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Industry Spotlight > Broker Dealers

3 Ways to Protect Yourself When Joining an Advisor Team

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Working as part of a team continues to gain in popularity among advisors. In fact, a 2017 Cerulli study found 55% of all advisors operate in teams.

Advisors with over $100 million are more likely to be team members. Teams with multiple leaders are more likely to garner high-net-worth accounts, the study found.

Team advisors operating as product specialists can offer clients a wide array of complex services. Working as part of a team can help energize advisors and foster their superior performance.

The excitement of the team environment can help advisors drive their businesses to the next level. Some teams also have built-in succession plans with junior members who will one day take charge.

All of these attributes make it easy to understand the appeal of teams.

But teaming is not without risk, and it’s not an exaggeration to say that joining the wrong team or affiliating with a team without the right protections in place, can be a career-ending calamity.

Branch managers sometimes use teaming as a way to weed out lower or older producers whose gross has slipped. These advisors are encouraged to team up with larger producers and are rewarded with slightly higher payouts and fatter T&E accounts.

Soon enough, their new “partners” try and seize control of their client relationships, rendering these advisors expendable years before they were ready to retire.

One feisty advisor I know, well into his 80s, extricated himself from his team by leaving his longtime wirehouse employer and joining a regional firm to reclaim his accounts.

It’s not unusual for advisors of equal stature who are sharing accounts to have their partnerships dissolve and then to find themselves locked into bitter disputes as they compete for those accounts.

The divorce rate for marriages is between 40% and 50%. My feeling is that the number is much higher for advisor teams in which the bonds between the parties are much more tenuous.

Contentious disputes over clients are  especially at risk with horizontal teams. Those are teams comprised of advisors of similar production levels who share accounts.

Vertical teams by contrast, have the distinct advantage of a clear chain of command. In these teams a senior advisor is supported by junior team members. Everyone knows who’s the boss.

Ideally, junior team members should be bound by trade secret agreements but when junior members leave, there is little risk to the senior advisor’s practice.

Three ‘Pre-Nup’ Steps

How can advisors who are contemplating joining a team protect themselves from an unhappy ending? Here are three ways:

First, advisors should consider the character of prospective teammates.

How do they comport themselves in difficult or stressful situations? How do they treat subordinates? If things don’t go according to plan, how are they likely to act?

I would never partner with anyone unless I’d observed their behavior in a variety of situations for an extended period of time.

Second, it’s a good practice to share only new accounts at first, before jumping in with both feet.

Third, have an experienced sales coach draft a marriage and divorce agreement.

Clear and firm rules must be established in advance for how client accounts are to be handled should a team member decide to go his own way. This document needs to be approved by the firm.

If partners can’t agree on specifics that are fair to all parties, or the process becomes too contentious, that’s a sign that it’s time to walk away.

Advisor teams offer many advantages to advisors in enabling them to build their businesses. That said, unless advisors choose the right partners and have the proper legal safeguards in place, they may jeopardize their careers.

Mark Elzweig is president of Mark Elzweig Co., Ltd., an executive search consultant based in New York City. You can reach Mark at [email protected].

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