Welcome, everyone! Welcome to the 77th episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Tanya Rapacz. Tanya is the co-founder of the Partnership Resource, a consulting firm that works with financial advisors partnerships to ensure that the partnership itself actually works, from formation, to the ongoing operation of the business, to succession planning.
What's unique about Tanya, though, is that before she was trained in dispute resolution and mediation, she was a financial advisor herself, who both worked successfully in a partnership, and went through a partnership merger that didn't work out, as she experienced first-hand what happens when the multiple partners of a partnership each want to take the business in opposite directions.
In this episode, we talk in depth about what it takes for a successful partnership to work, why it's necessary to treat a business partnership like a marriage (anticipating that some level of conflict is inevitable, and the key to long-term success is your ability to align on your goals and work through the conflict together), why multi-advisor partnerships with 3 to 5 partners tend to be the unhappiest (because of those challenging interpersonal partnership dynamics when the number of partners increases), how the largest advisory firms often have the most stable partnerships simply because they end out creating governance structures that facilitate the multi-partner decision-making process, but why any partnership may benefit from taking the time to create an agreement on how the partnership will make decisions in order to reduce their level of conflict.
We also talk about Tanya's own process working with partners, that starts with a series of personality assessment profiles to help current or future partners understand how to better communicate with each other, and the driving forces that motivate each other, the benefits of having a facilitator to help new partners talk through how key decisions will be made as partners and avoid reaching "easy agreements" that gloss over the challenging decisions like "which financial planning software will we use" that can tear a new financial advisor partnership apart, and how Tanya's partnership process culminates in an actual "Partnership Constitution" document, that formally spells out for all the partners how decisions will be made collectively going forward.
And be certain to listen to the end, where Tanya talks about how she's now beginning to scale up her "partnership compatibility reports" and assessment process with RIA Match, in addition to doing more facilitation with advisors directly as more and more advisory firms begin to form partnerships and merge to gain economies of scale in today's competitive environment.
So whether you are interested in learning more about how to manage relationship dynamics while working in a partnership, how personality assessments can help partners communicate better, or learning how you can form your own "Partnership Constitution" document to formalize decision-making, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- What The Partnership Resource is and what they do in the advisor world. [5:01]
- Where advisors typically need help with communication and conflict resolution. [8:33]
- The shocking percentage of partnerships that don’t last beyond five years. [10:04]
- Tanya’s process for working with financial advisor partners to help them better communicate with each other. [12:04]
- What tends to put up major roadblocks in communication. [22:26]
- The motivator categories that explain what drives people. [26:14]
- How a partnership constitution can reduce conflict. [44:13]
- Which type of partnerships tend to be the unhappiest—and which tend to be the most satisfied. [48:42]
- How her process works for new partners. [53:35]
- “Easy agreements” that need to be sorted out before becoming partners. [1:07:02]
- What success means to Tanya. [1:25:02]
Resources Featured In This Episode:
- Tanya Rapacz – The Partnership Resource
- TTI Success Insights DISC and 12 Driving Forces® (Motivators) Personality Assessment Tools
- The 7 Elements Worksheet
- The Founder's Dilemmas by Noam Wasserman
- RIA Match
- Nerd's Eye View: Assessing Compatibility To Partner With Another Financial Advisor
Full Transcript: Creating A Partnership Constitution To Formalize Decision-Making For A Multi-Partner Advisory Firm with Tanya Rapacz
Michael: Welcome, everyone. Welcome to the 77th episode of the "Financial Advisor Success" podcast. My guest on today's podcast is Tanya Rapacz. Tanya is the co-founder of The Partnership Resource, a consulting firm that works with financial advisor partnerships to ensure that the partnership itself actually works, from formation to the ongoing operation of the business to succession planning. What's unique about Tanya, though, is that before she was trained in dispute resolution and mediation, she was a financial advisor herself who both worked successfully in a partnership and went through a partnership merger that didn't work out as she experienced firsthand what happens when multiple partners of a partnership each want to take the business in different or opposite directions.
In this episode, we talk in depth about what it takes for a successful partnership to work. Why it's necessary to treat a business partnership like a marriage, anticipating that some level of conflict is inevitable and the key to the long-term success is your ability to align on goals and work through the conflict together, why multi-advisor partnerships with three to five partners tend to be the unhappiest because of those challenging interpersonal partnership dynamics as the number of partners increase, and how the largest advisory firms often have the most stable partnerships simply because they end out creating governance structures that facilitate multi-partner decision-making processes, but why any partnership ultimately may benefit from taking the time to create an agreement on how the partnership will make decisions in order to reduce their level of conflict.
We also talk about Tanya's own process in working with financial advisor partners that starts with a series of personality assessment profiles to help current or future partners understand how to better communicate with each other, the driving forces that motivate each other, and the benefits of having a facilitator help new partners talk through how key decisions will be made as partners to avoid reaching the so-called easy agreements that may gloss over challenging decisions like, "Which financial planning software will we use?" that can tear apart a new financial planning partnership. And we look at how Tanya's partnership process culminates in a partnership constitution, a document that formally spells out for all the partners how decisions will be made collectively going forward.
And be certain to listen to the end, where Tanya talks about how she's now beginning to scale up her partnership compatibility reports and assessment process with RIA Match, in addition to doing more facilitation with advisors directly as more and more advisory firms begin to form partnerships and merge to gain economies of scale in today's competitive environment.
And so with that introduction, I hope you enjoy this episode of the "Financial Advisor Success" podcast with Tanya Rapacz.
Welcome, Tanya Rapacz, to the "Financial Advisor Success" podcast.
Tanya: Hi, Michael. Nice to be here.
Michael: I'm excited to do this conversation, this interview today because you have what I think is a really unique business in the industry. I know you were an advisor at an advisory firm for a number of years but now you do I guess, like, facilitation and mediation for advisory firm partners and, like, specifically for partners, actually helping them run good partnerships, you know, conflict resolution when they have problems facilitating, creating good partnerships so they actually get off on the right foot in the first place.
And, like, I've truly never met anybody else in the business that does this, that has this kind of specialization despite the fact that, I've never seen good industry statistics but some huge number of advisors end out being partners at one point or another and a lot of them end out being partners in partnerships that don't work out. And to me, like, it's one of those areas of conflict and challenge that we never really seem to talk about in the industry even though a lot of partnerships form and dissolve along the way, and not always in the best of circumstances. So welcome. I'm excited just to get to talk partnerships and working with other human beings on the podcast today.
Tanya: Right. I think that the work does have a lot of applicability both to businesses and to life.
Michael: Amen, right? At the end of the day, these are basically conversations about how to deal with and work constructively with other human beings. So I imagine there will probably be some lessons that apply to your spouse and a lot of other similar partnership situations beyond just business partnerships.
Tanya: Exactly. A lot of the skills that I learned while working on the conflict resolution training I've ended up using in my personal life working with contractors, you're right, negotiating with a spouse, but then also bringing that back to helping clients.
What The Partnership Resource Does [5:01]
Michael: So as a starting point, can you just tell us a little bit about your business Partnership Resource and what you do in the advisor world?
Tanya: Sure. So the business is The Partnership Resource. I'm a co-founder, now I'm the sole owner, and we are specifically and solely focused on the business partnership relationship. And although many of my clients are from the RIA world, I work with other businesses as well. And using mostly skills from the conflict resolution world, we help business partners form and maintain exceptional business partnerships. And that can take the form of helping them work through conflicts that they can't resolve on their own, or when they decide to come together to merge, to work on how that partnership would work out best to help each partner work through what they want to get from the partnership and what they're going to bring to the partnership. And having all the partners come into alignment with what their goals are and help them have a conversation of what the partnership can be.
Michael: So there's an element that is, like, working through conflicts if I'm in a partnership and, like, I guess literally it's not working out and we're saying, "Jeez, we need some help if this is going to work." I guess it's like the partnership equivalent of marriage counseling maybe. And then a separate realm that's more people who want to form partnerships and they're just trying to figure out, "How do we do this right? Like, how do we do this in a manner that forms a good partnership and doesn't make us one of those unfortunate stories and partnerships that broke up?"
Tanya: Right. It all comes from the same body of knowledge and the same body of work, but I guess we split it up into three different categories. There's the mediation, which is for true conflict situations that people can't get out of and it's a more structured process. And then there's the facilitation, which is more of a forward-looking process that helps people who are coming together for the first time either in a merger or there's some inflection point in their partnership. Maybe it's succession. And then there's also coaching, and that's just helping people with their conflict skills, or maybe they need help with communication or decision-making.
