In the 1989 dark divorce comedy “The War of the Roses,” the characters played by Michael Douglas and Kathleen Turner go through a process resulting in the mutually assured destruction of each in order to get the upper hand in an extremely contentious divorce. At the movie's end, both Mr. and Mrs. Rose lie dying in their entranceway foyer after the crystal chandelier they were hanging from crashes to the floor. While this might sound a bit extreme in the context of breaking apart an advisory partnership or team, if a “divorce” between two or more business partners or team members is not properly resolved, they similarly could wind up in a bloody heap (at least metaphorically) on the floor of a state or federal courtroom.
As in marriage, no one enters into a business partnership with another with the expectation that it will someday fall apart. Unfortunately, in many instances financial advisory teams implode for any number of reasons — personal incompatibilities, financial disparities, clashing goals. Regardless of the reason, if things are deteriorating quickly within the team, the affected advisor can either wait for the thing to implode in an ugly manner, or get proactive and search for an acceptable exit strategy. As a practical matter, one of the best vehicles for breaking up with a partner is planning a move to a new firm. If the latter course is adopted, then the FA must undertake a thorough and thoughtful analysis of the team and its business. Some considerations are:
- Client relationships
In order to make a move feasible, you must be confident that you will be in a position to move a significant amount of client assets. Do both partners cover all client accounts, or is there a clear definition as to whose clients are whose? The messiest and most difficult partnership splits occur when partners jointly cover all of their clients. How can either partner predict to whom the clients will be loyal? And, in the case of a move, how can a firm be certain that the clients will follow the departing partner? If you are looking to be paid a transition package from a new firm, what you will be paid is based upon the assets that are portable and the revenues that you can duplicate at the new firm. If moving means losing a good portion of your clients and revenue, it may not be the best solution.
Are you the one on the team who brings in the clients? If not, how are you planning to build your practice at a new firm? Is it something you are comfortable with, or are you going to have to align yourself with a “rainmaker” at a new firm?
- The Team/Support Staff
Not unlike a typical matrimonial divorce when children are involved, consideration must be given to who is going to keep the support staff or how to split multiple staff members and junior partners. If you are planning to move, is there someone on your staff that is essential to your business? Are your clients tied to one or more of the people on your team?
- Skill Sets
If your team does financial planning, are you competent to do this on your own? Will you need to change the way you do your business at a new firm and adopt new investment strategies? Will you have to partner with someone else to round out your skills?
If you are going to make a move, do you have partnership agreements that must be reviewed and considered? While the Protocol for Broker Recruiting will not preclude you from moving to another Protocol firm, your partnership agreement with your existing team members might have some kind of proscription against taking clients and accounts which is not governed by the Protocol. What if you and your partner maintain separate clients? How will your partnership agreement govern this scenario?
Doing the due diligence for a move to a new firm is a great way of addressing the issues set forth above while putting your toe in the water to see if a firm change makes sense.
Divorcing oneself from a business partner doesn't have to result in a bloody “War of the Roses.” Thorough and systematic analysis of your current team's strengths and weaknesses (paying particular attention to your own) as well as looking ahead to what you want to accomplish and how you intend to do so, will hopefully allow you to turn a bad and contentious situation into a happy and content one.
Mindy Diamond is president of Diamond Consultants, of Chester, N.J., which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com.