Why You Need A Pre-Nup Before Signing On To Join A Team

by: Mark Elzweig


Ugly disputes can arise when advisor teams split up.

Vertical teams can be a safer bet than horizontal teams.

Advisors should hire a professional sales coach prior to joining a team.

Teams are the semi-tractors of the financial advisory world. They gain momentum quickly, gathering clients and assets as they rumble along.

But if you don't know how to set the rules for these machines, the crack-ups can be spectacular.

My top tips to avoid an unhappy ending:

  • Research the character of prospective team members.
  • Make sure that a professional sales coach has crafted both a marriage and divorce agreement.
  • Make sure everyone is heading in the same direction.

Teaming up is usually more profitable for advisors. According to a recent PriceMetrix report, advisors on teams manage more assets, produce more revenue, grow faster and retain clients longer than those who work independently. Not surprisingly, teaming has increased by about 25% in the last few years.

Over the years, I've seen a number of great successes among teams. But not all teams are destined for greatness. In my experience, horizontal teams carry somewhat more risk to your business than vertical teams. Vertical teams have the advantage of clarity: a senior advisor is supported by junior team members, who adhere to a clear chain of command. Clients know who's the boss. While junior advisors should ideally be bound by trade secret agreements, if these teams dissolve, there is little risk to the senior advisor's practice.

Horizontal teams are comprised of advisors of equal stature, who often share clients. I've seen a number that work out very well. Yet, when they dissolve, things can get ugly fast. Bitter disputes can erupt as former partners scramble for clients.

Studies abound touting the many advantages of advisor teams. But unless advisors choose the right partners and structure their teams properly, they may be jeopardizing their careers.

Here's one cautionary tale revealed in a defamation lawsuit filed by a former UBS advisor turned RIA. In the complaint, Sid Miramontes says his two former partners at UBS went out of their way to slander him. He accuses his former partners of warning clients that "they could end up in a Bernie Madoff situation," and "causing millions of dollars in financial harm." He also alleges that his former teammates treacherously pretended that they would join him at the new firm while they schemed to poach his client assets. Miramontes claims that they informed the branch manager of his impending move so they could work together to appropriate his business.

So, how can advisors insulate themselves from these potentially catastrophic episodes?

First, advisors need to be circumspect about the character of potential partners. It's best to observe a prospective teammate's behavior in a variety of situations in order to be convinced that they are high-quality, trustworthy people.

Second, a professional sales coach needs to craft a marriage and divorce agreement to ensure that the dissolution of a partnership is as conflict-free as possible. This one simple step can prevent many problems.

Third, team members must endorse a shared business plan and must be pulling in the same direction.

If you're hopping on that semi-truck, make sure you trust whoever is at the wheel and that you like the direction it takes.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.