Michael: Okay. So just, like, I'm a firm leader or owner in general and I would just like some coaching to make sure that I'm communicating well and dealing with conflict situations well essentially.
Tanya: Right. So rather than an entire group of partners coming in, the coaching might be one person comes in and says, "I'm having problems reaching out to my partners. I don't understand why...they're not understanding me and I'm not understanding them, how can I better approach the situation?" And a lot of the work that we'll go through is the same, but it's kind of adding a little bit of the accountability element to it, checking in with someone every month to ask them, "Oh, how did this interaction go?"
And helping them kind of reflect on if the interaction went poorly what could they have done differently, or giving encouragement when, you know, "This time when my partner...usually I get angry when they don't give me something that I've asked for, and this time, because I know now that we've talked about it, I know that sometimes they procrastinate because they're perfectionist and this time I waited and the result was I did get it and it was great and now I feel like you really released a lot of the pressure from the partnership." It's that kind of. That would be the result.
Where Partnerships Typically Need Help [8:33]
Michael: So can you give us a sense, like, how much of what you actually end out doing these days is in the mediation realm versus the facilitation realm versus the coaching realm? Like, I guess you have sort of an interesting snapshot on, you know, where do advisors typically actually need help? Is it more mediation work for, you know, actual partnerships in conflict or in crisis or is it more facilitation and forward-looking? What do you see in practice?
Tanya: So right now I think when advisors call, they're calling because they are either looking at a succession plan. It's something that they want to put in place for the future. Maybe they want to add someone to the practice. And usually it's a founder who doesn't necessarily want to sell a practice right now but they're looking at adding someone to the practice who could serve in that role in the future, and so they're looking for a facilitation. They want to make sure that when they bring someone in it is the right person and they want to reduce the mistakes maybe that they've made in the past or reduce some of the errors that they've heard about in the past.
And then the other category would be solo practitioners calling because they are interested in forming a larger firm to get all the benefits that you get from being in a partnership. I would say that most of the calls are in those two categories at this time. I get calls for mediation from other industries, but on the advisor side, I think the energy really seems to be around the pre-merger facilitations.
The Percentage Of Partnerships That Last Longer Than 5 Years [10:04]
Michael: Interesting. Because I was going to say, like, those are both facilitation forward-looking-oriented things. Like, I'm a solo and I know another advisor and we're talking about forming a partnership together and we want to come to you, or I'm a founder and I've brought in the successor and I want to make sure this goes well and I come to you. Like, those are very forward-looking facilitation contexts, not necessarily the in-conflict mediation-style scenarios?
Tanya: Right. Actually, usually it's not a conflict situation, there's usually a lot of excitement around the venture. But there's a little bit of, you know, buyer...you know, everybody is cognizant of the fact that 70% of business partnerships don't go past 5 years.
Michael: Seventy percent of business partnerships don't go beyond five years.
Tanya: Yeah. That's from the Harvard Business Review. And some people think that the number might be higher. And when I speak about this topic I...there's another statistic, and this is from Founders and Funders in San Francisco, that when business partnerships fail, 62% of the time the partners cited partnership conflict as the reason that the partnership failed.
Michael: Like, they had some kind of difference and they couldn't figure out how to resolve it.
Tanya: Yeah, there was a relationship between the partners. So it wasn't that they went to market with some product or service necessarily that wasn't a good idea, but there was something about the partners that they weren't getting along, or they had some conflict that they couldn't resolve on their own. So I think there is at least a growing awareness that having that partnership relationship is crucial to the success of the business. I mean, that's what I talk about all the time.
Michael: Yeah. Well, and I guess it makes sense that, you know, as financial planners, we do tend to be very forward-looking. So my heart is warmed to hear that we are at least doing a reasonable job about being forward-looking about our partnerships the way that we are hopefully forward-looking in advice with clients and all the planning things we do, which is a very forward-looking kind of thing.
Tanya's Process For Working With Financial Advisors [12:04]
Michael: So can you talk to us then a little bit about, like, what do you do? You know, I'm a solo advisor, you know, I've been going to my local FPA chapter meetings for a while, I've met another advisor in the area, I get on well with her, she gets along well with me, we're thinking about working together and forming a partnership. We have no idea what we're actually getting into because neither of us has been in a partnership before. So, you know, we call Tanya and say, "We're thinking about doing a partnership, we don't want to screw this up. So help us." Like, what do you do? What would the process be from there? How would you work with us going forward?
Tanya: Right. So after we talk a little bit about what you're looking for, we did try to create a process around getting the partners to know each other better so that they could make the decision about whether or not this is a good fit that will go the distance because that's the goal. I'd like to see those statistics improve over time.
So the first step would be, you know, an assessment and discovery phase. So I would have all the partners take a psychometric assessment. I use TTI DISC behaviors and Driving Forces. So this is...you know, there are many assessments out there. Maybe some people are skeptical about assessments, but I find them to be an extremely revealing tool to give people a lot of self-awareness about how they like to behave on the job and what motivates them on the job. So it gives each partner a lot of information about, "This is who I am. This is how I like to behave. This is the best way to communicate with me." And then they get the same information about their partner.
And then I can overlay it and kind of compare it and show them, "This is where you are naturally compatible. This is where...without doing anything, this is where you're going to have the greatest comfort zone in working together, and this is where you'll kind of have some complementary behaviors that maybe you can capitalize on when you go to assign roles and responsibilities in the partnership. And then here are your values, and here's where you're really well aligned and then here's where you're not as well aligned and you might need some extra awareness about that." So that kind of gives us a starting point, at least, of having the conversation of, "This is who you are, this is who your partner is, how does that line up?"
Michael: So you mentioned two assessment tools in there, DISC and Driving Forces. So, you know, I suspect at least a few advisors are aware of DISC because it's been used in the hiring context for some firms. I suspect many are not and probably none of us are aware of Driving Forces. So can you talk about those a little bit more? Like, what is DISC? What does it measure? Like how do I understand what kinds of results or information I'm going to get? And then likewise for Driving Forces, like, what are these?
Tanya: Okay. So DISC is an acronym. It stands for dominance, influence, steadiness, and compliance. And this is based on research that's been around since the 1930s. And it's the idea that everyone has these traits in different levels. The organization that I use to get these assessments from, they say that a DISC assessment is done somewhere in the world every seven seconds. And they use these results, they have tested these results continuously, so I know that there's a high level of confidence in these results. But basically, you can find out whether you are the type of person who is more determined and competitive or less. Whether you're the kind of person who is more magnetic and enthusiastic or less, more steady or less, or whether you're more careful and concise or less.
But it's really the interplay that's interesting about whether people who are, they call it if you have a lot of the influencing you're called a high I. And two people who are high I are naturally compatible with each other. They're just usually a high level of natural...
Michael: Okay. Just, like, you get some happy, enthusiastic people together, they just tend to be happy, enthusiastic together.
Tanya: Right. They get a lot of energy from spending time together. You know, those type of people naturally trust each other. They just naturally want to spend time together. I mean, of course, there's the other side of the coin. There's a possibility that they might waste time together because they spend so much time socializing.
Michael: And they're just having fun. Yeah.
Tanya: Yep. I mean, so you're just kind of, like, bringing to light some of these dynamics. And none of it has any judgment to it. It's not good or bad, it's just you're bringing to light some of these dynamics. And for the behaviors, you probably could observe these on your own and make some determinations, but really, if you have more than two partners and you have all this information, it can be very helpful to kind of compile all the different twosomes in the partnership how they're all going to be working together. And especially when you get down the road of thinking about all the different roles the different partners couldn't have it and having this information about who could be best at what and who would be best suited for what, it gives a lot of information to that conversation.
Michael: So it's not even just, like, general compatibility. You can start doing, you know, role assignments, "Hey, you're the high I, you're the really talkative, enthusiastic one so great, you know, you can help focus on our marketing and our PR efforts and our external stuff. I'm, you know, the compliance, detail-oriented person so, like, I'll do the operation. I'll oversee the operations duties. I'll wear the COO hat in our partnership because that's my skill set and style."
Tanya: That's right. And, you know, as you go forward, you could look at it and say, "If we don't have anyone who is a high C then that brings up the conversation, "Do we need someone who's a high C? Should we hire someone who's a high C or do we not need that?" You know, it just really has the flavor for that conversation.
Michael: Okay. So you kind of get to...like, are there particular, like, DISC profiles and DISC combinations that are not good, like, become warning signs? I get it, two high Is that are, you know, really high-energy, enthusiastic tend to get along well together, but, like, are two Ds a bad one to match together? Because if you take two competitive people that are headstrong and put them in a room together, like, they're going to spend more time butting heads with each other than getting anything done?
