What Constitutes a Good Business Partnership?

The range of partnership types is broad, from loose referral pacts and still relatively ad hoc wirehouse and independent-brokerage teams, to contract-bound RIA mergers. Whatever form your business partnership with other advisors or practices takes, there are a number of vital considerations to review when developing your new team.

Financial advisors form business partnerships mainly to build bigger practices that are better able to handle change — including transfers to next-generation leadership — more attuned to their clients, and eventually more profitable as a unit than as the standalone practices they used to be.

But there is an unfortunate truth lurking behind all the record-setting M&A activity in the financial-advice industry. In most cases, mergers don’t achieve what their architects had in mind.

Consider these findings from a recent Deloitte study on all M&A activity, not just in the financial-advice industry. The consultancy says the three main reasons buyers and sellers contemplate mergers are:

  1. Expanding customer bases in existing markets
  2. Expanding and diversifying products and services
  3. Acquiring technology

Deloitte also lists the principal factors to achieving success post merger.

  • Effective integration
  • Economic certainty
  • Accurate target evaluation

It may also be worth knowing Deloitte predicts a 79% increase in the number of M&A deals over the next 12 months, a whopping 70% hike over 2018.

Corporate Culture (2)

Establishing The Right Culture

The first and maybe most important ingredient for a successful partnership of advisors is that elusive quality some call “culture” and others call “chemistry.” At its core, the concept of culture in this context boils down to being on the same page when it comes to work — especially around expenses, client service, investment styles, fees, and adherence to the fiduciary standard.

Past that, chemistry/culture can leak into things like business locations, office decor and workplace dress codes. It’s best to be in agreement on such things, large and small, and to make the agreements explicit rather than assumed. After all, a merger of firms may work in terms of the financials but show gaps in cultural terms where, say, a white-shoe firm that caters to Old Money seeks to link its fate with a dress-down outfit that specializes in tech executives.

The plain truth of the matter? Advisors who are successful alone aren’t always going to be successful together. The key to avoiding such an outcome is to implement a strategic compatibility assessment to avoid any unfortunate and unharmonious entanglements that could make your life more difficult down the road.

Communication with staff members is vital, in the run-up to a merger and afterward. Though many advisors hesitate to burden junior colleagues with the details of an evolving deal, the fact remains that these colleagues play a vital role in maintaining client relationships, ensuring operational efficiency, and shaping the public’s experience with your brand. Leaving them in the dark is a mistake that can make them fear for their jobs, start the rumor mill working overtime, and lead to a demoralized staff and diminished outcomes in all areas of your business.

So go ahead and shed light. In fact, an efficient process of appraisal and selective disclosure may suggest specific ways your staff’s participation could advance your practice's prospects in a coming partnership. Team work on this level sets the agenda for handling sensitive processes and key projects that contribute to the assessment phase, and help the unified practice that grows out of the merger to reposition staff in the most effective manner.

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