Advisers who have lived through the split-up of a practice say it's as gut-wrenching as a divorce. Here's what they've learned.
Peter J. Raimondi walked away from The Colony Group 20 years after he launched the Boston advisory firm with just nine clients.
After expanding the firm to 650 clients and $900 million in assets under management, he wanted to shift the business focus toward asset management, a move that he had decided was key to further growth. His partners didn't agree, so he left.
PAINFUL SPLIT
Eight years after the breakup — even after building a new Palm Beach Gardens, Fla.-based firm, Banyan Partners, to $4.5 billion in assets under management — Mr. Raimondi still vividly recalls the pain of the split.
He compares it to what a divorce must feel like, though he has actually been married for more than 37 years.
Mr. Raimondi negotiated an exit with The Colony Group that provided him with a “generous” check in exchange for abandoning all but 10 to 20 long-standing clients. Many of those clients, but not all, followed him.
Mr. Raimondi also agreed to depart The Colony Group without a goodbye or even an explanation to the firm's 55 employees, most of whom he had hired.
“There was a lot of fear around my leaving — that I was going to disrupt the company and take clients,” he said.
“That was crazy. I was proud of the firm I had built,” Mr. Raimondi said.
The last thing he wanted was to “exact any kind of penance” on the firm when he left.
“The Colony Group was my baby. I gave life to it,” Mr. Raimondi said.
“I had a lot of respect for the people who worked there, and I had no interest in damaging the firm through my departure.”
LIVES UPENDED
Few financial advisers will openly discuss their partnership failures, but the consultants who help advisers with breakups and aid in putting the pieces back together for advisers who split said that many don't recognize the emotional impact they will face. The lives of their staff are also turned upside down.
In addition, the aftereffects of partnership breakups deserve serious consideration because of the collateral damage experienced by clients.
“It can be as devastating as a divorce in a marriage,” said Mindy Diamond, chief executive of Diamond Consultants Inc. “Just as the children are the ones who feel the stress in a divorce, the clients feel the stress when advisers split up.”
Clients may get calls from both partners seeking to continue their relationship, which can be nerve-racking and confusing for the client to have to choose.
Some clients worry that they — and their portfolio performance — will suffer during the course of the breakup and decide to abandon both advisers, Ms. Diamond said.
Clients can even be drawn into legal cases that can erupt when partner deals go south.
They could be asked to report to a judge or mediator about when a departing adviser first contacted them, according to Corey Kupfer, director of entrepreneur services for MarketCounsel.
Several consultants stressed the importance of having formal, detailed partnership agreements so that partners don't misunderstand the firm's intentions. The written agreements should spell out how the assets, clients and staff would be divvied up under different breakup scenarios, including how a partner's interests would be monetized if he or she walked away from the business.
UNEXPECTED TWISTS
Ms. Diamond saw a partnership misunderstanding play out when an adviser joined an older adviser in business because he thought that it was an opportunity to be the heir apparent.
But after 10 years together, the older adviser's son joined the firm from another industry, and the partnership wasn't executed the way the younger adviser anticipated, Ms. Diamond said.
A written agreement can help avoid these costly misunderstandings, though no senior partner will be willing to sign an agreement spelling out exactly what will happen in 10 to 20 years, she said.
“In this case, how could this older adviser have had any inkling that his son would leave an entirely different career to join the firm?” Ms. Diamond asked.
Some situations build to spectacular blowouts between partners that lead to separation, but most advisers split up because they have different business goals or personal ambitions that can't be pursued within the current structure, Mr. Kupfer said.
In other circumstances, the partners just stop getting along, he said.
“Sometimes people don't really do the right type of due diligence — the cultural due diligence — that they should,” Mr. Kupfer said. “Those relationships break up pretty quickly, in about two to three years.”
Sometimes unique situations arise that no one could predict. But the damaging impact to the firm can be the same.
One senior adviser, who asked not to be identified, said that his firm has been turned upside down over the past year and a half after one of the firm's partners brought his wife into the business and she caused trouble with longtime employees.
Now there's great speculation that this high-producing partner is on his way out, which would force the firm to lay off employees, the adviser said.
UNHEALTHY RELATIONSHIPS
Not all feuding partners dissolve their partnerships. But staying together can cause problems and create a dysfunctional environment.
“In some situations, partners who disagree choose to just ignore each other, and they stay locked together, which is very difficult for people who work at the firm,” said Beverly Flaxington, principal at The Collaborative. “A lot of advisers live with the pain, maybe because they don't want to sell at a price they believe is too low.”
“When breaking up a team that has worked together for years, it's going to have a massive impact on everyone involved,” said Karl Gretz, president of Gretz Consulting.
The entire team, including the partners, should seek counseling before a split, just as couples wishing to divorce should seek help, he said.
Mr. Raimondi chose entrepreneurial partners when creating Banyan Partners in 2008.
The firm has 33, and each is invested in its success, he said.
“People here are partners because they wanted to become part of a very high-growth firm, which is what we've created,” Mr. Raimondi said. “After all, they parted with their own money to become partners, so they know they have skin in the game.”
