Partnerships for 2008

Many moons ago, I believed everything I had been told about partnerships. I believed they were even less stable than marriages; that 90 percent of them broke up, and since one plus one equals two, why bother?

But after observing successful partnerships, often decades old, I changed my tune.

Well-structured partnerships work. In fact, I would forecast that long after the solo practitioner in financial planning has slipped into the wisps of memory (along with solo practitioners in medicine), financial services partnerships, backed by a team of support professionals, will thrive.

Granted, I have witnessed some spectacular and bitter breakups. But overall, a well-structured partnership has at least the survival potential of a marriage — and where they do make it, can offer benefits to clients and advisors alike.

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I am preparing several articles on partnerships, and I need your help. If you are in one, had one, want one, or are just considering one, please go to www.billgood.com/surveys and take my partnership survey. As my way of saying “Thanks,” I will send you a compilation of all my Research articles on partnerships. In addition, I will send you a special report based on the survey and additional interviews. This special report will be titled, “Partnerships: Challenges and Opportunities.”

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Since I’ve now closely observed several hundred partnerships, I’m probably (in all modesty) the most qualified person you know to lay down the rules for successful partnerships. So here goes.

Division of Labor The first and most important rule is that there must be an economic or family reason for the partnership. By “economic” reason, I mean a division of labor — some difference in the partners’ product specializations, selling techniques or prospecting skills.

The “family” reason is normally the desire of an established FA to pass on a business, intact, to another family member, generally a son or daughter.

Other reasons undoubtedly exist for forming partnerships. These include taking vacations, providing continuous coverage for clients, companionship, and the belief that one plus one equals three.

But it’s the economic or family reason that seems to bind the organization together. After all, two 35-year-old advisors doing the same kind of business do not have an economic reason for forming a partnership. If they do form a partnership, it will probably not, in my experience, survive.

Here are some models of successful partnerships I’ve observed that were formed for “economic” reasons:

Prospector-Developer. In this model, one partner concentrates on bringing in new clients; the second partner concentrates on developing the clients.

Conservative-Speculative. Here one partner focuses on more conservative investments, and the other works the more speculative side of the street. An obvious variation of this is that one handles fixed-income, the other, equities, or one might do investments and the other insurance.

Senior-Junior. Family partnerships are usually this model, although I have seen many senior producers team up with an energetic, newer producer. The split here is usually uneven, in favor of the senior producer, but the understanding is that as the senior producer fades away, the business will go to the younger person. This is the best model for senior baby-boomer producers to gently fade to black, while insuring that a clientele developed over a working lifetime are properly cared for.

Planner-Trader. One partner takes the conceptual, logical, planned approach. The other deals with that portion of client assets involving trades.

Bonds of TrustA good economic reason alone won’t guarantee survival. You also need complete trust.

Recently, I spoke with an advisor who was considering a partnership with another advisor in his office. There was definitely an economic reason for it. They were different ages, and had different skills; 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. Once you’ve established the economic reason and the trust, you can now proceed to resolve issues of fairness, the split, and a possible breakup.