EJ - GP & LP changes

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Aug 18, 2009 5:34 pm

Being a Limited Partner has been a source of pride for me for over a decade but now I hear that that the Executive Committee is about to change how both GP & LP returns are calculated.



No more we're all in this together. Starting in a month or so there will be different levels of both GP & LP. Some GPs will earn a higher rate on their GP than others and some LPs will earn a higher rate of return than other LPs.



Just doesn't seem right. What would Ted say?

Aug 18, 2009 5:46 pm

Those at the top of the pyramid always make more than later joiners...this just makes it official (if true...?).

Aug 18, 2009 5:50 pm

Well if you have 10 yrs there become 1 of 1 and go solo instead of 1 of 10,000

Aug 18, 2009 5:50 pm

I've always felt the GP/LP was a ponzi scheme. I'm sure spiff will be on here in a few defending the changes. 

Aug 18, 2009 9:26 pm

I have no diea wht the changes are (don't really care, actually).  But I never quite got the "Ponzi Scheme" thing with regards to partnership.  If you're offered partnership, you buy in, you get your returns, and that's it.  I don't know how it differs from any other professional partnership (i.e. accounting firms, law firms, etc.).

Aug 18, 2009 9:56 pm

I don't think there is a buy in with law firms...

Aug 18, 2009 11:11 pm

eyes are starting to open to the way of the world

Aug 18, 2009 11:31 pm
oneof10:

Just doesn't seem right. What would Ted say?

 
"give 'em the 'ol 1-2 punch"????
Aug 19, 2009 9:59 am
oneof10:

Being a Limited Partner has been a source of pride for me for over a decade but now I hear that that the Executive Committee is about to change how both GP & LP returns are calculated.

No more we're all in this together. Starting in a month or so there will be different levels of both GP & LP. Some GPs will earn a higher rate on their GP than others and some LPs will earn a higher rate of return than other LPs.

Just doesn't seem right. What would Ted say?

 
I can't see how they could justify making changes like that.  Would it be based on tenure?  Production?  Does the GP over IS earn less than the GP over Mutual Funds?  How about a guy like me who will have LP from both my home office time and my branch?  The negative feedback from something like that would be huge. 
 
Ted would say that's a bunch of crap.  If you're a partner in the firm, you're a partner in the firm.  Period.   
 
 
Aug 19, 2009 10:19 am
chief123:

I don't think there is a buy in with law firms...

 
Exactly. Partnership is usually something that is earned, not paid for. I guess I am a "partner" of Microsoft because I bought shares and now have a small ownership stake.
Aug 19, 2009 10:21 am

Spiff-


The ship is listing. Can you imagine the comraderie and togetherness this decision will have for the limited partners? Just one more nail...
 
What's the message?  The growth model doesn't work for successful FA's because in these times, they are losing at least 20% of their pay i.e., no bonus, and the firm still grows at their expense. This is a feeble attempt to get them some money back, paid by the lesser producing limited partners. If I were you Spiff, I would get my brethren together and voice your opinion...maybe you will get them to reconsider.
Aug 19, 2009 10:33 am
chief123:

I don't think there is a buy in with law firms...

 
Hmmmm.  That would be great.  I partnership where nobody has to invest capital into the business.  I didn't realize that "law firms" was a generic business model, and no partners at law firms buy into partnership.  So what if the business is struggling and you need to pay your staff?  What then?  Would a "partner" inject more capital into the business?  That's right, law firms don't have partners put capital in.  How do you start the business with no capital?  Who buys out the retiring partners?  Or is that just an accounts payable thing? 
 
Yes, there are some partnerships that will grant new limited partner shares on "sweat equity".  However, this is more comparable to "profit sharing".  But to make a general statement that law firm partners don't have to pay in is silly. 
Aug 19, 2009 10:37 am
Spaceman Spiff:
oneof10:

Being a Limited Partner has been a source of pride for me for over a decade but now I hear that that the Executive Committee is about to change how both GP & LP returns are calculated.

No more we're all in this together. Starting in a month or so there will be different levels of both GP & LP. Some GPs will earn a higher rate on their GP than others and some LPs will earn a higher rate of return than other LPs.

Just doesn't seem right. What would Ted say?

 
I can't see how they could justify making changes like that.  Would it be based on tenure?  Production?  Does the GP over IS earn less than the GP over Mutual Funds?  How about a guy like me who will have LP from both my home office time and my branch?  The negative feedback from something like that would be huge. 
 
Ted would say that's a bunch of crap.  If you're a partner in the firm, you're a partner in the firm.  Period.   
 
 
Since none of us know what the he!! he's talking about, it's hard to comment.  For all we know, it may be an improvement.  Maybe it's something more equitable.  Who knows.  I'd be interested to see the details.
Aug 19, 2009 10:47 am

I doubt it is better..I am guessing the GPs lost some money last year and want to prevent it from happening again. Also this makes another hoop to jump through.. For basic producers, regular LP, but for you guys really knocking the cover off the ball, double secret LP... Same for GP, my guess is that they are going to limit the type of GP to regional leaders.

