RIAs can break through the performance torpor that besets mixed-philosophy partnerships without breaking the bond

For many RIAs, growth is hindered by partners unwilling to bear the hours, the energy depletion, the risk of expansion, and the sacrifices needed to make it happen – even if other partners are driven to compete.

Depending on the number of partners, a low-intensity approach can win out. 

In my experience, about 30% of partnerships will diverge on business growth targets. It can happen at two-partner firms, or multi-billion-dollar AUM, multi-partner firms. 

But this doesn't need to be a partnership-breaker. Partners willing to revisit discussions about mission – then assess incentives – can yield a leap forward in the firm's growth much more like the other 70%. 

This is not a criticism of partners who prioritize lifestyle over business performance. It's perfectly rational to question whether the rewards justify the personal sacrifices.

Business expansion can come at a high human price: longer hours, higher stakes, and depleted energy. We all have personal lives and other interests.

The question is, can business partners with opposing visions – one lifestyle-minded, the other growth-driven -- overcome their incompatible aspirations? The answer is yes, but…\

Strategic growth planning

Partners must first confront difficult philosophical growth questions that may require material compromise. 

Secondly, there must be a genuine resolve to make the practical changes required to accommodate change. 

Third, they must carry on with a clear-eyed view of how to measure growth and how to set growth targets. This, in part, is the necessary, often hotly debated hard work of strategic growth planning. 

Client growth is the leading indicator, followed by AUM growth, then revenue growth. It’s important to track all three. 

What I always find so striking, however, is the gaping performance chasm between industry leaders and the rest of the pack. 

Top-performing firms achieved five-year net asset flows 2.6 times stronger than other firms and added 2.5 times more new client assets in 2023, the 2024 Schwab benchmarking study revealed.  

In 2023, medium client growth was up 8.6% and asset growth was up 18.2%, according to recent data from The Ensemble Practice, a Seattle wealth management firm.

The dilemma

On one side, we have the growth-driving partner, adding new clients, and slogging through business development and networking. These partners are big on making more money -- a lot more money. 

On the other side sits the partner seeking to simplify life to spend more time with family and friends. They have reached their financial comfort zone. They are ready to take their foot off the gas. 

I am not here to tell any owner what they should want from their entrepreneurial journey. But I am here to lay out alternatives and map a pathway towards common ground. 

The needs of high-net-worth individuals must be met by most RIAs to achieve success. Though Schwab data shows they are just 11% of total clients, they are about 66% of the assets and 38% of revenue.

All-star opportunities

These are not your everyday folk. High-net-worth clients live in a world of premium experiences. 

Their expectations are sky-high, and the client experience needs to measure up. The ingredients in the service recipe include top talent, leading technology, polished operations, and branding. 

How in heaven can this happen without growth? 

All-star players want all-star opportunities, or else… 

If you’re not adding clients, revenue, and profit, you’re not creating opportunities for promotion or higher compensation. Career paths will be underwhelming, and your best people will look for their next career move elsewhere.

That's not consultant fearmongering. In 2023, 57% of advisory firms reported team member resignations, according to The Ensemble Practice. 

Recipe for chaos

We have to imagine that employee dissatisfaction plays a significant role. The turnover of talent won’t go unnoticed by clients. 

Client service standards will likely be disrupted, and observant colleagues will start to question their future in the firm. This kind of disruption often leads to, well, more disruption and an inability to maintain any momentum. 

Even lifestyle partners will feel a serious pang from this one. If growth is sluggish, you can be sure this won’t reflect positively in your valuation.

Future owners will size up your performance and may look for other more rewarding options. Current business partners may also grow discontented, questioning if their efforts can be better applied elsewhere.

In short, if your firm represents your largest asset, the argument for healthy rates of growth becomes hard to ignore.

Practical compromises

If the case for growth is still not compelling for all, but partners are committed to moving forward together (this won’t always be the case), you have a few options. 

Stay with me.

To accommodate lifestyle-focused partners, consider reducing their client loading and providing enhanced advice team support to ease their capacity.

While these teams may generate lower growth and profits compared to others, it can be a worthwhile trade-off to maintain partnership harmony. 

Let's talk compensation – yes, sorry. If a lifestyle partner's workload decreases, their labor-based pay may need adjusting. 

Path forward

While owner distributions would not be affected, compensation for actual work should reflect each partner's role. It's a delicate but necessary conversation, again for partnership harmony. 

Where the temperature in the partnership group has been too high for too long, willingness to make such accommodations may have passed. 

More drastic solutions such as a partner buy-out or external sale may be the only amicable path forward.
Try as you may to ignore it, the two-speed firm can upend partnership dynamics. 

Before you get to that point, fostering open, regular communications is your best bet for partner unity.

Eliza De Pardo is the founder and Director of De Pardo Consulting