The ABCs of Exploring Partnership Opportunities

exploring-partnershipsOriginally published in the May 2013 issue of FSIVoice.

Among the many impacts of the much-discussed macro factors influencing the independent advisory industry today — generational pressures on both the advisor and investor side of the business; Baby Boomers transitioning en masse into retirement; rapid changes in technology and corresponding effects on consumer behavior — is the increasing attractiveness of strategic partnerships among financial advisors. Some industry experts believe that the advisory landscape today has simply become too complex for many solo practitioners to navigate alone.

Developing complementary partnerships that will prove stable — and profitable — over time, however, is as much art as science. How can veteran advisors considering partnership opportunities with other established practitioners take a strategic perspective on their options?

David Pintaric, President of WRP Investments in Youngstown, Ohio, has had the opportunity to facilitate and observe numerous partnerships between advisors during the course of his 26-year career. He recommends that advisors start with a focus on their clients’ needs in order to assess their initial partnership priorities.

Pintaric notes that many clients’ needs cut across several of the four pillars of financial planning — growth, income, asset protection and generational transfer — yet each of these areas has become so rife with complexity in today’s landscape that it is nearly impossible for any one individual to effectively handle them all alone.

“In order to be in this business, an advisor should be proficient in one of those four areas,” says Pintaric. “But it is unreasonable to think that anyone could be an expert in all of them. Therefore, you need to have individuals within each firm that have balancing specialized expertise.”

In forming partnerships, he says, advisors should combine a holistic understanding of their clients’ needs, with a realistic assessment of their own strengths and weaknesses.

“Finding a good partner for your practice often comes down to finding a person who can shore up your own weaknesses,” says Pintaric. In his experience, partnerships that start with this focus on the client — rather than seeking to expand product or service offerings for their own sake — tend to be more successful over the long term.

Craig Towle has also helped numerous independent advisors think through, initiate and structure successful partnerships, in his role as Executive Vice President of Tampa, Florida-based J.W. Cole Financial. Towle notes that a shared sense of values is crucial in identifying a partner who can help grow and strengthen an advisor’s business. Without a commitment to common values, the partnership will struggle to fulfill its long-term goals, like many other organizations in which strategic visions are not aligned.

“You have to find someone that is motivated by the same things you are, because if not, all the other complications that can arise in a professional partnership tend to fester and pile up,” he says. “When you find another professional who has the same focus you have regarding, for example, serving clients a certain way, the details of who provides the expertise on either side don’t matter nearly as much.”

Once a strong fit between potential partners has been identified, the next question is how to formalize the arrangement and integrate the two practices.

Towle notes that formal partnership structures tend to fall into one of two broad categories: ensemble practices, in which the advisors share revenue and expenses according to various service breakdowns and internal agreements; and “silo” practices, in which revenue and expense sharing — as well as sharing of internal resources and collaboration on client accounts — is handled more on a case-by-case basis.

For many partnerships, the looser “silo” format may be more straightforward to implement. “Forming an ensemble practice can be very difficult — it requires the right type of advisors, the right type of management, and really takes a serious investment to provide the right kind of infrastructure for the firm,” he says. “That said, it may be the best model for some practices.”

Towle also points out that, regardless of the model, potential partnerships between established practices can encounter difficulties if they underestimate the challenge of integrating their back-office operations and technology platforms. “One of the most overlooked parts of the business is having an integrated set of technology resources that will free up time to allow partners to meet with clients and develop new business,” he says.

Either way, building a true partnership is not something that happens overnight. Often, says Towle, it is a long and arduous process that can take a decade or more. “Forming successful partnerships is difficult and requires an advisor to really have strong relationships throughout the industry,” he says.

“In that respect, membership and participation in FSI can be extremely helpful, since it can help advisors get to know other professionals in the industry who might be a good fit as partners and enable them to identify opportunities to work together to grow their businesses over the long term.”

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