We’ve been seeing team formations trend upwards over the last few years, as financial advisors look to add more value and enhance service to clients while managing and growing their businesses in an environment of increasing complexities.
When it works, the team framework allows advisors to to leverage the talents of others, manage an increased number of clients, prepare for a succession plan, create a multidisciplinary service model approach, and more.
But what happens when a team discovers they’re not a good fit, after all? Reasons can include disagreements over the direction of the team, perceptions of over or underweighted contributions, differences in service model approaches and/or simply one member wanting to go it on their own.
Dissolving a team can prove to be a tricky, and often sensitive, endeavor. For obvious reasons, the best practice is for all teams to have a well-documented agreement in place that clearly states what will occur should the team members decide to go their separate ways. Team agreements should include language addressing a breakup, including which team member receives which client relationships. These agreements should not only detail the accounts each advisor brought to the team, but should also address the accounts that were brought in after the team formed.
But what happens when there’s no team agreement — or one does exist but dissolution terms aren’t addressed within? Here are some approaches advisor teams can consider, and the pros and cons of each in the absence of a team agreement. A combination of the approaches above may result in an effective allocation of accounts. Using the right approach can help minimize the distraction and maintain productivity during the team’s breakup process.
The investment discipline approach
This approach works particularly well for teams with specialists and whose members have differing skill sets. For example, clients who diversify mostly in debt instruments would potentially be a better fit with the advisor who manages that side of the investments. Likewise, clients whose investments are positioned within discretionary accounts would likely be a better match for the advisor who runs his or her own discretionary models. The primary challenge with this approach comes in when clients are spread out across the different investment disciplines, or when expertise on the team is not clearly delineated.
The relationship approach
Many teams tend to review each individual client and determine which advisor manages the bulk of that relationship. This approach naturally works well for a practice that has a divided service model, or has differentiated key relationship stewards on the team. This method is not as effective with teams that intertwine relationships. In those cases, it can make coming to an agreement time consuming. Also, if the client does not ultimately agree with their assignment, it may cause confusion and resentment in the relationship.
The selection approach
In this model, one member selects a client relationship, followed by the next team member, and so forth. This approach is problematic for a number of reasons, and should only be considered in instances when there is no discernable primary relationship steward, no service model or investment differentiation and when the advisors are otherwise unable to agree. The chance of clients questioning, disagreeing or becoming disappointed is more common when this approach is used.
The ‘ask the client’ approach
As in a divorce where children are involved, it is rarely a good practice to include the client in a team dissolution process. Asking a client to “pick a side” could put them in an awkward, difficult position and cause them unnecessary anxiety. Clients might question the professionalism of the team should infighting become public. While there might be a need to use this approach with a very select group of clients, such as those with a strong working relationship with both advisors, we recommend it be used sparingly as involving clients at this level has proven to be something they do not want to experience.
Whatever a team’s approach, it’s important that each advisor on the team commits to a high standard of client care, considering the needs and individual investment goals of their clients as a focus during the process.
