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Key Changes To Make During A Partner Buy-In

Buying into a financial advisory practice can be a very exciting endeavor. The potential to grow professionally and personally are what often drives advisors to make this change. An equity purchase doesn’t just impact the advisor. It has a tremendous impact on the practice too, often requiring some structural and cultural changes that will reflect the new dynamic created by the new partner.

Updated Entity Documents

One of the first things to change are the legal documents that define the structure and ownership obligations of the practice. If using third-party financing, a lender will require updated entity documents before the purchase can be completed. Articles of incorporation, purchase agreements, stock certificates, partnership agreements, and any other legal documents impacted by the purchase must be updated.

Cultural/Personal Dynamic Shifts

Adding one or more partners also changes the dynamics and relationships among all members of the practice. It’s important to define how decisions will be made, arbitration methods, as well as roles and responsibilities. Its best to hash out these details before the transaction takes place. One of the biggest challenges in an equity purchase comes from conflicting assumptions or unspoken expectations. Things that may seem obvious or unnecessary to define and clarify often creep up later as a major source of friction in the partnership. Create an open dialogue early and keep it open to address any concerns as they arise.

Operational Changes

Adding a partner will often create a need to change at least some of the way you do business. Internally, this may mean creating partner meetings, planning sessions, dividing up and assigning responsibilities, among other things. Externally, this may mean a shift in how you take care of clients. If an equity purchase is part of a succession plan, it makes sense to start introducing the new partner to clients and making them part of the ongoing client relationship. This way, when the time comes to exit, clients already have a strong relationship with your successor.

Many changes can be addressed before the purchase is complete, but sometimes the need for operational changes doesn’t show itself until some sort of issues manifests in the process. Having an ongoing dialogue and regularly review and assess how the new partnership is impacting the practice. You may also want to engage a M&A or Practice Management expert to help you address partner dynamics and help you identify and address best practices for navigating the evolution of your practice.