We’ve heard time and time again from advisors across the country: “Strategic partnerships are, a waste of time, a waste of effort, or complete 🐂💩!” Sound familiar? It's the classic tale of the one-way street in the partnership world: you're the generous soul sending referrals left and right, but in return? Crickets...
The original version of this story was published in Research Magazine® in 1992 (now ThinkAdvisor®). This article has been updated for the year 2023.
I have been an advocate of teams in the securities industry for a long time, longer than most have been in the industry. My writings on this go well back into the ’80s, when some of my younger readers were still in training pants. I profoundly believe that it is only teams that will survive and amount to anything. One form the teams will take is partnerships.
I used to believe everything I had been told about partnerships:
My mind began to change back in 1987 when we began to get some interest from partners in our computer-based marketing system. We sold a few copies and got a lot of complaints from partners because a single-user version did not address their specific needs.
So, we went to work designing a “partnership” version and, in the process, worked quite closely with a couple of partnerships. Lo and behold, we discovered that partnerships can be an:
There must be an economic or family reason for the partnership. By “economic reason,” I really mean a division of labor. And that means some degree of difference in the specialization of the partners’ investment or planning expertise, selling techniques, or prospecting skills.
The “family” reason is normally the desire of an established financial advisor to pass on a business, intact, to another family member—generally a son or daughter.
Other reasons undoubtedly exist for forming partnerships. These may include taking more time out of the office while still providing continuous coverage for clients, friendship, and the often-mistaken belief that 1+1=3. When one of these motivations is extremely strong, the partnership may make it.
But it’s the economic or family reason that seems to provide the force that binds the organization together. After all, two 35-year-old financial advisors who do the same kind of business in the same market do not have an economic reason for forming a partnership, and if they do form a partnership, it will probably not survive.
Nevertheless, here are three models of successful partnerships I’ve observed that were formed for “economic” reasons:
A good economic reason alone certainly won’t guarantee survival. You also need:
I recently spoke with a financial advisor who was considering a partnership with another advisor in his office. There was definitely an economic reason for it. The potential partners were of different ages and had different skills yet they seemed to complement one another.
“What about the trust factor?” I asked. “Could you trust this person enough to go away for a month and completely enjoy a vacation?” There was a pause, and then, “I think so.”
I advised against proceeding with the partnership until the question of trust had been resolved. Trust is most often developed over time. I suggest partnering on something small that has a definite ending, like an event. Does your level of trust grow while working together on that event, or is it still the same? If it grows you can move forward.
Once you’ve established the economic reason and the trust, you can now proceed to resolve:
A few years ago, I mediated a partnership breakup. Here’s what happened:
A top-notch prospector teamed up with another financial advisor who seemed to have good client-development skills.
The prospector’s plan was: “I’ll go out into the forest and hunt new business; you keep the camp going.”
In a fairly short period of time, it became apparent that there was a marked difference between the two parties’ work ethics. New clients weren’t getting called and developed—so that was the end of that partnership.
But I’m also familiar with another partnership where one partner works much harder than the other, but the second partner works longer.
So, the lack of an equal work ethic is not necessarily a make/break point for partnership success. In the first case, this difference led to an unfair situation but, in the second case, one member’s increased hours made the situation fair because both were getting their job done.
Surviving partnerships seem to split everything 50-50. This doesn’t mean that the split needs to start out 50-50. But it needs to trend towards that goal.
It obviously wouldn’t make sense for a senior producer with $100 million in assets to take in a junior partner with $20 million and immediately start with a 50-50 split.
Let’s say the partnership production is $1 million in the last 12 months. The senior partner produced $750,000 while the junior partner produced $250,000. At the beginning of the partnership, they would split at 75 percent for the senior partner and 25 percent for the junior. But at $1.25 million, the split might be 65-35.
After all, the senior partner is making more money than he alone produced at $750,000, while probably working less. And the junior partner’s income is certainly increased.
At $l.5 million, the split might be 60-40.
At $2 million, it might go to 50-50.
I’ve spoken with dozens of prospective partners. I’ve been very careful to give each of them this very important piece of advice: While the blush is still on the rose, sit down on a Saturday or Sunday afternoon, with spouses, away from the office—and decide what would happen if the partnership were to break up. Take notes and then give these to a lawyer to craft into a binding agreement.
Here are some of the key questions to answer:
Settle these issues before they become conflicts. Then your partnership has a much better chance of survival.
I’ve seen a number of trial partnerships wherein two financial advisors will get together on just a certain kind of business and split that. If that arrangement works, you can go ahead and take the plunge into full partnership.
Of this I’m sure: Partnerships, when they work, are . . .
With a partnership, clients have instant access to a second opinion, instant access to additional expertise and, perhaps most importantly, they should always have access to one of the partners. If you’re out of the office, your partner should be there.
The benefits of a great partnership can be immense.
I have been an advocate of teams in the securities industry for a long time, longer than most have been in the industry. My writings on this go well back into the ’80s, when some of my younger readers were still in training pants. I profoundly believe that it is only teams that will survive and amount to anything. One ...
In the high-stakes world of financial advising, the difference between stagnation and exponential growth often hinges on one key strategy: mastering strategic partner referrals...
