For much of financial planning's history, the only way to be a financial planner was to build your own financial planning business, either alone or with a partner or few. As the industry matures, though, it is increasingly common for financial planners to begin their careers not by starting a firm from scratch, but by joining an existing one, with the ultimate goal of "having your name on the door" as a partner. Yet it's not clear if many newer planners really want the risks and responsibilities of being a partner, or are just trying to find a career track that leads to a professional income - after all, in firms where the only options are administrative staff or professional partner, it appears that partnership is the only path to a higher earning potential.
The model emerging at larger firms, though, is to more clearly delineate between compensation paid for working in the business, and the risks and benefits of ownership for working on the business as a partner. Ultimately, the reality may be that only a few newer planners really have the inclination to be a partner - for the rest, the real key is to craft a career track that will leave planners not as partners at all, but simply well compensated for a job well done!
The inspiration for today's blog post is a combination of recent conversations I've had with some young planners, who are all in various ways struggling in their efforts to find and proceed down a path to partnership in a financial planning firm. What was notable was not the fact that they were having some challenges; in reality, the overwhelming majority of firms do not have any concrete career path to partnership, so it's often a "figure it out as you" process, with all the messiness that comes with such an approach. Instead, what struck me was one simple, nagging concern: I wouldn't want any of them as my partner, either.
What It Takes To Be A Good Partner
There is no standard template on what it takes to be a good partner, especially in the world of small businesses where every situation is somewhat unique - not because of the details of the business, but because of the strengths, weaknesses, and idiosyncracies of the partners themselves. However, I do think there's one fundamental trait that's crucial - a hunger, desire, and drive to increase the value of the business.
As the saying goes, "50% of something is better than 100% of nothing" - which is why in general, I'm a big supporter of planning firms having partners. Far too many financial planners I see have taken it upon themselves to do everything in their business at once, and the parts that correspond to their weaknesses are not executed effectively. Most financial planning firm owners would benefit a lot by reading a book like Michael Gerber's "E[ntrepreneur] Myth Revisited" to gain some insight.
On the other hand, the idea of partnership - having a smaller piece of a bigger pie - only works when the pie gets bigger! Which means a partner needs to do more than just work in the business - which is the responsibility and expectation of every employee - but also to work on the business in some manner or another. That doesn't necessarily mean every partner needs to be a rainmaker, but ultimately, if all partners involved don't have a fundamental goal and desire to work on the business and grow it and increase its value in some manner, the partnership isn't going to work.
By contrast, in my interactions with all of the young planners I mentioned earlier, I don't believe that any of them had any particular interest in building and growing a business. In reality, all they simply wanted was to feel well compensated for a job well done.
Proper Compensation For A Job Well Done
In turn, what the preceding statement suggests is that in the end, the real problem was not that these young planners wanted a path to partnership, but that they felt like they had to find a path to partnership to be well compensated for the value they bring to the table as an employee.
I find this is a remarkably common problem in financial planning firms, especially smaller ones. In the past, most firms have had two groups of employees: administrative staff, that get paid administrative salaries, and partners who can earn a much higher income. Accordingly, when a new planner enters the firm, the path to a higher earning potential is clear - if you ever want to earn $100,000, $150,000, $200,000, or more, you "have to" become a partner.
Ultimately, though, I believe this represents a dysfunctional compensation structure for firms. The model that is emerging from many larger firms is that a full range of compensation is available for the jobs people do in the business, from the administrative staff to the planners who work with clients to the CEO of the firm. Compensation may be some blend of salary, bonuses, and other incentives or variable compensation depending on the role, but compensation is set at a competitive level for the job that is performed, regardless of ownership. Employees who have responsibility for a million dollars of client revenue might be paid $100,000, $150,000, $200,000, or more, depending on the nature of the business - not as a partner, but simply as an employee for valuable services rendered! At that point, those who do have a partnership/ownership stake have additional financial and personal responsibilities for the business and expectations from their partners, and are additionally compensated in the form of profits from the business and an increase in the value of their ownership stake for the additional work they do.
The Real Career Track Goal
Accordingly, this suggests that the real key for many firms is not crafting a career track to ownership for their younger planners, but instead crafting a career track to earning a significant income commensurate with the value the planner brings to the table regardless of ownership. After all, it's difficult to even determine who really has the drive and motivation for the risks and responsibilities of ownership and who simply feels undervalued for the services they provide in the business, until there's a path for both options! As long as the only track to a higher income is partnership, there's just no way to tell who's actually going to be a good partner.
And in point of fact, my experience in working with NexGen and our New Planner Recruiting business, and talking to hundreds of young planners over the years, is that in truth most people actually do not really want the risks and responsibilities of business ownership. In reality, that's not different from how it's always been; the distinction is that in the past, financial planners who weren't inclined towards entrepreneurship often didn't survive in the business at all. In today's world, though, there are an increasing number of financial planning job opportunities that do not require an entrepreneurial drive or taking on the risks and responsibilities of business ownership, yet provide substantial value to the business and are well deserving of a substantial employee income.
But the bottom line is that at the end of the day, notwithstanding all the clamoring from so many young planners about partnership, I don't really think most of them actually want to be partners, nor am I convinced that many of them are inclined towards ownership anyway. Most simply want an opportunity to be well compensated, as a professional, for a job well done, and have driven towards partnership because it often appears to be the only track available. In other words, most young planners want partnership not because they to build businesses, but because the firm's employee and compensation structure implies it's the only path to higher earnings!
Thus, if firms can do a better job of articulating a career track that leads to a healthy income outside of partnership, it appears that many young planners will happily eschew ownership and follow that path. And for the few who really want something more and have the drive to push towards it - THOSE are the ones who I'd actually like to have as one of my partners!
So what do you think? Is partnership and ownership really all it's cut out to be? Should partnership really be the standard for a career track? Or is the real issue simply that most people want to be well compensated for a job well done, and that partnership is for the few who really want to own and build a business?