Having explored the pros and cons of making the move from solo to partnership in the first part of this series, along with the various partnering options to consider and how to find the right fit, we will now examine best practices for transitioning from a solo practice to a partnership, plus strategies to help ensure the partnership flourishes in the long-term.
When he isn’t working out of his office in Scottsdale, Arizona, chances are, Randy Morris, ChFC, CFP, AIF, is in either Mississippi or Colorado, where Summit Wealth Group, the wealth management firm he founded in 2002, also has offices.
On this particular mid-September day, Morris, Summit’s CEO, is in Colorado, working to finalize the firm’s acquisition of an accounting and tax practice in the Denver area. It’s merely the latest maneuver in Morris’s plan for growing the business by acquiring established practices run by people who share a vision for building a partnership-based, multi-region, multi-faceted advisory enterprise.
For Morris, it’s also another step in a three-decade journey in which he has gone from solo practitioner to presiding over a firm with close to 40 employees spread across six offices in three states (three offices in Colorado, two in Mississippi and one in Arizona). Through it all, what propels him is a desire to build something bigger than himself: a business that will thrive long after he retires.
Not that Morris has much time to contemplate retiring or the legacy he’ll leave when he does. These days, fulfilling the responsibilities to Summit as the firm’s chief executive and to his own 180-client book of business keeps him plenty busy.
Having built the solo practice he founded in 1985 into a multi-advisor firm, a venture he ultimately dissolved because its siloed structure fell short of the collaborative, team-based enterprise he envisioned, Morris says he has finally found fulfillment developing Summit into exactly that type of enterprise. “I love the business side of this industry, so being able to find partners who share a vision of growing this organization is very gratifying to me personally. We’re growing at a 20 percent to 30 percent annual rate and I’m spending most of my time doing what I love to do, so that’s fulfilling. I also have peace of mind knowing the success of the organization doesn’t all rest on my shoulders.”
Seven years after leaving solo practice behind, financial planner Jim Beverly, CLU, ChFC, CFP, has found a similar sense of personal, professional and financial fulfillment as part of Partners Wealth Management, the Naperville, Illinois firm he joined in 2007 after more than 10 years running a solo Northwestern Mutual life insurance practice, a responsibility that nearly ran him into the ground.
“I feel I have more energy and enthusiasm about the business than I’ve ever had,” says Beverly, who manages an estimated $70 million in assets for a client base that includes a large share of holdovers from his solo days. “It’s revitalizing to be part of a team, to understand where you fit and where you bring value. It’s also nice to have partners, teams and a support infrastructure to rely on so that I know every clients’ needs will be served.”
Keys to a Smooth Transition
Once an advisor resolves to move out of solo practice into some kind of partnership arrangement, be it one with a silo structure or more of an integrated enterprise, and once they have identified an individual or a firm with which to partner, they face the hard work of transitioning from one model to the other, and of laying the groundwork for a prosperous long-term partnership.
What the transition process entails depends largely on the nature of the partnership. The requirements and steps will be different with a partnership that’s giving rise to an entirely new firm than with a partnership involving an already established firm, for example. And there will be internal as well as external factors to consider during the process. Whatever the case, the transition is likely to go more smoothly if you:
• Communicate well with your new partners from the outset. From business and investing philosophy to compensation and the client service model, there are major issues to work through, particularly with a partnership that’s resulting in a new venture. Honest, frank and candid conversations are a must early in the process, according to Maria Considine King, vice president of practice management at Commonwealth Financial Network.
• Proactively plan by developing a formal business plan (if it’s a new venture), preferably with a SWOT (strengths, weaknesses, opportunities and threats) analysis, Considine King suggests. Also put in writing a vision for the firm’s future, built out with employees, additional partners, additional offices and the like.
• Enlist an attorney to help with succession and continuity planning (including buy-out agreements), ownership structure and other legal matters related to establishing the business (particularly if it’s a new venture). Having an airtight buy-sell agreement is “absolutely imperative” when moving into a partnership, says Morris. “I can’t imagine not having one for the protection and clarity it provides all parties.”