Aug 19, 2009 10:51 am
chief123:

I doubt it is better..I am guessing the GPs lost some money last year and want to prevent it from happening again. Also this makes another hoop to jump through.. For basic producers, regular LP, but for you guys really knocking the cover off the ball, double secret LP... Same for GP, my guess is that they are going to limit the type of GP to regional leaders.

 
That actually makes sense.  Maybe GP's now get SLP or something similar.  The reason this seems more appropriate is that why would a RL producing $1mm, netting 550K (net, bonus, etc.) get the same GP returns as a corporate GP with a $100K salary?  Weddle's salary is only 250K I think.  How they could separate basic LP I don't know. 
Aug 19, 2009 10:54 am
B24:
chief123:

I don't think there is a buy in with law firms...

 
Hmmmm.  That would be great.  I partnership where nobody has to invest capital into the business.  I didn't realize that "law firms" was a generic business model, and no partners at law firms buy into partnership.  So what if the business is struggling and you need to pay your staff?  What then?  Would a "partner" inject more capital into the business?  That's right, law firms don't have partners put capital in.  How do you start the business with no capital?  Who buys out the retiring partners?  Or is that just an accounts payable thing? 
 
Yes, there are some partnerships that will grant new limited partner shares on "sweat equity".  However, this is more comparable to "profit sharing".  But to make a general statement that law firm partners don't have to pay in is silly. 
When I left Jones, that is exactly the type of arrangement that I joined. All costs which are shared are variable with the exception of assistant and healthcare. My portion has changed due to my sweat equity...
 
 
Aug 19, 2009 11:02 am

Well, can anyone confirm the existence of this supposed change?

Aug 19, 2009 11:02 am
B24:
chief123:

I don't think there is a buy in with law firms...



Hmmmm. That would be great. I partnership where nobody has to invest capital into the business. I didn't realize that "law firms" was a generic business model, and no partners at law firms buy into partnership. So what if the business is struggling and you need to pay your staff? What then? Would a "partner" inject more capital into the business? That's right, law firms don't have partners put capital in. How do you start the business with no capital? Who buys out the retiring partners? Or is that just an accounts payable thing?



Yes, there are some partnerships that will grant new limited partner shares on "sweat equity". However, this is more comparable to "profit sharing". But to make a general statement that law firm partners don't have to pay in is silly.





Law firms are typically organized around partners, who are joint owners and business directors of the legal operation; associates, who are employees of the firm with the prospect of becoming partners; and a variety of staff employees, providing paralegal, clerical, and other support services. An associate may have to wait as long as 9 years before the decision is made as to whether the associate "makes partner". Many law firms have an "up or out policy" (pioneered around 1900 by partner Paul Cravath of Cravath, Swaine & Moore[2]): associates who do not make partner are required to resign, either to join another firm, go it alone as a solo practitioner, go to work in-house in a corporate legal department, or change professions (burnout rates are very high in law[3]).

Making partner is very prestigious, especially due to competition at a large or mid-sized firm. Such firms may take out advertisements in legal newspapers to announce who has made partner. Traditionally, partners shared directly in the profits of the firm, after paying salaried employees, the landlord, and the usual costs of furniture, office supplies, and books for the law library (or a database subscription). Partners in a limited liability partnership can largely operate autonomously with regards to cultivating new business and servicing existing clients within their book of business. However, many large law firms have moved to a two-tiered partnership model, with equity and non-equity partners. Equity partners are considered to have ownership stakes in the firm, and share in the profits (and losses) of the firm. Non-equity partners are generally paid a fixed salary (albeit much higher than associates), and they are often granted certain limited voting rights with respect to firm operations. The world's oldest continuing partnership is that of Cadwalader, Wickersham & Taft, founded in 1792 in New York City.

Aug 19, 2009 11:04 am
B24:
chief123:

I doubt it is better..I am guessing the GPs lost some money last year and want to prevent it from happening again. Also this makes another hoop to jump through.. For basic producers, regular LP, but for you guys really knocking the cover off the ball, double secret LP... Same for GP, my guess is that they are going to limit the type of GP to regional leaders.



That actually makes sense. Maybe GP's now get SLP or something similar. The reason this seems more appropriate is that why would a RL producing $1mm, netting 550K (net, bonus, etc.) get the same GP returns as a corporate GP with a $100K salary? Weddle's salary is only 250K I think. How they could separate basic LP I don't know.





James D. Weddle                   2006        $250,000       $11,682       $9,108,322            $9,370,004

                                  2005          175,000        9,954        6,578,395             6,763,349

                                  2004          175,000        8,508        4,053,790             4,237,298

Aug 19, 2009 11:07 am

The downsides of a partnership

Hill ranked No. 18 on the previous year's list with a 2004 pay package of $1.8 million. That was the year he agreed to personally pay $3 million as part of a $75 million Edward Jones settlement with Securities and Exchange Commission and the U.S. Department of Justice. Hill was the highest ranking of five Edward Jones executives on the current Business Journal list. The investment firm's other top executives -- Rich Malone, chief information officer; Gary Reamey, principal of Edward Jones Canada; Jim Weddle, managing partner, and Norman Eaker, partner in charge of operations -- filled out the No. 3 through No. 6 spots in this year's ranking. Their large payouts came as a result of Edward Jones turning a $330 million profit in 2005, a record for the company.