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Hewlett-Packard, Procter & Gamble, Ben & Jerry’s. You likely think of these as well-known brands, but they’re also companies founded by successful—and arguably fateful—partnerships.

For example, Hewlett and Packard were fellow engineering graduates from Stanford; Procter and Gamble were married to sisters; and Ben Cohen and Jerry Greenfield were childhood friends. All these partners founded their companies together, from day one.

For established advisors, finding a partner will likely require a broader search, as well as an understanding of unique business requirements.

Filling a skills gap to increase a firm’s offering menu is a key reason why professional service firms merge, says John O’Dwyer, adjunct professor and executive-in-residence at the University of Toronto’s Rotman School of Management, citing his own research. (Two other main reasons are to expand geographically and to capitalize on scalability.)

Mario Loreto, senior executive financial consultant at M.J. Loreto & Associates, Investors Group in Toronto, can relate to examining his offering.

“There were certain areas of my practice where I wasn’t fulfilling the clients’ needs,” says Loreto, about his search for a partner. He’s built his business on a service model over the last 26 years, and realized he required a CLU who could conduct risk management for the insurance side of his practice—a significant part of his book. “The conversation in insurance took a skill set that I found myself personally not up to standard with,” he says.

In addition to that skill set, Loreto recognized the need to start planning for succession by choosing a younger partner; Loreto was 50 as he started his search.

Read: Start planning for succession sooner than later

At that time, his future partner also worked at his firm, and Loreto observed his skills as a division manager—a position Loreto had also held. “That’s like military training,” he says of the position. “If you’re a division manager and you’re running your own practice, you’re something special.”

Similarly, Rob Pollard, senior vice-president and portfolio manager at the Wyndham Group, Raymond James in Toronto, looked for complementary skills in a partner. “I’m the face of the practice,” he says, referring to buying other books of business and bringing in clients. “When it comes to the details of financial planning, that’s not my skill set.”

His chosen partner, a CFP, brings to the practice a detail-oriented financial and tax-planning process, Pollard says.

The heart of the matter

But skills are just the starting point for choosing a partner.

“I’ve seen and interviewed planners from across the city who are brilliant, and yet who are missing that one element,” such as “a sense of integrity, perhaps some responsiveness, a sense of responsibility,” says Loreto.

He was looking for “a worrier”—a shorthand way of describing himself and the diligence necessary to run a successful service-oriented practice. “Had this person not reflected my own personal approach to the business, which is service first, he wouldn’t have lasted,” Loreto says.

Further, Loreto wanted his partner to reflect his personal service code, which includes empathy—specifically empathetic listening. “So many people in this business are not pastoral,” he says, adding that clients need their advisors during life’s crises.

Over casual office discussions—about planning a child’s birthday party, and juggling both a family event and a client meeting on a Sunday—Loreto assessed that his future partner, Sean Ryder, had the qualities he was seeking. The discussion was heartfelt, says Loreto, making Ryder stand out from the crowd. “I could work with this,” Loreto remembers thinking.

And work he did, putting Ryder through the paces. When they began working together, Loreto explicitly told Ryder that empathetic listening was mandatory, and he helped his new partner develop the skill. For example, Loreto followed up with clients who met with Ryder, and subsequently provided his new partner with tips to improve his soft skills, such as refraining from filling uncomfortable conversational pauses with solutions.

Pollard, too, notes the importance of soft skills. His partner, Wilson Chen, moved to financial services later in life after a career as a dentist, which he left because of its physical demands. Despite having relatively less industry experience, the dental background means Chen “understands the client’s perspective,” says Pollard.

He also notes that Chen is “a very humble person” when asked about their differences in industry experience. “He didn’t feel his vote counted equally right from day one. Just because you’re equal partners doesn’t mean you’re going to be equal in everything you do,” Pollard says.

In the beginning, that inequality applied to most everything, says Pollard, including revenue and expenses. (They now split revenue equally.) However, he adds, each partner’s skills should be equally valued: bringing in clients is no more important than providing good-quality service behind the scenes.

Both partners are required to achieve a common goal, he says, likening business partnership to marriage.

O’Dwyer, too, invokes the M-word, saying partnerships are about relationships. “Fit is the key thing,” he says, regardless of the strategic, rational reasons for a merger.

The value of a good fit

Specifically, a successful partnership reflects a fit of personal values, says O’Dwyer.

As Loreto’s search for a worrier shows, he instinctively knew his perfect fit was someone who reflected his value for service. Similarly, Pollard demonstrates the humility he values in his chosen partner by admitting, “When it’s not smooth sailing, more often than not that’s because of me.”

A partner’s values can be assessed by their actions, says O’Dwyer, as “underlying most behaviour is values.” He adds that, when it comes to aberrant behaviour in organizations, “there’s usually some ego involved,” as people put themselves ahead of the organization’s goals.

