Now that we’re well into the retirement phase of Baby Boom firm owners and advisors, we’re seeing increasing numbers of Next-Gen advisors advancing to take their places as partners. This is, of course, the goal of most young advisors from the time they get out of school and start their first job. And for many of them, this step hasn’t come nearly soon enough.
So it may seem surprising to hear that in my experience, after the initial euphoria wears off, a fairly large number of these newly minted junior partners become disillusioned with their new status—and some even request to go back to their old jobs and/or change jobs.
To help younger advisors better understand how becoming a partner in their firm will affect them, and therefore make more informed decisions about accepting the promotion or not, I suggest they ask the following four questions of the owner of their firm, and other partners, if possible, and to carefully consider the answers:
1) What will be my new responsibilities?
As with most jobs, becoming a part-owner in a business looks a lot different from the outside than it does when you’re actually sitting in that chair. While most junior advisors understand on some level that they’ll have to work harder when they are partners, they usually don’t understand how that will impact their lives. Not only is more expected of firm owners, there is also more pressure to perform at a high quality, and to make good decisions—usually a lot more pressure. This usually translates into working longer hours, and a lot more weekends and holidays: which can make a pretty significant change in one’s quality of life. This doesn’t have to be a bad thing, but it can be if you and your spouse aren’t prepared for it.
2) What new authority will I have?
This is the other side to the responsibility coin, but contrary to what most new firm owners think, the answer is almost always “not very much.” In a small business, virtually all the authority rests with the majority owner. As a junior partner, you might manage more people (which nine times out of 10 is more a headache than a perk), and the senior partner will probably seek your counsel more often, but beyond that your working life will probably be about the same, there will just be more of it.
3) How are the profits going to be distributed?
I’m often surprised at how little most NextGen advisors understand about partnerships, even when they think they do. In a partnership, there are many ways that profits can be distributed, so be sure you understand how your firm is structured. What’s more, partners generally have to pay taxes on those profits, sometimes even on profits they don’t get. So it’s not unusual for a new partner to make the same amount of money but pay higher taxes. If you add in paying on a partnership loan, they can end up making less money in the early years. That’s not necessarily a bad thing: it can translate into a lot more income down the road, but it can be a rude awakening if you’re not prepared for it.
The profit picture can also be a problem for new owners because the senior partner usually decides how firm revenues will be spent: costs that are now in part coming out of the new junior partner’s pocket. Particularly troubling can be expenses by the senior partner her/him self: travel, a new company car, new computers, new office furniture, etc. It’s important for the junior partners and the senior partner to be on the same page about what are legitimate expenses—and what aren’t.
4) How will I have to act differently?
When one becomes a firm owner, people’s expectations of them change. The firm’s senior partner will probably expect junior partners to act more like an owner, and more like leaders: by becoming more concerned about what’s best for the firm, and setting a good example on when they come and go from the office, work habits, relationships with employees. Whether they like it or not, new owners aren’t “one of the guys” anymore; that can take some getting used to.
Each of these issues will make a new partner’s life at their firm a little bit different. Taken together, they can make it a lot different. Yes, ownership usually comes with a financial payoff in the form of more income (eventually), and the sale of their equity in the firm
There’s often the ability to make a greater contribution to the success of the business as well.
I encourage junior advisors to think very carefully upfront about what things are really important to them and their families. And if they decide that they’ve made a mistake after the fact, to correct it as quickly as possible.