Partnership Warning: Do You Know What You’re Getting Into?
Posted by Angie Herbers in UncategorizedA few (what seems to be) ages ago, I started my consulting business by giving career advice to young professionals and career changers entering the planning profession. It was, and still is, one of the most enjoyable things I do.
The questions asked by you have changed over the years. In the past, they were like the following: How do I find a job in the profession? What type of business should I work for—fee-only, brokerage, independent? What should I expect for a starting salary? How do I add value to the firm I am working for? How do I ask for a pay raise?
Today, economics have helped answer those questions. For example, with the current shortage in supply, it’s not as hard to find a job, and most people want to work for independent advisors. We now have lots of research on what constitutes acceptable salary ranges and how to determine your value to the firm. However, there is still little information about being a partner in a firm.
Recently, I received several e-mails from readers asking me to help you sort through a partnership arrangement that you have been offered. While I think it’s great that the industry is finally coming around and realizing that partnership is the best retention tool for your talent, I have seen only one good arrangement and a lot of really bad ones. To put it bluntly, ones I would never consider taking myself or offering to anyone else. What scares me about these arrangements is that many young professionals believe they are good.
The detail of what should be included in a good partnership deal is a discussion for a much larger forum. But the one piece of advice I can give you is the following: Don’t sign on the dotted line without first consulting your own advocate. It’s worth the money in time, effort, and emotions to hire an attorney to review and represent you in any partnership arrangement. This is your future too, and unraveling a bad arrangement is much harder and emotionally draining than signing a good one to start with.
I welcome any of your thoughts on the partnership deals that you have been offered or offered to others. Together, we can work through what is good and what could be better for all parties involved.
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I agree that a partnership offer by a registered investment advisor firm shouldn’t be accepted without the new partner’s attorney reviewing the offer before its acceptance. It’s at the offer stage that a new partner might have the most leverage. Unfortunately, many new partners do not understand the long term implications of certain restrictive covenants associated with the partnership agreement.
Is there a non-solicit, non-compete and/or confidentiality restriction imposed by the partnership agreement (or ancillary documents) for activities following the partner’s subsequent departure from the partnership? If structured correctly by the partnership, these restrictive covenants are legally enforceable and can tie up a partner’s future options.
Does the partnership agreement require a departing partner to give notice for a specified period before resignation? This type of notice of resignation provision tied with the duty of loyalty provision are used by partnerships to prevent a partner from immediately resigning or giving notice of resignation and soliciting clients during the interim period. After providing the departing partner gives notice, the remaining partners often use this interim period to recruit/retain the departing partner’s clients while the departing partner has to stand on the side lines and cannot communicate with his clients.
Bryan Hill, Esq.
Omaha, NE
(This is not legal advice. A reader should contact his or her attorney to discuss his or her particular situation and the applicable local laws.)
Trying to understand the sentence: “For example, with the current shortage in supply, it’s not as hard to find a job, and most people want to work for independent advisors.”
Yes, I too wish to enter this career space on the RIA side rather than the sales side, and I did just finish my CFP program and took the exam in July, finishing at the top of my class.
I don’t see where the opportunities are advertised for independent RIAs who are trying to grow their practice and mentor a new generation of planners. Not monster.com, not careerbuilder.com, not napfa.org… I attend and try to network at my local FPA but nothing has yet materialized. Any advice?