In our last article, we wrote about the importance of developing and maintaining partnerships within an advisory firm. We want to continue that discussion, but this time focus on the partners often forgotten: those outside the firm who have purchased equity in a business but don’t participate in its operations, as well as strategic partners who provide critical resources.

The rapid pace of acquisition in our industry has led to hundreds of firms with investing partners—who own a substantial amount of equity. These partners enjoy a variety of contractual rights allowing them to participate in the governance and perhaps also management of advisory businesses, though they mostly try to leave the firms to operate the way they did before the deals were struck. However, when firms simply forget about their capital partners and don’t nurture the relationships, it can lead to resentment.

Strategic partners are different. They might be CPAs who both offer tax help to advisors and bring in business. Or they might be custodians offering leads out of their branch offices. Again, these relationships can turn sour and dysfunctional if the partners don’t communicate and don’t understand each other’s goals.

Are We Really Partners?
Just because you have a relationship with somebody, that doesn’t make them a partner. To earn that title, they have to play a role in your life—or your firm.

Take a private equity team, for example. If they own shares in your company, they are your partners. It doesn’t matter how passive their investment or how often they make business decisions with you. They’re on your tax return. Which means you have an obligation to share your plans with them, seek feedback and tell them what the true state of the business is.

Advisory firms often come up with elaborate plans without ever asking these important partner questions:

• How would our investment partners perceive these plans?
• Are our plans congruent with their goals?
• Could our partners contribute resources or perspective to these plans?
• Should we invite them to participate in the creation of the plans rather than just inform them?

Strategic partners are more complicated. How you treat them depends on how important they are to your success. For example, if you own a restaurant and buy your produce from a supplier, that supplier is not necessarily your strategic partner (just your vendor). But if you market yourself as a “farm to table” restaurant, the farmers are your partners. Why? They’re an integral part of your business strategy.

The same goes for advisory firms: If half your growth comes from the branches of your custodian, then that custodian is your strategic partner. If advisors join your firm because of your affiliation with an accounting practice, that practice is also your partner. (And its partners will also typically own some of your shares.)

How Does Your Partner Measure Success?
A good way to measure a relationship’s success is by understanding how the partners measure the success of their goals.

For example, firms acquired by private equity often assume that it’s enough to stay profitable and just mail the checks to the PE co-owners. In reality, acquirers are often looking for growth, specifically same-store sales growth—which was likely one of the assumptions they used when valuing a firm before its acquisition. The disappointment that follows a failure of profit growth can be severe: The private equity team will likely feel the acquisition has failed to perform, and the advisory firm will be confused about why the checks they’re writing aren’t winning them any goodwill.

Broker-dealers’ and custodians’ relationships with advisors are different in nature, but the problem is the same: Their ideas of success and the advisor’s might be different. For example, a custodian’s idea of a reasonable growth rate may be very different from an advisory firm’s.

So it’s important for you to understand and openly discuss with your partners what they define as success. When you skip that conversation, mistakes happen.

How Do They Relate?
So how do you deal with your partner? Whom do you call to stay in touch? And how?

Many companies have designated relationship managers trained and empowered to connect with your advisory firm and bring resources to the table. These contacts are meant to be the “door” to the resources of your partner company and can initiate contact with other parts of the organization.

Unfortunately, advisory firms often bypass the relationship managers and look for resources or support directly from a department or an executive. In doing so, they often arrive at the wrong person or department and leave much confusion in their wake, and this can cause a disconnect with the partner.

Sometimes, of course, it’s important to play the “executive access” card and seek out a high-ranking person directly, especially when it involves strategy or approach, the repricing of the relationship, significant staff departures or personnel issues, contractual challenges or other problems that could greatly affect the relationship. If it’s a problem of great sensitivity, one that involves confidential information, that might make it difficult for an advisor to use the normal channels.

Understand Your Partner’s Culture (And Politics)
Perhaps it’s starting to sound like working with a strategic partner is a complicated and political process. Yes! It is! Large organizations are complex, and the larger they are, the more political they become. You’ll work better with your partner firm if you understand its culture and know its politics. It’s the same as when you drive a new car and want to take the time to learn what all the buttons do.

For example, many advisory firms partnering with accountants fail to grasp the unique culture. CPAs are trained to exercise “professional skepticism” and objectivity, so it’s unrealistic and counterproductive when you expect them to be enthusiastic early adopters or approach clients with exciting but untested ideas. Just as waving a French waiter to your table will get you an evil eye and slower service, pushing CPAs in the sales direction will increase their resistance.

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