Should You and a Non-Partner Colleague Transition Together?

There are valid reasons to consider changing firms or models with a colleague. But is it right for you?

“I’m considering leaving the firm,” says one advisor.

“Hey, I’ve been thinking the same. What if we team up and explore together?” says the other.

Advisors have innocent conversations like these all the time—over lunch, at a happy hour, or at the proverbial water cooler.

And the idea snowballs from there.

It’s becoming more common for advisors to explore a transition with another advisor, even if the two businesses are not formally affiliated at the start.

No doubt, the process of conducting due diligence can be a lonely one, so you might reason that it’s better to have someone to share the effort with.

And, should you decide to ultimately change firms, you might also think there’s strength in numbers: Moving a larger book of business could result in a more lucrative recruiting deal and better ongoing economics.

The end result would be a new partner to help shoulder the load of growing or building a business.

Sounds pretty straightforward so far, but there are plenty of caveats to be aware of.

While it might seem counterintuitive for a recruiter to downplay the benefits of bringing additional advisors to the table, the reality is that non-partners considering a move together can mean more complexity and less likelihood that a deal actually gets done.

Why?

Beyond the obvious confidentiality concerns (the more people you tell about your plans, the more risk there is of being found out), it can be difficult to ensure alignment across multiple parties.

And what are the odds that you and the other advisor are on the same page in terms of risk tolerance, the need for upfront capital, the importance of growth, key values, etc.?  

Certainly, there are times when creating scale is better, but there are also times when a smaller and more nimble search process is more efficient and effective—and will lead to a “more right” option. The key is knowing which situation you are in.

Here are three reasons you might consider transitioning with another advisor and three when it makes more sense to go it alone.

Why you should explore together

1. You lack scale on your own.

There are real benefits to scale when it comes to being recruited. Deals tend to ramp up for bigger advisors/teams, and ongoing payouts tend to get stronger too. Especially for sub-$1mm revenue advisors: Teaming can be a great way to both achieve scale and offer more services and a unique perspective to your clients.

2. You would benefit from a partner or teammate down the road.

Plenty of advisors know in their hearts that they belong on a team. Whether it’s for succession planning, client service, idea sharing, capacity constraints…you name it. But they just haven’t made it happen at their current firm. Making a well-timed move can be a great way to solve for this. And it’s not uncommon for friends from different firms to join together at a new firm and launch a combined business.

3. You are comfortable making a difficult decision if there are differences between you and your colleague.

Advisors will often say they are simply looking around together, but plan to make their own decisions. That’s all well and good, but there may come a time when you need to have that difficult conversation with your colleague. (For example, they like firm X, but you prefer firm Y.) The reality is that you need to do what’s best for your business above all else. Even if you ultimately could get on board with what your colleague prefers, that likely means you would have to make some tough compromises. In many cases, that means giving up your version of what perfect looks like for someone else’s because the odds that you and your colleague want exactly the same thing are slim to none.

Why you should explore alone

1. Your business is very complex and/or large.

The notion that there are benefits to size and scale only goes so far. At some point, your business is big enough and desirable enough on its own that there’s no sense in teaming with another advisor or team and creating unnecessary complexity. For example, suppose you manage a book that produces $10mm in annual revenue. In that case, adding another similar-sized advisor probably doesn’t move the needle much when it comes to the type of recruiting deal you can expect to get (after all, such teams are already likely to get the biggest deals on the Street). And it certainly won’t impact a new firm’s appetite for your business: Their interest in you as a standalone will already be plenty robust.

2. You operate better as an individual.

If you plan to conduct due diligence with a friend, you must be honest with yourself. For example, if you tend to work better alone and are adamant about doing things your way, then you may be setting yourself up for failure by exploring with a colleague. There is absolutely nothing wrong with conducting diligence and/or making a transition alone. So be sure you are the type of person who would enjoy having a colleague as part of the process rather than find it a nuisance.

3. You have already looked at many firms or models, and your friend is starting from square one.

Sure, you can explore options with an advisor who is at a different “stage in the game” than you are, but one of you will probably need to make some sacrifices. Usually, this means the advisor who is further ahead and has already looked around has to repeat some initial educational meetings. But you may prefer to have the other advisor “catch up” on their own before jumping into a process together. Ultimately, it’s all about timing, and if you’re not on the same timeline as your colleague, then the move date is likely to be impacted.

Whenever an advisor asks us about conducting the due diligence process with a colleague, we always hedge ourselves. Is it a good idea? The answer is, “It depends!”

So many factors – professional and interpersonal – influence whether or not you are better served exploring together or alone. Even formal teams initially set up as horizontal partnerships (whereby each advisor has an equal voice) struggle with the stay vs. go decision—imagine how complex it becomes when the advisors involved are not teammates.

At the end of the day, remember this: First and foremost, make the decision that is best for you and your business. If that decision also happens to be best for your colleague, too, all the better.

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