Tips on forming stockbroker partnerships

My friend, Joel Beck, writes his own blog. I read it and commend the three people who read mine to read his as well. 😉

Joel’s most recent posting dealt with run-of-the-mill business organizations. Since a large part of our business deals with stockbrokers, I thought I would add to what he said, but bring it specifically to the broker-dealer world.

Here are some points:

1. What is the purpose of the “partnership”? Is it a coverage partnership, referral partnership or joint business? Is one partner nearing retirement? Or is it some hybrid?

2. What do you expect to get from the partnership? An easier life? More referrals? Increased access to more desirable clients?

3. How will the revenues be split? Each partnership model, with its unique motivations, will result in a different revenue split. In a “retirement” model, the split generally increases for the non-retiring partner. But there needs to be equity towards both partners regardless of the motivation for the partnership.

4. How will a partnership breakup be handled. A few companies have succeeded by forming on the back of a napkin. Compaq perhaps is the most notable (where are they now?). But wise partners have a formal agreement. Many firms have what they call either a partnership or team agreement. Many firms also have policies in place that determine how a team is to break up in the absence of a formal agreement. That agreement may suffice. Or it may be a good starting point. Areas that need to be addressed are the division of clients, communications with clients, compensation to each partner in the event that a perfect split cannot be achieved and, my favorite, dispute resolution.

A word on dispute resolution. I am a big fan of arbitration. It is private and can be much less costly. In the brokerage world, registered representatives would be required to arbitrate their differences. But it would still make sense to have an arbitration clause in the partnership agreement.

5. Liability. Here’s where it gets interesting. I handled a case 20 years ago where there was a fee split between a younger broker and an older one. The younger one was, shall we say, an aggressive investor. His elderly client, who was originally a client of the older broker, was not aggressive and filed an arbitration against the two of them and their employer. One of the theories of liability against the older broker was one of partnership.

So, be careful when forming split numbers, partnerships or teams. Get the agreement in writing and figure out who is responsible for what. It won’t make things perfect, but at least it will give you a framework.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

Print Friendly, PDF & Email