Partnerships and the concept of teaming come in all shapes and sizes. Some primary reasons to partner with another advisor or firm include:
- Adding/Retaining talent
- Expenses/Economies of scale
- Succession strategy/Exit plan
- Culture/Desire to be a part of something bigger
Most partnerships work exceedingly well but we have all heard horror stories on partnerships gone bad. There are many benefits that come with teaming, whether it is with a peer or an up-and-coming junior partner within your organization.
However, it is best to plan for the worst and hope for the best, and not vice versa. This means that if you have a partner, or partners, you should have an agreement in writing in the form of a Partnership Agreement, Shareholder Agreement, Buy-Sell Agreement, etc.
These agreements can serve many purposes and the contents vary widely, but, the goal is consistent:
- Protect all parties involved
- Reduce potential conflict
- Ensure the business can survive a break-up without the clients suffering
So, what is typically in a partnership agreement for a financial advisor? The following is a short list of basic partnership agreement inclusions:
- Initial contributions
- Nature of the business
- Roles, duties, and titles
- Compensation and expense sharing
- Voting rights and things that require a vote (i.e. large expenditures, encumbering the company, admitting new partners)
- How disputes will be resolved
- How profits (or losses) will be handled
- Buy-out provisions in case of an owner’s death/disability
- Non-solicit/no-serve clauses for firm clients
- Valuation methodology (based on a variety of possible triggering events)
There are also a variety of interesting optional provisions that can be included, a few examples are:
- “Shotgun Clause” which is designed to ensure a buy-out can/will occur if there is ever a dispute that cannot be resolved.
- Drag-along/Tag-along language that ensures no one holds up a sale, or gets left out of one.
Partnership agreements may be long and comprehensive or they may be short and concise. The key is to have a plan that helps provide written structure for the relationship in case there are ever disagreements or issues that arise.
It would be our pleasure to have the experts we work with speak with you about Agreement types, structures, basic and optional clauses, and other items to consider.
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