Why do advisors consider taking on a partner in the first place? Maybe it's in hope of realizing economies of scale. Or maybe it's because the trade press has focused so much attention in recent years on the benefits of growing one's firm, a partnership seems like the only way to do it.
Whatever the reason, I am approached periodically by advisors looking for advice from someone who was in his own partnership (Malgoire Drucker, in Bethesda, Md., from 1984 through 1997) for 14 years. And what strikes me from these many conversations is
that prospective partners tend to focus on the presumed benefits but seldom on the hidden traps underlying any marriage of individuals. Like a love-struck teenager, there may be a tendency to see only the good side of things -- the benefits -- but not the costs. (They don't say "love is blind" for nothing).
Suppose you've created a small practice that reflects your personal style. You conduct business in a casual, comfortable manner, and you have only yourself to convince of the wisdom of your decisions. Now you find yourself and your new partner struggling to reach a compromise on what brand of paper clips to buy. Or, let's say you've been on your own for a couple of years and the financial and operating characteristics of your fledgling advisory practice are just beginning to take shape. You and your new partner join forces only to discover that his chart of accounts includes the line item "health club" where yours reads "club sandwich."
Why didn't you see this coming? Because the human issues are the ones usually overlooked in planning a merger, often by male partners, although women aren't immune to this particular myopia. Our desire for the business gains we believe will result from our partnership often overshadows the personal elements that must be addressed before the business gains can be realized.
So, before you tackle issues like compatibility of software systems, client service styles or growth objectives, take a closer look at these personal issues.
Shared Values. Personal values are one determinant of an advisor's commitment to his business. If he has a family, kids with sporting and school events that need attending, a passion for community work or anything else that will temper the number of hours he's willing to devote to the business, is that going to be a problem? If his prospective partner is a single workaholic who's never been married and has no kids, recognize this as a red-flag moment.
Complementary or Compatible Skills. Sometimes, skills or abilities need to be compatible, and at other times, complementary. My partner and I were compatible when dealing with personal issues we might have with each other. We were both relatively comfortable expressing ourselves in a way that prevented us from getting bogged down in the kinds of long-running resentments that undermine many partnerships.
However, our skills were complementary in certain functional areas. Her expertise was marketing; mine was practice management. (Our planning skills were roughly equivalent). My partner took care of the top line and I watched out for the bottom line. Can you imagine the chaos if we were both successful marketers but no one was creating the systems needed to manage all the new clients we were bringing in?
Decision-Making Styles. There are at least four possibilities here. You can both make decisions easily, or with difficulty, or you can each be of opposite persuasions. My partner verged on infinite deliberation, while I was sometimes guilty of impulsiveness. Left up to her, we might have still been using in 1997 the same Osborne computer we started the business with in 1984. Left up to me, we might have had to skip a few paychecks to finance the mainframe I thought would boost our firm's growth.
In combination, we dampened out each other's worst tendencies and (usually) made rational and timely decisions.
Ability to Agree. Subtly different from decision-making style, the ability to agree is crucial. Without it, two people can function like a large committee instead of a lean, mean, small-business team. For all of the differences you have with your partner, you must eventually be able to agree, or at least compromise, to keep the business moving forward. If you can't agree because one of you is stubbornly holding onto an untenable position, that's usually a sign of deeper problems.
Financial Requirements. What are your personal income needs? Are you both married with family-style obligations? Do you both have mortgages of similar size? Do you or your partner-to-be have supplemental income that the other one doesn't have, such as a military or first-career pension? Major discrepancies in personal financial needs can influence the motivation you bring to the job and the partnership. You may work better together if you're equally "hungry."
Related to income needs is the partners' relative ability to make needed capital contributions to the business. Are you capable of making equal capital contributions? It's not unusual that one partner initially brings more to the merger, forcing the other to "even up" his contribution with cash, fixed assets or added capital from his share of the firm's future income.
Overhead. If each partner started out with a going-concern practice, then he also brings with him an overhead commitment. This may not be so much of a problem as it relates to non-salary, non-benefit operating costs; the economies that are possible in these areas are one of the reasons to merge. Problems can arise, however, if one partner has been taking significantly higher benefits for himself than has the other.
Work Styles. One of you likes wearing blue jeans and working at home several days a week; the other feels more comfortable in traditional business wear and wouldn't think of not being in the office by 9:00a.m. every day. Is this a problem? It may or may not be, but you need to check it out with each other.
Work Ethic. Closely related to work style is work ethic. If you're splitting income 50-50 and one partner's idea of hard work is 10-hour days while the other's is in at 10:00 and out by 4:00, you may have difficulties. Sometimes it makes more sense to focus on the results each of you is expected to achieve, rather than the inputs. The partner responsible for marketing, for example, may require far fewer hours to land that big client than his partner who sequesters himself in the back of the office, wearing his green eye shade and banging out financial plans.
The Ability to Talk About Feelings. Your partner's going to do or say something eventually that you resent. It may happen again and again. Don't talk about his behavior and how it affects you. Don't talk about your feelings; let the bad ones accumulate. Ultimately you'll hate each other and your partnership will dissolve.
I mention this here, at the end of the article, because if it were near the beginning, I'd have immediately lost many of my male readers. However, as painful as expressing feelings may seem, it's an essential skill for all relationships whether with partners, spouses or clients. If you are clueless in this area of personal development, call on a therapist or mediator if major problems arise with your partner -- just try to do it before it's too late.
All in all, a good partnership is like a quirky Italian sports car. With care and attention, all those intricate parts will synchronize in the right way and at the right time. Just don't forget the regular tune-ups and oil changes.
Meet the folks at Pinnacle Wealth Planning Services of Mansfield, Ohio: Father Bill Heichel, sons Keith and David and daughter Jennifer. Bill says he'll work as long as he can in the business he founded at which time the ownership will transfer to his children per the "Family Agreement" they're constructing.
In the meantime -- with so many family members under one corporate roof -- it has been necessary to develop some rules of engagement. Keith Heichel provides the following do's and don'ts for family partnerships:o Keep spouses out of the business (and don't bring business issues home);o Communicate frequently via daily discussions and at least one weekly, formal management meeting;o Try to reach consensus on all major decisions. Don't move forward until everyone is in agreement;o Do things together for fun, both in and out of the business. (Every year, the Heichels go on a retreat to Lake Tahoe to discuss long-term business goals, but also to take some vacation time together);o Make sure each family member has a clear job description and is held accountable to it;o Maintain formal work requirements as if family members were non-related employees. (The Heichels each work 45 hours per week, on average, or risk losing their quarterly bonuses.)
Freelance writer David J. Drucker, CFP, is president of Drucker Knowledge Systems; see www.DavidDrucker.com