Tanya: Well, actually, I was going to get to this later. So one of the things that we have developed is a little bit of a score and a ranking system, and one of the things that we have done is taken the DISC assessment and ripped it apart and put it back together again to create a score for how naturally compatible you are with other people. So you can kind of put a grade to it. And there are DISC profiles that are not naturally compatible. So a high D and a high C, for example, can have a hard time understanding each other. A high D likes to get things done quickly and move on and a high C usually likes to get a lot of information and likes to make...makes decisions less quickly, so they're going to be butting heads all the time.
Now, properly harnessed, they might be a good team because if the high D realizes the value of having the high C by their side, making sure that the projects that they start get completed correctly and that the high C realizes that the high D is not just trying to be a dominating pain but is, you know, the one who is bringing in new projects to do, it could be a good match. But without that kind of awareness, they would naturally not get along very well. So they get a low score there.
Michael: Like, even for me it's been a struggle as someone that's gone through, you know, creating a lot of partnerships that, you know, like, the amazing thing about partnerships with people who are different than you is, like, literally, they're different than you. They see problems differently. They have different skill sets. They may be really good at things that you are not good at. You know, it's that complementary synergy that makes a lot of partnerships really successful. Except the problem is that when you view things fundamentally differently, you know, that can either spawn a lot of creativity or it spawns a lot of conflict because they don't see things the way that you do.
And I know in our business, in particular, I feel like as advisors, we have a strong tendency to find people like ourselves because they're easy to get along with. You know, we tend to hire, like, associate advisors who remind us of ourselves 20 years ago. We tend to find partners that are similar to us. Which, I guess, works up to a point but, like, often I see some of the best partnerships are people that are not the same. They have complementary skill sets rather than matching skill sets. Except as soon as you get people that are wired differently in a room together, you, like, drastically increase at least the likelihood or the risk of conflict because you view things differently so it can often spawn conflict.
Tanya: Oh, absolutely. And maybe I got ahead of myself a little bit by talking about how the difference is properly harnessed could be very powerful because that's kind of what the facilitated session is for. You know, a lot of the research shows that heterogeneous groups and this isn't just in partnerships, even in, like, high-performing teams, perform better because you don't fall into traps of groupthink and you have the different ideas coming together and you have this robust contentious discussion and then you land somewhere better than you would have otherwise. But first, we start with kind of the assessment part. And then we're going to have the facilitated discussion, we're going to talk about the different things that people bring to the table and how the partnership could capitalize on that. So that's kind of, like, the step two is the facilitation.
The Major Roadblocks To Communication [22:26]
Michael: So that's the DISC part. And I want to come back to the facilitation in a moment, but you talked about DISC, so now tell us a little bit about the...what did you call? The Driving Forces assessment, like, what is this?
Tanya: Right. So the Driving Forces assessment, this is also...it's also from the TTI. You get it at the same time. And it really is a stand-in for the values. There are 12 different driving forces and we like to look at the top 4 for each person. And it's kind of where you start to see whether someone values doing a lot of research versus making their decisions based on intuition, or whether they value collaborating, or whether they value doing things the way they've always done versus thinking outside the box. It's kind of just these different trade-offs of what values people bring in. So we kind of like to see how they line up.
And it's important because if you share these driving forces with your potential business partner or your current business partner, it means that you've removed a lot of the barriers for understanding. If you're working with somebody who is resourceful, and this is someone who for example they only like to do something if they can see the return, so they don't want to spend any time, money, or effort on something unless they can see that they're going to get a return on that. And if the two of you feel the same way about it, it'll be easier for you to understand initiatives and ideas that each of you are bringing to each other. But if you are opposite in that area and one person is altruistic, meaning that they like to do things because of...they feel like it's for the common good and the other person doesn't have altruistic in their top four driving forces, it's not going to be immediately obvious to them what the benefits are of doing that.
Michael: Right, right. I'm imagining the, you know, person number one says, you know, partner number one says, you know, "We should do some free financial planning workshops in the community," and number two says, "Yeah, that's a great idea because, you know, we can get in front of some great prospects and develop some good business." And then number one says like, "No, no, no, I just really wanted to give away some free financial planning workshops." And number two is saying, "Yeah, yeah, because we can get more clients." Like, "No, no, no, I'm not doing this to get clients, I just wanted to give away financial planning to the community." And off we go down the conflict road because they're being driven for different reasons.
Tanya: That's right. And then the partner just, I just don't even understand why they would even bring that up. You know, I just don't even understand why they would bring that up unless you had already done this work. So if you have somebody who has different values than you do, it doesn't mean you necessarily can't work together. Because maybe once you understand that, you could even, like, maybe frame it differently when you bring up the idea. So you say like, "I want to go and give free financial planning services to the public. And look at all the publicity we would get from that that would be free that I think would drive this other part of our business," or something like that.
Michael: Right. Like, if I want to get my resourceful partner on board, I can't just talk about how it's wonderful pro bono work because that's what I believe in, I've got to get them on board, which means I've got to at least show, "Hey, you know, I know, I get it, you're really resourceful, so here's some of your resourceful benefits to check the box for you while I'm going to push for this pro bono thing because it's the altruistic part for me."
Tanya: But having said that, we find that if partners don't have many values in common, or if they have many in opposition because there are six pairs in opposition, if they have a few in opposition, that can make it a lot...it really puts up a lot of roadblocks to their communication.
The Different Motivator Categories [26:14]
Michael: So can you talk a little bit about just, like, what the motivator categories are just so we kind of understand what we're talking about? I mean, you mentioned, like, being resourceful versus more altruistic, but, like, what are the...just so we can kind of think through, like, what are the categories? How do we think about people's driving forces according to TTI?
Tanya: There's instinctual versus intellectual. And this has to do with how you view knowledge. People who are intellectual like to gather as much knowledge as possible. You might be kind of knowledge for knowledge's sake. And people who are instinctive like to gather just as much information as they need to make a decision, or may rely on experience.
Michael: Right. This one rings a bell for me because I did the Motivators Assessment once and, like, I think the scores go, like, from 100 on one direction or 100 in the other direction, and I scored 99 on intellectual. So, yeah, I like to study everything before we make a decision.
Tanya: Right. Kind of, like, you're the reader.
Michael: Yes, yes. I'm the fact gatherer, I'm the information gatherer. You know, we can't make our decision till we get our data and look at our data.
Tanya: And then the other is utility. And I kind of referenced this before a little bit, but a resourceful person really wants to know that they're going to get something back for their efforts. And that's resourceful versus selfless. And a selfless person just wants the result to be good. They don't necessarily need to get anything back from what they do.
There's also your surroundings. Somebody who's high harmonious can only really function well in surroundings that are beautiful and everything has to be aligned. Like if you put them in a grey room with grey furniture, they can't really do their best work. But somebody who's objective, it doesn't really matter to them what their surroundings are. They can be fine.
Michael: Just keep it on the facts, let's get going.
Tanya: Yeah. There's altruistic, and that's somebody who is really concerned about working towards the common good. And then there are people who are intentional and they only want to help people for a specific purpose.
Tanya: And then there's power. There's people who are commanding versus people who are collaborative. People who are collaborative kind of they get a lot of joy from working on a team with other people. And commanding people are really a little bit more interested in the power structure. And then for methodologies, there's structural versus receptive. The structured people believe that there is a correct way to do things. And there are the receptive people who are looking for new ways of doing things.
So everybody kind of falls, like you said, you know, for yourself, there's a spectrum and people fall on different ways. And then you get your results back and you find out that you have four primary driving forces and then you get four that are kind of, like, situational and then four that are really not that important to you. So you could find out from this that your potential partner is not resourceful at all whereas if you're high resourceful. So it just leads to that conversation about how important that is to you.
Michael: Right. Because I guess sort by definition if you're strong in one direction, you're not strong in the other. If you just don't score highly in either, like, you know, I think for mine, like, I was a low score in either direction for structured or receptive. Like, I don't care how we go about doing it, I just want to make sure we get it done. So, you know, I would be fine with someone who was either very structured or very receptive because I don't have a strong preference to either, but if you give me someone who doesn't like data, this won't work well.
Tanya: Right. Right.
Michael: So that's the idea of this in a compatibility context is essentially like, you'll have a couple of top four and then a couple that don't score as highly, so we're just trying to make sure our top four are not, like, directly opposite poles on the same spectrum because that's the tip-off we're going to have a lot of conflict in the business when we try to set goals and do things because we're just literally not lined up well on it?
