Thinking of partnering with another advisor? Get to know him (or her) very, very well.
"Be sure you both know what you really want," says Sean Montgomery, chief financial officer of The Bridgeway Group in Southern California, who recently embarked on a partnership deal of his own.
"Find out what values are most important to both of you," Montgomery adds. "If they don't match, the partnership won't work. Once you're married, so to speak, you don't want to get divorced, because it's very messy."
Montgomery and Matthew Dupon, Bridgeway's chief executive, went through a rigorous process to vet their new partnership -- a combination of the pair's separate namesake firms that debuted this week. The new combined firm will be headquartered in Pasadena, Calif., but will maintain Montgomery's office in Covina as well.
Here are some key takeaways from their experience:
A shared history helps.
Montgomery first met Dupon 13 years ago when they both worked for Financial Network, a progenitor of Cetera Financial. The two men were only two years apart in age (Montgomery is 39, Dupon is 41) and gravitated toward each other at training sessions where most of their colleagues were 20 or 30 years older.
They liked each other, kept in touch and both moved to Commonwealth in November 2013, with an eye toward an eventual merger.
A good IBD helps even more.
Montgomery says their partnership wouldn't have happened without Commonwealth. "We were blow away by what they do for advisors," he says. "We worked with their practice management team that specializes in creating ensembles, and they helped us lay the groundwork. Then they pushed us along, setting up meetings to meet objectives, which was critical because otherwise everyday business takes over.
"My advice to anyone thinking of partnering is to lean on your B-D and see what resources they have," Montgomery says. "And if they don't have what you need, think about finding a new broker-dealer."
Cover the soft stuff first.
"The touchy-feely stuff is really important," Montgomery says. "You want to make sure you have the same ideas, values, vision for the business and an understanding of what you want out of life."
As it turned out, both Montgomery and Dupon agreed that they didn't want to be tied to their desks all week. They both had young families they wanted to spend time with and avocations they didn't want to give up.
And they both saw leveraging technology as the key to, as Montgomery puts it, "properly serving our clients without having to spend all our time in the office."
Without that cultural understanding, he says, there would likely be too much finger-pointing about putting in hours.
Be frank about your plans.
Put all your cards on the table when it comes to business, the two suggest; both partners need to be clear about their investment strategies, target clients and other operational issues and goals.
Montgomery and Dupon both say they spent considerable time laying out their vision of the business so there would be no surprises later on.As it happened, they agreed on most things and agreed to disagree -- at least for now -- on what clients' minimum investable assets should be.
"Not everything has to be written in stone," says Theresa Mahoney, the firm's director of wealth management. "There's enough mutual respect and understanding between Sean and Matt to allow for things to be worked out over time."
A continuity plan is critical.
"We were very concerned about what would happen to clients if anything happened to either of us," Dupon says. "As fiduciaries, we felt it would be irresponsible if there was no continuity plan in place."
The biggest challenge in formulating a plan was agreeing on the best way to pay off the other partners' family if one partner died or is disabled, says Montgomery. Dupon, who joined his fathers' practice, brought about $160 million in assets under management to the partnership, while Montgomery contributed around $65 in AUM.
As a result, they agreed to a valuation of two times recurring revenue that would be paid off over time, like an earn-out. The surviving advisor would keep 50% of the existing revenue and pay out the other half using the agreed upon formula.
- Continuity Planning: Protect Your Clients & Practice
- How to Pick the Right Junior Partner
- Easing the Pain: A Financial Planners' Guide to Succession Planning
- 9 Tips for Teaming Up