Something like 60/40 or 58/42 may be a good starting point for the next 2-3 years. Basically, if you are mining his book, he is getting ‘free’ production. And you are getting the opportunity to score his book and grow your production.  All in all, if his book is large and untapped by amibitious efforts, you may want to consider the same splits with the understanding that you sit ck down in 6 or 12 months to reevaluate.

He tells me he's generated all the revenue there is with his accounts, and is not interested in my trying to develop his clients.  Red flag. 

I have also contributed many new accounts that I got on my own, or people I didn't have great rapport with to the 50/50 split # we currently have (use it for clients we get in joint seminars we do).  I've contributed @ 1/2 mil, with another prospect worth 1 mil+ probably coming on board, and he has contributed nothing of his to it (other than our joint business).

Additionally, over the last 6 yrs., his revenue (annualized) has declined 4%, while mine has grown 16%.

I'm thinking a fair split is 60/40, 55/45, 50/50, with 50/50 on all the new joint effort stuff.

Not trying to be negative, just fair to both of us.

Forget the pay split for minute.  What will your business look
like in 5 years if you do not partner?  What will it be like if
you do?  Which is better?  

Financially, I believe (looking at historical #s) I will be way ahead if I do not partner.

The carrot is obviously the book when he retires, (for which I'd have to pay).

Will I gain experience I might not otherwise - probably.  Is this worth financial hardship for 5 years?  Tough call....

I would have to have an agreement that the book will be yours in some
fashion when he retires, and I probably would not go in with more than
a 2 or 3 year pay split agreement.  I would make sure sure you
have a divorce agreement in place now because you probably will
split.  I would consult with your firms team consultants and get
copies of partnership agreements and assistant comp contracts etc to
get an idea what others have done.



The business is getting more and more difficult, and the challenge of
growing a client base along with servicing and providing quality
planning and performance is tough for one person.  Teaming makes
this better.  This just may not be the best teaming opportunity
for you. 

Consider putting a bogey for production for the year at your current split.  Then, after meeting the bogey, the split is adjusted to a higher percent for you on income over the bogey. (i.e. 40/60)

Admittedly I'm judging on limited info, but this smells bad to me. 

Some of the things you've said:  He's 62. He wants to scale back. He admits his book is dying off. He wants you to mind the store. He says he's already maxed out the revenue from his book. He will not discuss his retirement plans nor an exit strategy. His production is flat to declining. Your business is growing. You've contibuted new assets & he has not.  Others in your office are telling you this is a rip-off.

Since you're already splitting new business from joint seminars 50/50 and it sound like youmay be the primary driver in getting that business, it seems like he's already getting a bit of a free ride from you, and he probably realizes that. 

For sake of a simplistic example, let's say there's a million of production between you two on your separate business -- your 35% would be $350k & his 65% is $650k.  Since you're annualizing at 16% annual growth & he's shown an annualized loss of 4%, in about 3 years your $350k will about $525k and his $650k will be about $570k or so. You'd be pretty close to the same as an effective 50/50 split at that time, without having to spend time "minding the store" on his book (which might well take take away from your ability to continue to grow your book as fast as you have).  After that 3 years, the tide will be in your favor assuming you're still growing your book & his is flat or declining.  So, I guess my question would be, why do the partnership (other than the carrot of taking over his book sometime down the road)?

I could be wrong, but my two cents would be to approach this as if you're in the driver's seat, assuming you still do want to pursue something with him.  Keep your existing books separate, as you have been.   In consideration for splitting new business 50/50 from the seminars, etc. (where it sounds like you may be doing most of the work & "minding the store" on those accounts), insist that you arrive at a contractual agreement for the succession of his book.  (And as Rightway says, get good counsel on how to best structure that.) For him to maximize the value he'll get when he retires & sells to you he'll have an incentive to grow his individual book. 

That's my "for what it's worth"!

What about assets?  Is this a 40 million book or 140 million book?

[quote=Duke#1]

Admittedly I'm judging on limited info, but this smells bad to me. 

Some of the things you've said:  He's 62. He wants to scale back. He admits his book is dying off. He wants you to mind the store. He says he's already maxed out the revenue from his book. He will not discuss his retirement plans nor an exit strategy. His production is flat to declining. Your business is growing. You've contibuted new assets & he has not.  Others in your office are telling you this is a rip-off.

Since you're already splitting new business from joint seminars 50/50 and it sound like youmay be the primary driver in getting that business, it seems like he's already getting a bit of a free ride from you, and he probably realizes that. 

For sake of a simplistic example, let's say there's a million of production between you two on your separate business -- your 35% would be $350k & his 65% is $650k.  Since you're annualizing at 16% annual growth & he's shown an annualized loss of 4%, in about 3 years your $350k will about $525k and his $650k will be about $570k or so. You'd be pretty close to the same as an effective 50/50 split at that time, without having to spend time "minding the store" on his book (which might well take take away from your ability to continue to grow your book as fast as you have).  After that 3 years, the tide will be in your favor assuming you're still growing your book & his is flat or declining.  So, I guess my question would be, why do the partnership (other than the carrot of taking over his book sometime down the road)?