Tanya: It's at least a topic that warrants more conversation. I mean, I wouldn't tell anyone, you know, "You have zero out of four in alignment so I don't think this partnership is going to work out." It would really be more like, "Let's talk about what the implications of this are going to be for your working together."
Michael: And then if you had ones where you said, "Let's talk about the implications of this," and then they got to the end of the conversation and said, "We don't think this is going to work out."
Tanya: Yes, I do. I mean, I have kind of a story about that, working with two people who...and they were only going to be working together for a short time because it was a successor-type situation, where they literally did have zero of the driving forces in common. And I think at the beginning of the process, they thought that they would be working together for five years. That that's how long they would spend working together with clients and then the successor would take over and the founder would more slowly step out. But by the end of the process, that number had gone down to two years. And I think that it was a direct result.
Michael: "I think we can tolerate each other without killing each other for two years. But more than that, it's not going to go well."
Tanya: Exactly. And from a behavioral standpoint too they actually were the high D and high C combination that also has very little natural comfort zone.
Michael: But it didn't blow up. I mean, that's, I guess, the notable thing and the point of this process, like, it didn't blow up the succession plan, it may have actually saved the succession plan because they found out they were going to have these conflicts before they started the process of doing the succession plan and the transition. So that by the time they got into it, they knew where their conflict points would be, they were at least prepared to work through them and knew it had a finite end, which, you know usually does a lot to help you get through some challenging times, but at least you know you're going to get to the end of this. But if they'd gone off on their own with no realization of the problems and a five-year plan, it probably would have blown up by year two or three, or even earlier because someone is one year in and saying, "Oh, my God, I can't deal with four more years of this."
Tanya: I totally agree because I think that what might have happened is they would not have known or they might have misattributed what their motivation would have been for why some parts of the process were taking too long. So some parts of the process were taking too long because one person was that was just their style. It was hard for them to execute on certain parts of the plan, and I think that the other person might have thought, "Well, she's not interested in doing this. She doesn't want to complete it." But because we were having these regular check-ins, everybody knew what everybody's personality was and what everybody's true motivation was.
Michael: Well, and I'll admit, like, I'm a big fan of a lot of these...kind of these profiling and assessment tools, and, you know, no one necessarily fits them perfectly. You know, I think sometimes people bash them because, like, they're 90% right and 10% wrong and they just sort of mock the 10% that's wrong and say, you know, "It doesn't perfectly describe me because it missed this thing." But I've always been impressed with these, you know, A because the ones that really have...you know, had the time and testing to make sure they're really valid and reliable, like, you know, what TTI does with DISC and Driving Forces, like, you learn something about yourself going through it.
And then I found for a lot of these, just it gives you words to describe conflicts or problems or differences, or just ways of communicating and having conversations differently, right? Like, it's hard to articulate, "The problem is you do everything because there's an end master plan about how it's going to help our business move forward and I just like doing things pro bono because I like being altruistic." If you've never had an assessment like this that kind of puts forth, "You've got these different motivators," it's hard to surface that when you're just in the moment saying, "I want to do this initiative and my partner just keeps screwing it up and taking in a different direction." And, like, you can't figure out why because you don't have the words or language for it until you go through assessment tools like this and all of a sudden it gives you a way to talk about the conflicts or the stress points that you're seeing in the business.
Tanya: Oh, exactly. Yeah, having the language to describe it, it's so helpful.
Michael: So for your kind of facilitation process then, so the first part of it is just this assessment, like, I'm thinking about merging with this other advisor. She and I have known each other for a bunch of years now. We think we could be good partners. So we come to you for this facilitated process to support our partnership creation. So step one is you're putting us through these assessments, DISC and Driving Forces, and we'll learn a little bit about ourselves and each other, and I guess and get a compatibility score from you of at least, "How likely is it you're going to have some conflicts and here are the areas that you're going to have to talk through if you want this to work." So what comes next in your process?
Tanya: Right. So at the same time that I did the assessment and they also get a little bit of a playbook of, you know, the dos and don'ts of communication between the two of them, I'm also doing a discovery questionnaire of kind of their hopes and dreams for this partnership, whatever it might be. So what's their ideal length of time? What do they hope to get out of it? What are their concerns about it? So I can pull up an agenda that will cover all of their concerns. So kind of letting them capitalize on having a third party in the room when they start to talk about all of these different issues that need to be brought up before they do the partnership.
So kind of if two people are talking, I mean, it could go really well, but sometimes it doesn't. Sometimes people have a hard time bringing up things that they think might be contentious. So one role that a facilitator can play is to bring up things in a neutral manner that need to be addressed but may not otherwise be done. Michael, I know you wanted to kind of hear some of the war stories.
Michael: Yeah, I can only imagine some of the war stories in this area of what you've seen of things that maybe didn't go well on those conversations or just that didn't get brought up that you had to bring up.
Tanya: I mean, we did a pre-merger facilitation for a group that had met 10 times before they hired us and were unable to come to agreement on anything.
Michael: They're 10 meetings into trying to figure out, like, a merger, like, two firms merging together and they're making no headway. Okay. So that's always...that's got to be a great set up for you coming in to say like, "Hey, we've tried this 10 times and failed, we'd love you to be the 11th."
Tanya: Right. Right. So, you know, just having that ability to have the third party raise issues and make sure that they are being fully vetted.
Michael: And were there particular, like, issues for them that just hadn't been voiced through 10 failures that you had to raise and help them to work through to figure out how to actually move forward?
Tanya: Well, the issue of kind of initial equity split is something that comes up a lot. It can be difficult for people to bring it up, especially if it's two people and they don't necessarily think it should be 50/50, or they think, you know, that some... One of the things that we do with people when we're in the facilitation is kind of going through an ownership matrix where we talk about things that might go into coming up with an equity split that isn't necessarily based only on assets under management that are coming into the final firm. So people are talking about like what expertise they're bringing in, the niche they're bringing in, the hours they're going to bring, things that maybe aren't necessarily 100% quantifiable.
You know, somebody is planning on they're going to be the partner who kind of has more in terms of the clients they're bringing in, but they're kind of planning on not being in the office as much as they had been. Kind of bringing that conversation up in a way that is not contentious and kind of, like, lets each person bring up what they think they're bringing a value to the partnership and what they value about what the other person is bringing.
Michael: Right. You know, the simple partnerships are like, "Here's the revenue I bring, here's the revenue you bring. We both bring about the same revenue and we're going to do roughly the same thing, so this is a pretty easy 50/50 split and off we go." Then the revenue isn't even and it gets messier and then we start bringing different skill sets and it gets messier, and not everyone wants to work same hours because maybe they're at different points in their career or stage. I imagine you see that a lot when you're looking at succession plans, right? Like, how do you figure out an equitable split when one partner brings more revenue but plans to work less going forward?
Tanya: Right. That's kind of why we do this ownership matrix so that it gives them a starting point of what they all...everyone thinks that they're bringing, and then gives them a mechanism for looking at it again at certain points in time.
Michael: Okay. And so they go through this process and start having some of these conversations that you're setting up for them or facilitating for them because that's part of the process. So how long do these facilitated meetings go? Are you doing, like, you know, "We're going to check in an hour or two a month for the next few months and work through these things," or do they, like, fly you in and airdrop you in and be like, "No, no, we're about to merge, like, we've got to have you in for a couple of days. We're going to work on this in an intensive right now?" Like, what does this usually look like?
Tanya: It depends on the situation. I mean, our preference has usually been, "Let's pick a couple days and clear the calendar and let's just come out to you and do it in two or three days so that it doesn't take too long." But for other people, that's not compatible with their style, and then we would do a couple hours per month.
Michael: Okay. So, I mean, it's just really one of those, like, if you're about to sign the partnership agreement and you want to make sure you're not about to blow it up, you kind of do it with some urgency. If we're figuring out a multi-year succession plan and just on the front edge of it, we can probably do this over a couple months and be fine.
Tanya: You probably could. I mean, what we find is that if we do it in person then everybody...I think that...okay, from as a facilitator, if you're in the room, it really gives you a lot of information with body language and being able to pull people out of the meeting to do kind of some caucusing, which is kind of, like, having some offline meetings with people, which might become necessary as if things become heated.
There was a facilitation we were doing with three firms that were coming together, and there was kind of a part that got a little tricky with five....so it was going to be three firms but five partners, and two of the people were going to be sort of treated differently. And you could tell that one of the partners was not very comfortable with the other person who was going to end up with the same equity that he was but not taking the same path to get there. So we kind of had to take a little bit of pause on the group to do a couple side meetings to talk about ways that people could feel that we arrived at something that was fair.