To avoid that in a partner, “you need somebody with such a strong ego that they have no ego needs,” he says. That way, the partnership will stand united in the face of problems. “You and me against the problem,” he says. “Not you against me.”

O’Dwyer says that a fit of values in business is demonstrated by such things as risk tolerance and how revenue is split—for example, wanting to share revenue 50-50 versus calculating revenue separately.

To assess fit in business strategy, he cites the foundational strategy question from A.G. Lafley and Roger Martin’s Playing to Win: How Strategy Really Works. That question is: What’s your winning aspiration? Partners should be aligned in their answers, says O’Dwyer. A vision for where the business will be in three years or so should also be discussed and agreed.

Partners don’t need to think alike, he says, as intellectual diversity is an asset. But they must work well together.

Ryan Stover, co-founder at WhiteWater Financial in Toronto, says he and his partner had a common vision when they founded the firm: to build a boutique service for wealthy clients with private corporations. He describes the fit as a complementary, agile one, with both partners serving each client and taking on tasks they do best. “We can both step in at any given time,” he says. Accordingly, revenue is split 50-50.

Besides answering questions about a business vision—and about personal challenges, as Loreto’s partner did—values can be assessed by simply spending time together and observing behaviour. That includes sharing meals, coffee or a round of golf, says O’Dwyer.

Pollard had more than a couple of decades to observe his partner’s behaviour: he employed Chen in a business he ran in his 20s, and they’ve been friends since. From that time together, “I already knew we got along personally, which was key,” says Pollard.

Plus, the job revealed Chen’s strong work ethic. “If somebody’s going to come in here and coast, that wouldn’t work,” he says. “They don’t have to work the same way as me, but they have to work hard.”

Stover also knew his partner, Chris Annett, for many years, both personally and professionally, before they co-founded the firm. “There was a comfort level that was there to begin with prior to even discussing any business opportunities,” he says. And, with their common networks, Stover knew his partner was well-respected and client-oriented. “Through his personality and work ethic, we just knew that things were going to work out,” he says.

Ultimately, a good fit leads to trust. Both Pollard and Stover say they and their partners don’t have to check up on each other, which leads to a more efficient practice.

For Loreto, a final, deciding factor on partner choice was family approval.

“I wouldn’t have chosen my partner if my wife didn’t like him,” he says, recognizing the importance of spouses as decision-makers—including surviving spouses. “My partner must deal with my spouse if I were to die prematurely,” he says, as well as with clients’ spouses. Knowing his partner is up to the task gives Loreto peace of mind.

Good riddances

Case studies reveal that partners ultimately break up because of relationship breakdown, says John O’Dwyer, adjunct professor and executive-in-residence at the University of Toronto’s Rotman School of Management. To avoid that, it’s best to assess beforehand whether potential partners align on values and business strategy.

To reveal those values, O’Dwyer suggests potential partners try the founder’s pie calculation. The calculation is used to assign shares, and is based on various criteria that must be agreed upon by the partners. O’Dwyer recently facilitated the pie exercise for potential startup partners. When it became clear that the partners couldn’t agree on the criteria of the shareholding split, they went their separate ways. “They still remain friends,” he says, likely in part because they avoided a bad partnership.

Rob Pollard of the Wyndham Group, Raymond James in Toronto, says he and a previous associate became partners for a time but realized they had to part ways because of a poor personality fit. “I enjoy working in teams; he likes to work on his own,” says Pollard. “Not everybody’s meant to be married.” They split their clients when they broke up.

When partners who have their own books of business merge, Pollard suggests keeping respective clients coded separately in the initial years. “In the case of a divorce, you can at least separate those clients pretty easily,” he says, though ownership of newer clients might be called into question. Typically, newer clients belong to whichever partner talks to them most. “The client decides at the end of the day who they want to be with,” he says.

A partnership agreement is a must, adds O’Dwyer, and should include a shotgun or exit clause, and a pre-agreed valuation method and payout terms in case of a partner’s death, for example. Actions impacting the reputation of the firm could also be covered.

Pollard says his partnership agreement includes insurance coverage in the event of such things as death or disability.

Mario Loreto of M.J. Loreto & Associates, Investors Group in Toronto, says certain protections are built into his partnership contract. For example, a formal agreement between him and his partner sets compensation for the coming 12 months and can be renewed annually. “We can adjust the compensation as necessary based upon who’s doing more of the work,” he says.

In addition, an agreement addresses the ongoing success of Loreto’s book, two years after transfer to his partner, who will succeed him. If assets leave, the contract can be adjusted to reduce compensation contractually owed to Loreto.

“There are also protections built into the contract for my estate, should I predecease the contract timeframe, as well as assurances that I must remain part of the practice for a set number of years in a full-time capacity as an IG associate,” says Loreto.

Also read:

When good partners go bad

Should you go into business with a client?

Originally published in Advisor's Edge

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