When's the Right Time to Launch a Partnership Program?

One key metric to watch in wealth management today is advisor turnover. A recent industry report found that over 4,000 advisors switched firms in the first quarter of 2021, the most movement ever.

As the pandemic continues, advisor burnout is a concern. The industry as a whole hasn’t figured out what the perfect advisor-to-client ratio is, and capacity remains a question mark for many firms.

At the same time, as more private equity enters the industry, the ultimate objective of many firms shifts to profit margins and returns on these investments. As that happens, advisors may be pressured to take on more clients than they can handle.

The possibility of burnout, then, can come from multiple source. The increase in advisor movement already seems to be indicating that many advisors are looking for a fresh start — and that figure comes on top of a good number who likely are choosing to leave the industry.

An advisor leaving a firm is always a detriment to that business, and it’s an event that creates a long-term threat to a firm’s ability to thrive.

One way a firm owner can prevent advisor departures is by creating a partnership structure that allows individual advisors to participate in the growth of the firm.

In this article, I’ll explain when a partnership structure is appropriate — and when it isn’t.

Not for Everyone

I’ve seen many instances in which advisors put together partnership structures when they aren’t ready for one, simply out of fear that they’ll lose talented advisors they already have on staff.

If your primary motive for creating a partnership is fear, a partnership program could turn out to be risky for your firm. Partnership programs should exist only when you have an advisor you want to retain and who is worthy of a partnership role.

If a partnership gets created out of fear that an advisor will leave, it’s already too late. Once an advisor is seriously considering a move, a partnership won’t make them happier — it will only add to their discontent.

As a result, your advisory firm shouldn’t create a partnership program when you’re feeling fear. Let’s look at when you should create a partnership program.

The Best Time

Figuring out the right time for creating a partnership program is actually pretty straightforward. You should create one when your advisory firm’s leadership is ready.

Partnerships should not be driven by the possibility of losing an advisor or losing clients. The potential to lose clients or lose an employee is a natural part of running a business; it can happen at any time.

Yes, you should focus on retention, but not at the expense of adding a partnership for the wrong people or at the wrong time.

It’s important to recognize that partnership structures don’t work for every firm. They are one way to build the future of a firm, but they are not the only way.

Before you ever reach the point of asking whether or not you should add a partnership program, take a comprehensive look at your firm’s culture. Only firm owner(s) can decide if they want their firm’s culture to be one that is ownership-driven, or instead reward employees well with a compensation-driven environment instead.

Compensation-driven firms and partnership-driven firms are fundamentally different. In the former, employees are compensated for the job they do. In the latter, they get a return on whatever investment they put into the company.

There’s no one-size-fits-all approach for deciding if a partnership program is right for your firm. What is definitive, though, is that your decision should be based purely on the culture you want for your advisory firm and the opportunity you want to create within it — not based on fear.