Act in haste, repent at leisure goes the old saying and experts are warning that the number of practice partnerships heading for the rocks will increase this year.
While for many merging practices was a natural response to the spectre of financial services reform, some will be left counting the cost when these arrangements unravel.
Seaview Consulting directors Bob Neill and David Fotheringham believe that the number of merged practices that will end acrimoniously in 2013 is set to increase as hastily entered into relationships descend into protracted disputation and ultimately dissolution.
“We have witnessed an increase in the number of merged practices deciding to exit the practice partnership arrangement,” said Neill. “This trend can be expected to continue within the financial services industry into the foreseeable future.”
To some extent this flies in the face of traditional industry wisdom, which has seen financial planning practices encouraged to merge and specialise their activities as a strategy to optimise operational efficiency and respond to challenges.
Seaview Consulting believes the legislative requirements of the Future of Financial Advice (FoFA) reforms and increased expectations of sophisticated, educated and demanding consumers has also contributed to this need for practices to maximise their business activities.
Neill and Fotheringham said they would encourage business owners of merged practices to revisit their documentation as a priority, particularly those aspects which cover exit provisions to ensure they are relevant and provide a clear process for conflict resolution – and a smooth exit should circumstances deteriorate and the relationship become untenable.
“Separation is a part of life and for many businesses it is the right decision as the consequences of protracted animosity within a company can have far reaching effects that drains finances and emotions in equal doses,” said Fotheringham.
Counting the cost
The costs in commercial terms when partnership disputes are unable to be resolved are varied and include legal costs, erosion of commercial value and often an emotional toll on the individuals involved.
According to Neill and Fotheringham the triggers for business partnership separation fall into two categories: insurable and non-insurable events.
Insurable events are usually well thought through but difficulties can still arise if procedural aspects around the management of the claims and remittance process do not exist, if valuation methodologies are not well documented, if payment timeframes are not clear and linked to receipts from insurers.
Furthermore, additional documentation is required to address matters outside the insurance process including procedures around the settlement of debts, the release of security or guarantees, and other external factors that may impact the business.
Non-insurable events can include a principal’s desire to move to greener pastures, retirement, a partner not meeting KPIs, loss of trust or financial stresses.
“The difficulty is that no single document can predict the nature or reason for a request to separate. However, this does not prevent a business from documenting the framework in a manner that enables the effective and smooth management of the separation request,” said Neill.
Fotheringham added that the source of partnership breakups can invariably be traced back to the agreement documentation and absence of agreed exit terms for the stakeholders.
“The inclusion of a roadmap that articulates a mechanism and outlet to firstly raise concerns and address issues will prevent the ‘snowball effect’ that may lead to business destruction and the end of a previously friendly and commercially rewarding relationship,” he said.