I could be wrong, but my two cents would be to approach this as if you're in the driver's seat, assuming you still do want to pursue something with him.  Keep your existing books separate, as you have been.   In consideration for splitting new business 50/50 from the seminars, etc. (where it sounds like you may be doing most of the work & "minding the store" on those accounts), insist that you arrive at a contractual agreement for the succession of his book.  (And as Rightway says, get good counsel on how to best structure that.) For him to maximize the value he'll get when he retires & sells to you he'll have an incentive to grow his individual book. 

That's my "for what it's worth"!

[/quote]

This is what I was thinking without wanting to do the math. Do you even want his book if it's dying off and maxed already? Partnerships have to be equitable for both sides.

OK, Some things to think about... Look at his business; it marketable for continuations? Are you able to "take over" the book of business after he leaves? Is he introducing you into his market and setting you up for success in the long run? It’s not all about the startup income but the sustainability of expanding markets. Reps would give their soul for that. It would sound like an OK deal (if it was 40/60) (fight for that extra 5%, it adds up on a continuing basis of five years).

1. Evaluate the marketability of his current market in its expectations in five years

2. Have an understanding with him. Let it be known that you want to be postured and introduced in his market at every chance possible with intension on taking over that market in around five years.

3. If you think you could build a bigger business efficiently and quickly (in a good market) than you would do otherwise by combining both, decline the offer. If not take it.

Of course there are other factors. But you would want to make it a simple. Just some things to think about. (Not to be long winded.)

I met with this guy and proposed the following:

1)  That we not start at what we ended 2005 at, because I can't benefit from any growth I do that way.  I proposed 37% instead of my actual 35% for 2006.

2)  I also proposed shortening the time to get to 50/50 from 5 years to 4.

I figured both of these things was fair considering that I am in growth mode and he isn't, that he would probably start taking time off from the biz, and that when he retires, he would get payout on the combined book rather than just his portion (which is what he would get if he did the plan that our company offers).

He wouldn't go for it.  Told me it was "not fair" to him, that he wanted to start the payout at the 65/35 ratio we ended at in 2005, and that was that.  He also told me that I only did so well last year (I incresed my biz by 20% - he increased by 0%) because I had a great Dec.  I said so what.  I worked my butt off to have that great month.  You look at what someone actually did.  Real numbers.  He hasn't grown his biz in the last 6 years - I have.

A friend in my office says good riddance, that he was using me to grow his book.  I'm disappointed that I've lost the chance to possibly partner and eventually get the 55 mil he has.  There's no way I can amass those kind of assets quickly.

Thoughts?

You did the right thing.  Don’t let it get you down.  Put your head down and keep working…

I agree with Joe.

I started almost from scratch and I've built up 13M AUM and 7.5M is fee based.  I just began my 2nd full year.

The bank branches I cover are not considered "prime" so I sorta fly under the radar while I build my mostly fee based practice day after day.

I figured I can grow my revenues 30-50% over the next few years.

Parterning hasn't been an option for me and the more I think about it the less I find it appealing.

scrim

If you think it’s a good risk/reward…maybe take it.  A $55m book will generate something (even if it’s “dying off”), so if you feel certain you’d in inherit in sooner or later… I understand your feeling that it may be worth the risk that you get shortchanged in the near term.  Just realize it’s a risk

I wouldn't get the book for at least another 10 years.

There'd be a 5 yr wait to get to 50/50, then another 5 years at least before he retires.

[quote=newrookie]He wouldn’t go for it.  Told me it was “not fair” to him, that he wanted to start the payout at the 65/35 ratio we ended at in 2005, and that was that.  He also told me that I only did so well last year (I incresed my biz by 20% - he increased by 0%) because I had a great Dec.  I said so what.  I worked my butt off to have that great month.  You look at what someone actually did.  Real numbers.  He hasn’t grown his biz in the last 6 years - I have.

A friend in my office says good riddance, that he was using me to grow his book.  I'm disappointed that I've lost the chance to possibly partner and eventually get the 55 mil he has.  There's no way I can amass those kind of assets quickly.

Thoughts?[/quote]

I agree with your friend.  If he's close to retirement and only has 55 million under management, I am not at all impressed.  There is nothing you can learn from this hack, except what not to do (He hasn't grown his business in the last six years?  Are you kidding me?!!!).  Also, my experience is that my velocity on new business is considerably higher than current customers...sometimes as much as 10X, so I would focus your efforts on new business and forget the partnership.  My guess is you'll end up better off without it in the long run.

Also, if you ever get fed up with you firm and decide to go indy, it's much easier to take clients if they've not become familiar with a partner who ends up staying behind...another dirty trick of investment firms in my opinion...

Good riddance.  He sounds like a pompous ass.

I guess you are right.  His gross was just under 330K for 2005, and he’s been in the biz for 36 years.

[quote=newrookie]I guess you are right.  His gross was just under 330K for 2005, and he's been in the biz for 36 years.[/quote]

He's a piker. In 10 years, yours will be $1,000,000 if you're worth a sh*t.

[quote=newrookie]I guess you are right.  His gross was just under 330K for 2005, and he's been in the biz for 36 years.[/quote]

As I suspected...that's pathetic.  I was doing more than that in year six.  You are definitely better off without this leech.