Michael: And I guess that makes the point as well, like, we've been talking about partnerships in sort of the very literal context of partners, like person A and person B come together to form a partnership, but some of these are larger partnerships with multiple partners and you get three, four, five-plus people in the room. Which I guess, well, as with any kind of committee or multi-person partnership, like, the more people you put in the room, you get exponentially more combinations of two-person pairs that can be in conflict with each other and potentially drag the whole partnership down if they can't resolve their issues.
Tanya: Oh, absolutely, it's much more complex. In fact, if there are going to be more than...if there are four people or more, I usually bring in another person to co-facilitate with me. I bring in another professional from the conflict resolution world to co-facilitate because it's just too many relationships to be on the ground in the facilitation with.
Michael: Okay. And so how long does this usually take? Like, just we sit down for a day or two in meetings and we get to the end and hopefully, everyone says, "Okay, I feel better about this partnership we're forming now. Thank you for your time, now we're good to go?"
Tanya: No, like, the third step is to put it in writing. The plan is to complete the agenda at the end of sessions so that they can get back something in writing that documents everything that was agreed to and why. So it's not just, "We feel better about the partnership," it's, "We have been able to come to agreement on these certain aspects of our partnership." And then we can take what we've agreed to forward and we can have our attorney change, you know, take parts of it and bring it into the operating agreement, and then the document itself can be a touchstone for the partnership. And this is what we can go back to when we feel...like if something needs to change.
How A Partnership Constitution Can Reduce Conflict [44:13]
Michael: So, like, you write up this document, you say like, "Here's all the stuff I've heard from both of you, here's where I think we've ended out. Like, here's the summary document of how you're going to work through your issues or what you've agreed to. Now you both need to look at this and agree that you agree and, like, sign on the bottom to say that we all agree that this is what we agreed to?"
Tanya: Yes, exactly. We call it the partnership constitution and it will...you know, it's organized, you know, in the same form as the agenda was. And, you know, they agree to what the agenda was also, kind of covering some of the things that were softer like, "How are we going to decide when we don't agree?" And then some of the more concrete things like deal terms and what we think....you know, staffing requirements and some other things that are specific to this partnership.
Michael: Okay. So, I mean, is there kind of an aspect of just raw business consulting that you end out in as well? Because I'm going to imagine some partnerships, like, if you've never come at it before you may not have realized, like, you have to come to agreement about how you're going to structure hiring plans. Which if I'm a solo advisor and you're a solo advisor, we've never had to do that before, so we might not have even been thinking about it at the time that we were sitting down to do this. Do you end out doing that kind of business consulting as well or if they need help with some of that, like, that's a different consultant that comes in to try to help work through those decisions?
Tanya: I guess it would depend on what it is. I mean, I think that what they might end up with is an action item to hire a compensation consultant or an action item to...you know, what they would get from us is kind of agreement on what the overall marketing goals are, and then they might take that to a marketing consultant if marketing was one of the things that they needed to agree on. Remember, as the facilitator, we're taking the areas which they have...after we have done sort of this partnership compatibility part, we're taking the areas where they have said that they have concerns and bringing them to agreement on them.
Michael: Okay. So the partnership constitution at the end of the day is, like, parts of it get incorporated into my literal partnership agreement or, like, my operating agreement for an LLC, but I'm imagining that not all of it gets incorporated in, it's just information about like, "Here's how we're going to make hiring decisions and here's how we're going to make decisions in general." Like, I don't usually put that in an operating agreement, but just we need to know literally how we're going to make decisions and come to conclusion on issues.
Tanya: That's right. So for example, so we were working with a large group last year, and one of their issues was, they would have meeting after meeting and nothing would...and the meetings just seemed like ordinary meetings but nothing would ever get accomplished. You know, nothing that they decide in the meeting would ever be accomplished. So they would...as part of their accountability plan that was put into the partnership constitution, they agreed that they would do a few things. They agreed that they would have...for the benefit of some people who didn't like to make decisions in the same meeting where the information was presented, they would have a meeting before the meeting so that they would get kind of a full presentation of what needed to be decided before the meeting where they actually would decide.
Tanya: Then they also kind of split up some of their decision-making into decisions that needed to be unanimous and decisions where a consensus was all it would take so that they would try to get consensus on some other decisions, so that some of the decisions, and they didn't want to just go to majority, a majority vote where some minority voices would never get heard, but where they would talk about something. And this takes longer, but they would talk about something until everybody in the room would feel like, at least, "Everybody in this room knows how I feel and I know how everybody else feels. And even though this isn't my first choice, I agree to publicly support this idea and not slow-walk it or anything. You know, I will execute on this idea after we leave the meeting."
The Most And Least Satisfied Partnerships [48:42]
Michael: Well, and to me it's very powerful just the idea of particularly once you're beyond a two-person partnership and there's three-plus people in the room, like, just clarifying, "Here are the kinds of decisions where we don't move forward unless we have unanimous voting, like, everybody's got to get on board, " versus, "Here are the decisions that, you know, we're going to talk about it, and then we may agree to disagree, and then we're going to move with whatever the consensus is and we're going to ask everybody to be on board with that." And I feel like it's something that sometimes happens implicitly in partnerships or just, you know, group meetings in general, but sometimes it doesn't happen in a way that everybody is happy with, particularly if you're the one that's getting outvoted on an issue.
So, you know, just sort of having agreement upfront like, "Okay, can we all agree at the end of the day, like, this is a minor thing, and we may not all agree but we should be okay on it, but this is a major thing, so these are the kinds of things we have to get everybody on board or we will agree to not move forward on them." And just having an agreement about literally how you're going to make those decisions to get an agreement. I can certainly see the power in that so dissenters at least know, like, when they're going to be left out or not and can, you know, frankly choose your battles accordingly because sometimes you have to do that in partnerships.
Tanya: That's right. When we started out, one of the first things that we did was a little bit of our own partnership research. And we did a survey and followed up with phone interviews. And we found that two-person partnerships were the most satisfied. And we thought that maybe it was because, in a two-person partnership, most of the time decisions are unanimous because two people, one no vote would kill it, you know, or you would do some trading back and forth. And it was the three, four and five-person partnerships where it's a little harder to get...you know, everybody is going to have their own take on an issue and it's a little harder to put it all together.
And then for the six people, six persons or more, satisfaction seemed to go back up again. And maybe it was because at that point you're adopting more of a corporate structure, bringing in someone to be a managing partner to kind of help decide, you know, what spheres people are going to be decision-makers in, or at least deciding, you know, making those decisions like you just said, which decisions are going to need, you know, unanimous consent or which decisions are going to...
Michael: Yeah, it makes a lot of sense to me, right? Like, once you get six-plus, like, you typically have to start putting in more corporate structure and essentially a governance structure, which to me at the end of the day, like, that is an agreement about how you're going to make decisions, right? Like, you know, we come together as six-plus partners and say, "Okay, we're going to have a management team and then here's what gets decided at the management team. And then maybe, like, we'll have a smaller executive team and here's what gets decided at the executive team. And then all the partners, all the shareholders are going to be, like, a board of directors that oversees the executive team. So, you know, there's only certain things you make at the board, certain decisions you make at the board level because the rest get made at the executive team level or come down to a management team."
But, like, just the process of deciding how to make that corporate structure that you kind of have to do for your size at some point means you've now made an agreement about how you're going to make decisions. So, two people, we know how this works. We agree or we don't. Six-plus people, we make a corporate structure and then we all agree how this works. And then in the middle is three, four, five partners that may not have been through the kind of process you're talking about and end out with all these conflicts because they don't actually have an agreement about how they make decisions.
Tanya: Right. And actually, we know of someone who left a three-person partnership just because he felt like he was always going to be the third man out even though he had been an original partner firm.
Michael: Well, I guess that's part of what happens. You know, I mean, it's kind of the nature of, I guess, politics and how people organize, right? Like, if you're in a three-person partnership, everybody usually becomes acutely aware that, you know, if you're the odd one out on a decision, like, if you ever put this to a vote, you are losing. You know, five-person you get the same thing. Threes gang up on twos. Fours you get weird coalitions because if you want to get to work you've got to get three on board and then you can overrule the one, but otherwise, if you get two on two you get stalemated, which can be worse because then no one is happy with the outcome. And just, you know, all the ways that we kind of organize as human beings to make decisions, which are harder if you don't have agreements about how you make decisions in the first place. I guess that's kind of the point, the takeaway to it, right?
