This case study is based on the situation of a client of the Covenant Group. Names and details have been changed to preserve privacy
The reception area had all the markings of success. The leather wingback chairs, appropriate artwork, almost indiscernible classical music and subtle lighting gave the room the air of a third-generation law firm serving only the well-heeled and the well-connected.
I was, however, in the offices of Associated Family Wealth Management, a financial advisory firm focused on serving the affluent and ultra-affluent with \u201cfamily office\u201d services. AFWM had existed for less than two years; the permanence suggested by the external trappings belied the firm\u2019s instability.
The concept was sound. Four successful financial professionals with complementary expertise, each of whom had reached a plateau in their individual businesses, had joined forces to offer fully integrated wealth management to no more than 50 high net-worth families.
From grandparent to grandchild, they would manage assets, cover risks, co-ordinate income, create legacies and handle the philanthropic desires of their clients.
John Myers, chartered financial analyst, was the investment specialist. Twenty years in the business, he had perfected an asset-management approach for high net-worth clients employing a comprehensive investment policy statement.
Steve Wentworth, a chartered life underwriter and chartered financial consultant, handled risk management. Creatively using life insurance to equalize treatment of children in situations of inheritance or business succession was his real joy.
Franco Vito, a chartered accountant and certified financial planner, had sold his private accounting practice to join AFWM so he could focus on financial planning. He loved using software to develop strategies.
Kevin McGready, a lawyer, had worked for eight years at a prominent law firm as an estate planning counsellor before joining AFWM. He wanted greater scope to utilize his expertise in the use of trusts and holding companies to minimize taxes.
It would be difficult to find a more qualified team to form a new family office practice. But the call I had received from John indicated otherwise.
\u201cWe are developing some good clients of the type we want,\u201d he said, \u201cand although we spent more money in the start-up than we planned and are behind our target revenue, we\u2019re confident we\u2019re on the right track. It\u2019s just taking longer than expected, and that\u2019s causing some friction among the partners.\u201d
\u201cAre there any other issues?\u201d I asked.
\u201cThere is a general feeling that the contributions of the partners aren\u2019t equal, yet we share equally in the revenue. Some guys seem to be putting in more time and effort than others. Funny thing: the guys who complain that others aren\u2019t pulling their weight are being criticized for the same thing themselves.\u201d
With this information as background, I now found myself at the head of AFWM\u2019s boardroom table, flanked by two partners on each side. To break the ice and to test a theory I had, I said, somewhat jokingly, \u201cJust so that I know where to send the bill, who\u2019s the boss here?\u201d
The downward glances reminded me of students when a teacher asks a question to which no one knows the answer.
\u201cNo, really,\u201d I said, \u201cwho makes all the tough decisions?\u201d
\u201cWe all do,\u201d was the reply. \u201cWe are equal partners.\u201d
\u201cDo you ever disagree?\u201d I asked.
\u201cYes, of course, but we always come to some sort of consensus.\u201d
\u201cConsensus is good, but it often means compromise and concession. Have you ever felt that you conceded on something even when you really didn\u2019t want to?\u201d
\u201cI have,\u201d volunteered Franco. \u201cI thought we spent way too much on our office. As an accountant, I can\u2019t see the payback. We should have started in a less ostentatious way and upgraded over time as the revenue increased.\u201d
\u201cI don\u2019t agree,\u201d Steve countered. \u201cThe clientele we are trying to attract expect us to have prestigious premises. If we spent too much money on anything, it was that high-powered software you have. In the beginning, we had lots of time to devote manually to each client file. We didn\u2019t need $20,000 worth of software right away.\u201d
John jumped in: \u201cI\u2019m OK with both the office and the technology we have in place. We each brought an existing client base with us and if we wanted to gain leverage from that, we had to signal to our clients that we were a highly capable firm. My concern is the money we allocated to marketing and public relations. We all have good connections and, if we each had a few meetings with key people, the word would spread soon enough.\u201d
@page_break@\u201cKevin, what\u2019s your position on all this?\u201d I asked.
\u201cI\u2019m OK with everything we have done,\u201d he replied. \u201cMy concern is recognizing the value of the individual contributions. On our most recent case, I did about 75% of the work because the issues fell mostly into my area of expertise. In another situation, that could happen to John or Franco or Steve. Do we just hope it will all balance out more or less equally in the end and everyone will feel treated fairly?\u201d
\u201cDoes your partnership agreement cover any of these questions, or just the standard death, disability and retirement issues?\u201d I asked.
\u201cNo, it doesn\u2019t \u2014 just the basics, plus an agreement on an equal split of revenue and expenses,\u201d I was told.
\u201cLet\u2019s ask another question,\u201d I said. \u201cWho holds you accountable?\u201d
\u201cOur clients do!\u201d
\u201cYour clients hold you accountable for the work you do for them, but who holds you accountable for your contribution to the firm?\u201d
\u201cWe hold each other accountable for that,\u201d they told me.
\u201cThat doesn\u2019t seem to be working very well so far,\u201d I commented. \u201cThat shouldn\u2019t be too surprising. It is extremely difficult to have equal partners accountable to each other because, by definition, that would mean they aren\u2019t equal. Someone has to act as a higher authority, particularly in times of disagreement.\u201d
I told them experience has shown that partnerships that work best have several things in common: \u201cFirst, they have a well-designed business plan that sets out expectations at two levels \u2014 for the firm as a whole and for each partner. The compensation typically includes an equal minimum income that allows each partner to maintain their basic lifestyle, some sort of \u2018contribution enhancement\u2019 that recognizes the business development results, actual hours spent, revenue generated, etc., for each partner, as well as an agreed-upon \u2018pooled bonus\u2019 if net profit exceeds the plan.
\u201cThe best firms have a methodology for \u2018keeping score\u2019 of hours spent, resources used and any other variables that impact the bottom line.
\u201cAccountability is dealt with internally and externally. Internally, there always has to be a \u2018final authority\u2019 who manages disputes and casts the deciding vote in the event of a deadlock. In some partnerships, it is obvious who that person should be, based on their value to the firm, initial commitment of time and money, or simply because no one else is interested in the job. Some partners rotate it among themselves on a periodic basis. The remaining partners must agree to respect any decisions made by the final authority.
\u201cExternally, successful firms establish an advisory board made up of key clients, outside professionals, mentors and others interested in the success of the firm.\u201d
The balance of the day was spent reviewing the partnership agreement to ensure it addressed the key issues of revenue and expense recognition, compensation and dispute resolution. The partners concluded that they would rotate the role of \u201cmanager\u201d among themselves every 18 months.
A method for tracking time and expenses was fashioned after legal and accounting models. A list of potential candidates for an advisory board was created and the terms of their engagement determined.
By the end of our session, the partners felt reinvigorated by what had been accomplished. We agreed to meet again in six months to see how the new plan was working and make any necessary adjustments. I was confident there wouldn\u2019t be much to change. \tIE<\/b>
George Hartman is a coach and facilitator with the Covenant Group in Toronto. He can be reached at george@covenantgroup.com.<\/i>
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Four professionals who work together under the \u201cfamily office\u201d concept discover they need more than the will to succeed<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3013,3018],"tags":[],"yst_prominent_words":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/329560"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=329560"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/329560\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=329560"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=329560"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=329560"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=329560"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}