• Clearly define and assign roles within the partnership. Because you’re managing a business as well as a client base, you’ll likely need to don multiple hats beyond that of advisor. Among the “C” and director-level roles that need to be defined and assigned, those of CEO, CFO and chief investment officer are usually the most imperative to address, according to Considine King. Other posts might include chief marketing officer, chief operation officer, chief compliance officer, chief technology officer and director of HR. “Developing clearly defined roles is extremely important,” Morris says.
• Part and parcel to the discussion about roles is determining decision-making processes, including voting methodologies and a protocol for breaking impasses.
• Discuss the kind of culture you want to develop as a company.
• Clearly define compensation and benefits structures. Will revenue be shared or siloed? What about profit-sharing, bonuses, etc.? “The conversation about compensation is usually an interesting one,” notes Considine King. Some benchmarking due diligence can be worthwhile in developing a fair and equitable compensation structure.
• Assess how to align and integrate the partnership by addressing such issues as the service model, staffing, office space, marketing strategy, compliance, technology and back-office systems and processes.
• Formalize all the above, plus other relevant partnership details, in a written operating agreement. This, says Considine King, is the all-important “playbook”—the official document partners will consult to help resolve issues going forward.
• Proactively address the future with clients. During the transition, communicating externally with clients is as important as communicating internally among partners. As a solo advisor shifting into a partnership, “The first order of business is your clients’ well-being,” asserts Beverly.
Working with the staff at Partners Wealth Management, Beverly developed two client letters, one tailored to those he wanted to keep and another to those he didn’t. The former invited them to make the move with Beverly, explaining how it would benefit them, while the latter essentially offered a thank you and information about how their accounts would be handled going forward.
Beyond client letters, Considine King recommends personally calling top clients to explain the move and how they’ll benefit from it. Not only is it important to explain to clients “what’s in it for them”—such as access to new products, strategies and advisors with specialized expertise—she says it is also important to invite them to meet the new players in the partnership via a firm open house, or perhaps in a forum such as a seminar or workshop where their expertise is on display.
• Proactively address the future with employees impacted by the move. Once the partnership deal is in place, Considine King continues, the parties “need to be candid with their employees about what the move means to them.” Will there be a job for them when the dust settles, and if so, will their job description be changing? Will they need additional training? Will the move mean new advancement opportunities? Will their compensation or benefits be changing? Will they be moving offices? “It’s important to be forthcoming” with staff on these issues, she says.
By being proactive and transparent with employees, she notes, partners also can enlist staff members to help plan and execute the transition. Making It Last
As Considine King knows well from extensive experience unwinding ill-fated advisor partnerships, partnerships, like marriages, still can go sour, even with careful and thorough planning, documenting and upfront due diligence.
Partnerships that stand the best chance of thriving are those in which the parties faithfully adhere to the three Cs: communication, commitment and consensus.
Communication means developing and using channels that encourage partners to discuss issues regularly and openly. Twice-weekly leadership phone meetings, along with lengthier, more in-depth twice-monthly tactical leadership meetings, are a vital part of the cultural and operational fabric at Summit Wealth Partners, says Morris, as are day-long, quarterly face-to-face leadership meetings. “They keep us engaged and on the same page with one another.”
The most effective and sustainable partnerships also exhibit a strong commitment to the tenets underpinning the business relationship, observes Considine King. “They each have a clear vision of what they want to accomplish, what they contribute to the partnership and what they’re not best suited to contribute. They’re committed to sharing ideas and being truly open-minded, and they’re willing to engage as much as they can in a collaborative decision-making process.”
The final C is seeking consensus rather than compromise. Consensus implies the partners are in agreement on an issue, Considine King explains, while compromise suggests one or both partners had to concede or sacrifice something. For the sake of harmony in a partnership, strive for the former, she suggests, and be sure to have a predetermined system for breaking stalemates when consensus is elusive.
As Morris has learned since leaving the solo and siloed formats behind, even the strongest partnerships are bound to experience growing pains. “There are times, even in this type of structure, with the fast growth we have been experiencing, that I ask myself if we’re doing everything correctly, if we’re handling the needs of our clients. I’m confident we are going about it the right way. But this is still a work in progress. There may be some missing pieces still to add to the puzzle.”