Tanya: That is the point, the takeaway. So if you had done maybe some of this kind of work about the styles that everyone has and maybe being aware of these decision-making pitfalls and kind of, like, wrap that into your partnership constitution, you can avoid some of them.
Tanya's Process For New Partners [53:35]
Michael: Yeah. And for partnerships that are having some difficulties, like, I get it, I mean, maybe they're not in sort of the full crisis mode, "We need Tanya to do mediation because we're blowing up." But even just, you know, we're a partnership, we have some conflict. You know, I guess if you're listening and you're three to five partners, you're probably feeling a lot of, you know, the dynamics that happen in your partnership of some people agree and some people disagree and how people get overruled and all of that. So, you know, like, you probably know you're in some conflict and maybe will give Tanya a call. So if you want to, like, we'll have all of her information in the show notes. So if you're listening to this and saying, you know, "I'm one of those really unhappy four-person partnerships," give Tanya a call. So we're episode 77, so go to kitces.com/77 and we'll have information out to Partnership Resource's website.
My question here is, like, how does this work for new partners? Because there's a piece of this to me that feels like for...I'm a solo advisor and I want to get together with another solo advisor and form a partnership, like, there's a piece of this that sort of feels like the same awkward conversation I imagine if you're about to get married and you want to broach the subject of a prenuptial agreement, right? Like, there's lots of TV and movies over the time about the awkward conversation that come up when you try to bring up a prenuptial agreement like, "Hey, I'm so excited to get married, and you are the love of my life and I'm so enthusiastic about this marriage, but can we also talk about a prenuptial agreement?" Is, like, really sort of takes the wind out of the sails.
And, I mean, correct me if I'm wrong, but I'm imagining a similar sort of awkwardness of two partners sitting down saying like, "I'm so excited to form this business with you and we're going to merge and we have all these ideas and all this great stuff that we do. Oh, but I really think it would be a good idea to bring Tanya in because we might screw all this up." Like, how does that conversation happen? Or is there a way you recommend how that conversation happens?
Tanya: I mean, I guess I would frame it as due diligence. You know, you wouldn't go into the partnership without doing a lot of due diligence about the partners, their background. You would look, you know, at other partnerships they've had or what their business background is or their educational background, why wouldn't you do some cultural due diligence on what the partnership fit is going to be?
Michael: I like that. "This is cultural due diligence to make sure that we'll have a culture that fits that we can work together on."
Tanya: Yeah, let's start out right, you know, right from the start. And you kind of make it seem like this is just kind of a...I mean, that would be, like, my goal for the world would just be, you know, like, let's just make this part of the process. We want to get together, you know, let's exchange, you know, our CV and our financials then let's do a little bit of a partnership fitness test and, you know, well, let's see how we stack up. And then have a...like, we have to have this full and frank conversation anyway, whether we've known each other for a while or we've just met.
Tanya: You know, people mostly go into business with people that they know, but even if you think you know someone and they're in your network or they're in your study group, you kind of still need to go through this process because mostly people going into business with people they know is...and they assume that they can trust and they assume they have the same values that they do is kind of why we have partnerships that don't go the distance. So we treat partnerships...you know, you're going to be tying your financial and professional and personal life to some degree to this person, you should put it through its paces.
Michael: Yeah, it makes sense to me of just like, framing this as cultural due diligence both just literally like, you know, "Hey, I get it. We've worked together on our FPA committee or two or done some stuff in the community together, but it doesn't necessarily mean we have, like, the same long-term, 15-year aspirational goals about building a business together." Like, there's a little more to it that you don't necessarily get into just in being in the community together that it helps to have some structure around figuring out like, "What are your goals? And what is your decision-making style? What is your communication style? And what are your primary motivators?" Just to really make sure that the attempt to create the partnership goes well.
And I guess the good news, well, I suppose this is true in, like, my marriage analogy as well, but arguably, there's something to be said for if you've just never been in a partnership before and had to make decisions jointly that way, it's very powerful to go through a process of actually saying upfront with an expert, like, "Let's figure out literally how we're going to make decisions so that when we start making joint decisions for the first time, there will hopefully be less conflicts because we've literally figured out how we're going to do it up front."
Tanya: That's right. I mean, when you go through the process, you know, that in itself is kind of giving you some information of what it's like to work with someone.
Michael: This is like...it's like dating. This is like going through the process. It's like dating.
Tanya: Right. I mean, there is some research that not knowing someone in a superficial way like being in a study group, but being an actual co-worker with someone is the most promising information you can have about being a potential business partner with someone. I think it's Noam Wasserman in his book "The Founder's Dilemmas" has that as a chart, that that's the best type of partner is a co-worker. The second best was a stranger or acquaintance, and the third best was a family member or friend. And of course, that's the opposite of how people usually go into business with others.
Michael: Yeah, that's very striking to me that that's actually how it, well, I mean, like, the first one makes sense to me, right? Like, the easiest way to figure out whether you can work together is if you've actually worked together. Like, you've already been in the co-worker setting, it gets a little easier. But it surprised me that, like, the next best is complete stranger. Which I guess just reinforces the point that if we've only done maybe some...we overlap in a community or we've done a little bit of stuff together but not much, that not only might you not know someone as well as you think, but you actually run the risk that you are making assumptions about them that are not actually correct that you otherwise won't discover until you get into the process with them and then by then it's too late.
Tanya: I think that's right. I think that you do think that if somebody is, like, in your group, you might think that they share your values because you think that they are, you know, part of your...you have this natural trust for them and you think that they are, you know, like you, you might skip over some of those harder conversations that you needed to have.
Michael: Only to find out later that this really isn't working very well.
Michael: So for people that are interested in this, like, what does it cost to go through this process? Because I'm imagining as well, like, for some people just, you know, the cost of forming a partnership and going through it has, you know, a couple of accounting and legal costs that are not trivial, then we add this on top and, you know, we have to be budget-minded as well, just kind of a business reality. So, like, what does it cost to go through this, you know, facilitation process building up to a partnership constitution? Or I don't know if you break into stages. Like, you can do assessment only or go all the way to the constitution. What does facilitation cost?
Tanya: Well, so for the facilitation, if it's up to three partners, it would be $1,400 per session. And that's, like, half a day. And the assessments with the full debrief included, so that's basically a one-hour phone call where you can have the results, you know, explained and then tied specifically to your goals are $500 per person. So I think that's something everyone should do that.
Michael: Yeah. So I can just go through the initial compatibility assessment. It's $500, you'll give I guess, like, me and my prospective partner DISC and Driving Forces and your compatibility score of how you guys analyze it and a phone call to kind of talk through what we learned from this. That's a $500 evaluation session. And you can either end it there or I guess if you get into that and then realize, "Oh, there might be a little more we have to talk about because we only aligned on 1 out of 4 primary motivators," then we're into engaging you for ongoing sessions, $1,400 for a half-day session. We can delve into this much further.
Tanya: It's $500 per person.
Michael: Oh, $500 per person. Okay. Okay, times however many partners I've got.
Michael: Okay. Interesting. So how did you come to this in the first place? Because I know, like, you started out on the advisor side and did that for many years. So, like, what was the path to saying, "Hey, I want to do conflict resolution with financial advisor partnerships?" How do you get to that point?
Tanya: Right. Well, probably, a couple things needed to be lined up for it to have happened. So first I was a business partner. So I started an RIA with my partner Lisette Smith. We had been working at a family office together in Boston and then we rolled out and started our own firm. And from there we merged with another firm and got larger, you know, for all the reasons that you would. We wanted scale and leverage and wanted to show clients that we had the deeper bench. That partnership, though, did not end up lasting, so I ended up...we both ended up selling our interest in that firm. And after a few years at home, I went to the Harvard Program on Negotiation to learn about conflict resolution. They have full semester classes in mediation and negotiation. Lisette had gone through at first and she had suggested that I do it. So we came back together to become partners in this business in 2012.
Michael: So, like, not to throw any former partners under the bus or anything, but I'm just terribly curious, like, you now do, you know, facilitation and mediation for partnerships having been through a partnership that didn't work out. So as you look back on, like, the post-mortem of that, like, what didn't work out? Like, what do you wish you had from all the things that you know now that you didn't know then that might have saved that partnership? Where did the conflict come from?
