership. A partner can provide feelings of safety and reduced risk, a sense that, “we’re in this together.”

A partnership also means that someone else is available to do work that doesn’t play to your strengths or interests.

“Being able to divide tasks along lines of interest or ability,” Gage says, “can make an enterprise more enjoyable as well as more successful.”

Changing client expectations provide another compelling reason to form a team.

“Financial advisors are expected to deliver more than a single person can reasonably do,” says Andy Martin, a senior investment advisor with Wellington West Capital Inc. in Oakville, Ont. “And the capabilities we want to provide are more easily delivered via a team structure.”

Despite the clear advantages, partnerships are not for everyone, according to Littlechild. “It takes a great deal of commitment,” she says, “to the process and to future growth to create an effective partnership.”

Some people may lack the skills needed to work with or to run a team. “An advisor needs to examine his or her strengths carefully before deciding to partner,” Littlechild adds. “In some cases, staying solo may be the best idea.”

If you think you are not partner material, don’t even try, advises Gage. “Some people will never make good partners because they simply are not team players,” he says. “They may want to make all the decisions alone and be in complete control. Or they may be unwilling to be accountable to others. You discover those things only by looking critically at yourself and seeking honest feedback from others. There’s no shame in it — knowing and accepting your limitations is a real strength.”

COSTLY MISTAKES

It’s also important to understand why you want to work with a partner, according to Gage. “That’s essential to preventing disappointment or costly mistakes,” he says. “Many people enter partnerships without really addressing this question, only to discover, when their need for a partner has ceased, that they are stuck with a problem for which they never bargained.”

With so much riding on the success of a partnership — peace of mind, financial security and professional reputation — it’s easy to see why partnerships are considered potentially perilous.

Conflict among partners exacts a huge emotional toll, not only on the principals but on their employees, spouses and family members as well.

The cost of litigating partnership disputes can also be enormous. A recent legal battle between two partners in a U.S. financial services industry ended up costing between US$1 million and US$2 million, says Gage. “Co-owners of any small company who litigate a garden-variety partner dispute,” he says, “can easily rack up fees approaching $100,000.”

IE