Running a successful financial advisory practice requires a skilled advisor, a proficient bookkeeper, a marketing whiz and a time-management guru. That’s a lot to ask of a single person, and that diversity of demands is one reason why many solo financial advisors are looking to bring a partner into their practices.
Succession planning is another good reason: as the profession ages, joining forces with a younger partner can give clients peace of mind and soon-to-retire advisors some breathing room.
Jennifer Rideout, a wealth advisor with Assante Capital Management Ltd. in Halifax, believes partnerships are pivotal for financial advisory businesses today.
“A business cannot work with just one individual successfully,” says Rideout, whose partner is Richard Nickerson, senior financial planning advisor. “A successful business must carry on as normal, should one partner or member of the team have to take time away.”
Forming a partnership is not a panacea, however, and it is a decision that should be considered carefully. Turning your solo practice into a partnership brings significant changes to the structure of your business – from choosing a partner to developing a partnership agreement and introducing your new partner to your clients – and must be done in increments.
While working in a partnership is not for everyone, the strategy has numerous advantages. Topping the list is client satisfaction: if one partner is absent, clients can be assured that another advisor who is familiar with their account is on hand.
“Clients need to know that they can be helped at any time. Having a partnership allows for no [disruption] of service to clients,” Rideout says.
Introducing a partner also can add an element of innovation in the eyes of your clients. A new partner can bring new thinking into your practice, along with enhanced capacity and diversification, notes Andy Cutten, a chartered professional accountant and management consultant with Halifax Global Inc. in Halifax. “Clients take notice of newness and growth.”
Also, a partner can often bring a divergent but complementary skill set.
“Getting the extra [range] of experience and expertise on a file will ensure all factors and angles are considered for complex decisions,” Rideout says.
There is also an objectivity that comes with that new perspective, she adds: “For major business decisions, sometimes emotions get in the way. Having a partner to help make these decisions will help avoid this.”
On the practical side, a partner brings an extra set of hands and is someone who can help when the going gets hectic. “Time is everyone’s biggest need,” Rideout says. “Having a partner will [allow] for shared work and allow much-needed time away from the business to recharge.”
CHOOSING THE RIGHT PARTNER
One argument against going the partnership route is the significant fact that, when you add a partner, the business is no longer solely your own. “You are now exposed for the performance of a new partner,” Cutten says. “This is a ‘loss of complete control’ issue, and so there is a reputation risk.”
Key to reducing that risk is selecting the right partner. There is no magic bullet or guaranteed checklist – the selection process requires patience, objectivity and insight.
Fit is critical. “All partners must have a similar vision and work toward similar and common goals,” Rideout says.
It is also prudent, she notes, to consider the ages of each potential partner and to align with a person who is not in the same generation as you.
“This will allow for a succession plan,” Rideout says. “For a new advisor or a junior, this is key. Starting, maintaining and growing your own business is so difficult today. Aligning with an older partner will allow continued business growth.”
Don’t rely on your gut to let you know when you’ve found the right partner for your practice, Cutten says. “You need to do a complete listing of what you are looking for.”
For example, Cutten says to ask yourself: “Do I want more of the same of what I do, or am I looking for a new skill set?”
Regardless, he adds, a thorough assessment of a prospective partner is necessary. It starts with a list of the individual’s professional skills and accreditations. Credibility and expertise are critical to both clients and the practice itself.
“You don’t necessarily have to like this person,” Cutten says, “but you must respect and trust this person. This person becomes part of the professional ‘you,’ and you want to make sure your reputation is not disadvantaged by the new relationship.”
There must also be common professional ground. Make sure your prospective partner has similar views to yours, says David Gorveatte, a certified financial planner with Investia Financial Services Inc. in Fredericton, N.B. There should be an interest in providing similar services, such as financial planning, estate planning and insurance planning. And your partner should share an interest in the market sector you have built your practice on – whether that is retirees, business owners or young professionals.
Gorveatte cautions that there is real risk in leaving the partnership decision too close to retirement, then rushing to find someone – and choosing the wrong person.
“Once you start the process,” Gorveatte says, “it is almost impossible to unwind it and your clients will sense something is wrong. So be careful before you make [any] announcement.”
Cutten recommends taking the partnership for a trial run. “One approach is to test drive the relationship for a period of time,” he says, “and then cement the relationship if it looks positive.”
“The right partner is crucial and you need to spend time with the person,” Gorveatte says.
Gorveatte spent time working with several prospective partners, looking for a solid knowledge base and working compatibility. While each candidate was a strong potential partner, numerous factors conspired against Gorveatte signing on the dotted line with anyone until last year, when he formed a partnership with Colin Smith.
Slow and steady wins the partnership race. Gorveatte not only tested the waters with three advisors before finding the right individual for his business, he is also working closely with his new partner to reassure clients and build a bigger book of business.
“The fact that my partner and eventual successor would work with me and be mentored by me for 10 years gave [clients] encouragement that things would not change.”
Having a partner enabled Gorveatte this year to do “something I have never done before in my life” – spend more than two months in Florida.
In Rideout’s partnership, there is a clear delineation of roles that helps ensure clients are familiar and comfortable with both partners.
Both Rideout and Nickerson, her partner, will in many cases meet separately with a client: Rideout to discuss the financial plan; Nickerson to discuss other issues, such as investments. “This way, clients know there are two of us, and most like seeing both friendly faces,” she says.
STRUCTURE
The structure of the partnership also is a crucial consideration and the options are numerous. Cutten suggests a model that is used by many law firms: “Each individual has [his or her] own practice and contributes to common costs.”
In another approach, Cutten adds, both partners contribute to the growth and value of the firm and share in the residual value of the firm according to percentages allotted or shares specified in a written agreement. Salaries often are paid to the partners based upon their roles.
Gorveatte took an unusual approach to his partnership, which is currently in Year 1 of a 10-year plan.
Most advisors sell off the bottom one-third of their book of business and wash their hands of those clients, Gorveatte says. Then, they sell the middle third and, finally, the rest of their book. “To me, this did not make sense, as I felt every client was important and I took a different approach,” he says.
Gorveatte moved one-fifth of his book to a new joint selling code – that is, a joint account to which both partners had access. Smith paid Gorveatte for half of that book. “This way we were both responsible for those clients and I did not abandon them,” Gorveatte says.
This partnership also helped to grow the business. Gorveatte told existing clients that having a partner enabled the practice to handle more new clients. He invited clients to provide referrals.
“This has paid off,” Gorveatte says. “A lot of my clients started giving me referrals. Our practice is growing at a rapid rate and we are very busy.”
Regardless of the structure of the relationship, you will need a partnership agreement.
This document lays out, in essence, what each partner has brought to the practice and how he or she will be compensated. It will include, for example, the capital each partner has put into the business, the percentage of payout and how the expenses of running the firm will be paid. Partners might pay for their individual expenses, such as laptops, and split the shared expenses, such as heat.
The partnership agreement is not etched in stone, Rideout adds. It can be modified as the business changes over time. The advisors can review the agreement during annual business planning meetings, she says.
Ultimately, Rideout says, a partnership is about more than dotted lines and preserving the status quo. It is an opportunity to grow the business.
“Focus needs to be put on how to drive new business and prospect for ideal clients,” she says. “Each partner should have his or her own niche market while considering the vision of the practice.”