Tanya: Well, we did everything that you're supposed to do before you merge with another firm. We picked people who were very similar to us, that we respected a great deal. You know, it was two women in another city that had a partnership that was something that we envied and we had a shared vision for how we would serve clients. And we had very similar ideas about investment style and client service. But when we came and when we merged, this is where I think that maybe we didn't do it exactly right but we didn't know, we merged in two stages. And we merged the first stage, and the first stage was maybe some of the questions that were the easier things to do. We merged our marketing and our compliance. We went on one ADV, but we didn't merge the second part, so we didn't really merge what we would do if we didn't agree on something. And we didn't merge, like, our profit centers.
So when we came to a part where they wanted to go in a business direction that we did not agree with, we didn't really have the skills to figure out how the four of us, and you mentioned that number four earlier.
Michael: Yeah, especially when you came to the table as two versus two.
Tanya: We didn't have the skills to figure out. We didn't have anywhere to go in terms of how we could make it...how we were going to get to an agreement on something that could have made it last longer. Because we didn't come...before we signed on the dotted line we did not come up with a way to make it...we didn't have a mechanism.
Michael: And I guess particularly when you also haven't even fully merged the finances and the profit centers, like, it quickly becomes easy to just compartmentalize and silo, "Well, like, fine, you two do your thing, Lisette and I are going to keep doing our thing." And now you have what was supposed to be a shared business with shared vision that's actually two silos moving in different directions and not even working toward a shared vision anymore.
Tanya: Right. Well, from that perspective, I mean, it wasn't that contentious of a breakup. And it was easy because we hadn't merged that part, so it was easy to...
Michael: Oh, I guess that's the one good news. If you're not that enmeshed, it's a little bit easier to pull it back apart if you have to.
Tanya: Right. But it obviously did set the wheels in motion of, "There must be some something we could have done differently and there must be some due diligence that we could do in the future to make communication and decision-making better for other people."
"Easy Agreements" That Need To Be Sorted Out [1:07:02]
Michael: So as you look back, like, was it...because you've kind of talked about a few things. There's sort of communication conflicts because just, you know, we're different DISC styles and we make decisions different ways, There's driving forces and motivators conflicts that, you know, set you up for wanting different decisions, and then there's just literally, like, having a process about how you make decisions. So I guess both in the context of your own and other conflict situations that you see from the mediation side, like, is there one of these that tends to create more problems than the other? Is it mostly just if people just had systems about how they make decisions they'd be better? Or is it more, like, you have to get aligned about your driving forces because if you're not motivated by the same things this just isn't going to work? Like, are there some areas that tend to drive more conflict than others as you just look at the businesses you see that come in conflict?
Tanya: Well, to me, the driving forces and the DISC, that's really just the tool that sets you off for success for the facilitated conversation. To me, the facilitated conversation is really where the important thing happens. I mean, that's where really the facilitator needs to be listening for the things that the parties, like, the partners are saying so that no easy agreements are reached.
I mean, this happens a lot, where somebody will say, you know, "I think that my fee schedule looks kind of just like your fee schedule, so I think that will be easy to reconcile." But somebody has to say, "Whoa, whoa, on a second, whose fee schedule are you going to use? Who's going to get grandfathered? How are you going to be handling, you know, that some kids get pro bonoed and some kids have to, you know, get onto their parents' fee schedule? And who's going to be rolling this out? And who's going to be telling the clients that their fee schedule is changing? And when is that going to happen?" It's making sure that you don't get to an easy agreement in the meeting and then find out later that it's not as easy as it seems.
Michael: I love what you said there, just that your job is to listen and make sure no easy agreements are reached. I mean, it's a powerful thing, right? That's the truth is that, you know, merging...I mean, particularly when you're literally merging businesses to form a partnership, I guess some things are a little bit cleaner if everybody is starting from scratch, but when you're merging businesses together, like, there's this never-ending list of things that feel like minutia but at some point you have to either do it one person's way or the other person's way. Because if you're going to create a shared business with shared vision, like, you can't keep doing it your each separate ways, you have to agree to one common thing. And it's really easy to just make easy agreements, "We'll work it out," and then move on.
And I feel like particularly in our advisor world because we do have a lot of entrepreneur types, that, you know, one of the great things about entrepreneurs is just you see opportunity and possibility in everything and you just tend to roll with the punches and work things out and keep moving forward because that's one of the skill sets you need just to survive in an entrepreneurial environment, but it also creates a lot of temptation to say, "Yeah, we'll just move on with an easy agreement on that and then we'll sort it out later." And if you do too many of those then when you actually get to the moment of sorting it out, you find out you've got irreconcilable differences and now your partnership falls apart.
Tanya: Oh, it happens...you would be surprised how often it happens. I mean, somebody will stay...I mean, this really happened, someone said, "Well, I think we should just go through all of our software and all of our processes and we'll just take...whoever has the best practice, we'll take it." And the other person said, "Yeah, that's what we should do." And that they were going to just leave it there, I mean, not realizing that what surely was going to happen was that each person was setting themselves up to spending the next I don't know how many months defending their own decisions.
Michael: Yeah. Yeah, like, who wants to stand up and say, "Oh, well, I'm really bad on financial planning so we can use your process?" "Oh, and I'm really bad at investing so we'll use your process."
Michael: Yeah. And I actually have some friends that went through a similar situation. They spent, you know, kind of months figuring out all of the finances and everything else to merge their practices together and, you know, spend time socializing to get the staff together. You know, they had three staff between the two of them and wanted to make sure the staff would get along well. Like, all this stuff that they did, like, to try to set up the partnership for success and to work out the finances and the numbers and all that. And the partnership eventually blew up, and it blew up because one was a MoneyGuidePro user and the other was an eMoney user, and they could not...neither was willing to let go. Like, the one that used MoneyGuidePro loved MoneyGuidePro and the one that used eMoney was not going to move away from cash flow-based planning because they liked doing some really detailed tax stuff. And the whole deal blew up over the financial planning software.
And it wasn't really just literally the software, it was kind of the financial planning philosophies that they are embedded in them. But, you know, like, they spent all the time on the numbers and the finances and the staff and other stuff and just kind of glossed over the detail like, "Well, we're both financial planners so we'll just figure out which one we want to consolidate into and use going forward." And it turned out the choice of financial planning software was the end of the partnership.
Tanya: Wow, that's a real cautionary tale.
Michael: Yeah, and just, you know, one little thing. And I know others that have not quite gotten that far because they actually, like, they signed paperwork and had a merger and then had to unwind the merger over the financial planning software. But I've seen some that at least got close to the finish line and didn't go through because of similar conflicts on the investment end. Like, you know, they're both strong planning firms and they get along well and they can create some shared vision about what they want to create, but, you know, one was a strong DFA adherent and the other one likes using American Funds and PIMCO funds and believes a little more in active management. And, like, that was their deal killer. You know, they were good on planning philosophy but they couldn't align on investment philosophy.
Tanya: Right, those are the things that need to be really brought up, need to fail, to have that brought up to the...you know, kind of fail early I guess if you will.
Michael: Yeah. And I guess that's part of the point of kind of not letting them make easy agreements. Like, "If you guys are going to have such a great partnership, you should be able to agree on this now. And if this is going to be a conflict now then it's a good moment to figure out how you handle conflict and come to decisions, because if you can't actually resolve this in the pre-partnership phase, it ain't going to go very well when you're in the actual partnership stage."
Tanya: Right. Exactly. I mean, I think that the longer you spend on the pre-partnership phase, the implementation phase should go that much more quickly and more smoothly.
Michael: Yeah. Well, and, I mean, I hate to keep drawing the parallel to it, although I do think it's apt, like, while every now and then there are marriages where you just meet the love of your life and you date for a couple weeks or a couple months and go get married and then it lasts for 80 years, like, there are some stories out there like that, for the most part, if you cut the dating process too short, you do really increase your risk of divorce. Like, not that you've got to date forever, but you kind of learn some stuff about each other when you spend some time dating.
And the same is true in the context of forming business partnerships as well because, you know, they really are kind of like marriages. I mean, it's the same thing. Like, you will have conflict. If you cannot create shared vision and you cannot figure out how to work through your conflicts together, your relationship isn't going to survive. It's true in marriage and it's true in business partnerships. And, you know, we cut the dating side short sometimes I think.
Tanya: Yeah. I think the comparison is really not...you can't escape it. I mean, the communication being a pillar, the commitment being a pillar.
Michael: So are there other common problems that you see crop up in partnerships? Like, I feel like we're...there's now going to be people that are listening and they're like, "Yeah, I was getting ready to merge my firm but we've never talked about whether we're going to...which planning software we're going to use. Oh, God, I've got to go have that conversation." Are there other, like, just common problem areas that you typically see crop up that are, like, you know, your hit lists, like, the three things or five things that are most likely to become conflict areas that break up partnerships if you don't figure these things out or figure out how to have the conversation to figure them out?
