What approach to partnership works for you?

The word “partnership” is loosely applied to a wide variety of arrangements between advisers. Such arrangements vary…

The word “partnership” is loosely applied to a wide variety of arrangements between advisers.
Such arrangements vary from sharing expenses to creating legal business entities.
The following factors can be mixed and matched to form a relationship that may be referred to as a partnership: shared business expenses such as rent, shared staff, pooled production to increase payout, shared company name for joint marketing and branding, shared clients with split revenue, shared liability, shared vacation coverage, continuity or succession arrangements and legal-business-entity formation.
However, you define a partnership, a few of the more commonly cited benefits of working with a partner include reduced expenses (because you share them with someone else), intellectual stimulation, similar or divergent expertise and a potentially lighter workload.
Plus, you get to enjoy camaraderie and develop synergy with the intent of building something that is bigger than what you can build on your own.
What approach to partnership is right for you? Short of forming a legal business entity, you might want to pursue some of the variables listed above. But no matter what type of partnership you’d like to consider, be prepared. Each approach has pros and cons. For example, as partners share expenses, overhead costs per individual will decrease. The more you share, however, the more you may need to compromise.
Partnerships come with some perils. For instance, ego issues can arise when you are deciding who is in charge of what. In addition, the unexpressed expectations and assumptions individuals have when a partnership is created can result in disharmony. Finally, financial and emotional tolls can result when there are conflicts or breakups.
Sometimes there can be pre-indicators of these problems: long-term inequality in revenue production or an unequal workload distribution, such as one partner being overburdened with non-revenue-producing activities.
Also problematic are interpersonal conflicts that are not addressed and stylistic differences when interacting with staff or clients. Additionally, perceived ethical issues in the financial planning process or differences in opinion on how the firm should be managed can emerge before the partnersip is formed or in its early stages.
A solid partnership is similar to any solid relationship; it requires communication, tact, time and tenderness to develop and thrive. It’s almost like a marriage, except that one likely sees a business partner more than a spouse.
Finding a partner is a serious step requiring conscientious soul searching. Do you consider people you know and you seem to click with, or do you mount an official search to seek out a partner? Do you look for someone who is like you or different from you? Do you look for someone close to you in age or of a different generation?
It would be wonderful to have easy answers to these questions. Since there are no clear-cut answers, potential partners should start by being explicit about their respective values and how they play out in the workplace.
To avoid predictable pitfalls, discuss the following in advance and then put decisions in writing before a partnership is formed:
What roles will each partner play? Who will hire and manage employees, hire vendors, pay the bills or authorize payment, handle compliance issues, address technology needs, focus on office efficiency, and so on?
What is the initial and expected cash commitment of each partner during the first two years? Write a budget and project revenue and expenses. Get in the habit of creating an annual budget so there are no surprises.
How will each partner be compensated? Does each partner receive a salary? Are draws allowed? Is compensation based on individual, joint or combined production? What percentage of profits will the company distribute or retain? What happens if production gets so misaligned that one partner feels that they are carrying the other?
What is the business plan? A written plan should include a business vision statement, a mission statement, the strategies the company will embrace over the first three years and goals to be accomplished in the first 12 months. Any goals should be specific, measurable and time bounded, and should include the name of a partner accountable for the goal.
How will decisions be made? Does one of the partners have more decision-making responsibility and power than others? Do some decisions require discussion and consensus?
What steps will be taken if a partner leaves? How will the revenue and expenses that rightly belong to the exiting partner be distributed and collected? What are the succession steps in the case of a planned exodus of one of the partners?
When will the partners meet to discuss the business? This is critical. At least a specific, monthly meeting with a written agenda and documentation of decisions made is important to preventing problems and keeping partnerships healthy.
Tread carefully and conscientiously when pursuing a partnership. A successful partnership requires a combination of innate shared or compatible values combined with the implementation of best practices for preventing partnership pitfalls.
Joni Youngwirth is vice president of practice management at Commonwealth Financial Network in Waltham, Mass. She can reached at jyoungwirth@
commonwealth.co and