Tanya: Well, I don't know if I would put it that way. I mean, every partnership is so unique that you never really kind of know what is lurking. So it's really having, like, multiple conversations to make sure that you're really talking about...I mean, even at the most basic level, making sure that, you know, you're talking about a merger and, you know, the other person wasn't really talking about an acquisition which has occurred. You know, talking about the staffing, what the staffing would look like when you were done with a merger, I think that might be something that bears discussing. You know, if you both have staff, talking about what that might look like when you were done. I mean, not that you have to put it in stone at the start, but if there's somebody without whom you would not do the deal if they were not employed at the end, I think that's something you would want to discuss.
Michael: Yep. I mean, I sort of feel like, again, I just keep coming back to, like, the marriage and dating end. Like, I feel like you make your list of deal-breakers, right? Like, you've got your future spouse deal-breakers, you know, "I just can't marry a person with whatever characteristics they are." That just are deal-breakers for you.
And you can get to the same issues with partnerships. You know, "Here is my investment approach. Like, I can be a little flexible, but here's my deal-breaker. Like, I ain't going all indexing," or, "I'm only going all indexing," or, "You know, these are the two staff members that I'm attached to. Like, they have to come with, the rest we can figure out how to merge. And maybe some people just don't have a fit in the new organization, but here are the two staff members. These are my deal-breakers. If they don't come along then it's no deal for me." I guess it's just kind of making your list of what are your deal-breakers and what are you willing to compromise on, and then have the conversation about the compromises where you won't let them have easy agreements.
Tanya: Absolutely. So, I mean, I have a worksheet that gets it that kind of specifically. And it's available on the RIA Match website. I gave it to them so they could make it available.
Tanya: It's called the Seven Elements worksheet. And you would kind of review it going into any negotiation, but you could also review it before you go into any discussion with any partner or potential partner. It's kind of looking specifically at what you hope to achieve. And you kind of fill it out looking at anything from your perspective and then the other person's perspective. And it kind of helps you clarify some of those issues.
Michael: Okay. All right, we'll make sure we put a link out then to the Seven Elements worksheet. So this is, again, episode 77, so if you go to kitces.com/77, we'll have the show notes there. Scroll down to the resources mentioned in this podcast area and we'll have a link out for the Seven Elements sheet if anybody wants to try it out, test it out for themselves, or I guess just get a sense like, "Here are some talking points and things you should be thinking about before you go into that meeting with your potentially future partner."
Tanya: Right. I mean, anything that you're going to, you know, making the list of what you really want to achieve and those deal-breakers, and kind of separating out what your true interests are would be very helpful to you.
Michael: So where does the business go for you from here? Like, for Partnership Resource as a business, where is your focus or what are you trying to build towards?
Tanya: Well, honestly, this business is still in the evangelist stage. I'm still in the process of getting the word out that this is a service that is available and would be helpful to any partnership or prospective partnership. I mean, I'm hoping to grow and have this be a go-to resource for partners.
Michael: Yeah. Oh, and, you know, particularly, I would think with...there's so much discussion in the industry these days about kind of the urge to merge and the pressure for consolidation, and, you know, do you need to be bigger to get economies of scale. And while I've actually been a little bit negative on some of that conversation, I think there's way more opportunity in just remaining a successful solo advisor than some people give it credit for, I do feel like there are more advisors than ever these days that are looking at partnerships and thinking about it, and maybe even having some of those conversations, and not a lot of framework about how to actually do that well and make sure that you create a partnership that succeeds and survives and thrives and doesn't blow up because you weren't willing to give up and go to the other person's financial planning software, or whatever your deal-breaker might turn out to be.
Tanya: Right. Even though we've talked about some of the horror stories of the process of putting together a partnership, clearly doing this work as a partnership bring so many benefits. I mean, being able to have a sounding board for your ideas and, you know, being able to partner with someone who has different skills than you do. And I think clients and regulators like to see multiple partners. And then, you know, the Moss Adams/InvestmentNews study is still relevant, right? The pre-tax partner income is much higher when you have a multi-partner firm.
Michael: Yeah, once you grow to a certain size. I know there's kind of this, like...well, and I guess this aligns up with your study as well, you know, small firms are very profitable, midsize multi-partner firms tend to actually be less profitable for a while because you have to do all this reinvesting into the business to build infrastructure. And then you get to the other side of that growth cycle and then everybody's income goes up again and you tend to have more partners and a much more stable business that's less reliant on you. You know, and lo and behold and then the satisfaction and all the other stuff starts going up as well. It's definitely that part in the middle. Like, you can see it on the profitability studies. It tends to be a stress point for firms until they grow to a certain size. And as you noted, from just the number of partners, it's those multi-partner firms that maybe haven't fully figured out how to make effective decisions as a group that were literally the least satisfied in your study as well.
Tanya: That's right.
Michael: So are there other, like, initiatives, other things that you're spinning up and working on at this point or is it mostly, like, doing more facilitations, doing more mediation work? Like, where is your focus at this point?
Tanya: Well, actually, I've just...with riamatch.com, I'm doing a joint venture between The Partnership Resource and riamatch.com. And I think Michael you know RIA Match is a platform for RIAs to connect with other RIAs who are looking to buy or sell or join a firm or merge firms.
Michael: Yep, their name is very little, like, RIA Match. It's a platform for matching if you're looking to try to find a partner.
Tanya: So we're trying to help people on that platform have access to this information as they make their decisions. So we're putting some of this capability on the platform in terms of a product and a service so they can have access to the assessments and the compatibility reports bundled together with the advice that you would need to interpret them and tie them into your goals. And that is now available on her platform, including the ability to kind of get a compatibility score with your match so you can kind of get a bead on whether...how the different matches you're making would rank, you know, versus each other.
Michael: So now I like very much envisioning this like eHarmony, Match.com-style thing, where you answer all these questions about your, you know, goals for your relationship of the future and then enter them in and RIA Match finds you your future partner that you're well aligned with.
Tanya: Right. Well, the platform already has a lot of questions on there about, you know, who you're looking for. And, you know, you kind of already are putting, you know, those deal-breaker questions, "Are you looking to be limited by geography or size or..." And then kind of adding onto this now some of these traits and values so you can kind of make better decisions. I mean, that's kind of what it's...giving you more information so you can make a better decision about who's the right fit for you.
Michael: Right. Interesting. And so this is now getting built into RIA Match, so advisors can either go through RIA Match and do this. Particularly I guess if you're searching for a partner, so, you know, you don't know yet who you're going to work with, you just know you would like to work with someone, to have a partner and not be on your own, you can go to RIA Match and find someone and then these tools are getting built into the process? Or if I'm an advisor that already has a business, like, I've got my potential partner I know who I'm talking to, I'm just trying to figure out literally if it's going to work or not then I can come to you directly and work with you directly on that?
Tanya: Yes, you could do it either way.
What Success Means To Tanya [1:25:02]
Michael: Okay, okay.
So as we come to the end here, you know, this is a podcast around success and paths to success, and one of the themes that always end up coming up is just success means different things to different people. And so, you know, you've been through this cycle, you built a firm, merged in, sold and left, building another business now. So as you look at this just at a personal level, how do you define success for yourself?
Tanya: Well, I think I will define success when I see kind of more partnerships, kind of, like, more taking advantage of this ability to...like, take advantage of all the things that partnership has to offer and kind of avoiding the worst pitfalls of the conflict that comes with it.
Michael: Oh, yeah, again, like sort of following the marriage analogy, like, you know, a lot of happiness and life satisfaction comes from finding that one person that you want to share your life with, there's a very powerful similar effect that comes from really having a good business partner with complementary skills where you can build something together at a shared vision. Two people together can often create more than what any one person can on their own, it's just hard to find that right person, right? It's hard in the marriage context and it's hard in the business context. So that's the problem you've beaten off to try to solve for people.
Tanya: I mean, to be successful, to move the needle and have that statistic about partnership failure go down, I mean, that would be amazing. But that might be a little aggressive.
Michael: Well, you know, who knows how many people we can reach with time. Hopefully, at least a few were listening to this discussion and either reflecting on past partnership problems or maybe avoiding ones in the future and will find this as some helpful food for thought about how to navigate.
Tanya: I hope so. That would be great.
Michael: Wonderful. Well, thank you. Thank you for joining us on the "Financial Advisor Success" podcast.
Tanya: Oh, thank you, Michael.
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