Partnership Agreement for Retirement Advisors

The agreement must specify whether the book is jointly owned by the firm or individually retained by the producing advisor. In most firm-first models, the departing partner receives a structured payout based on a pre-determined valuation formula in exchange for leaving the client relationships with the firm. If it is an advisor-first model, the agreement should outline a clear transition plan to ensure clients are not disrupted during the split.

Advisory firms are typically valued using a multiple of recurring revenue or earnings before interest, taxes, depreciation, and amortization (EBITDA). A standard agreement pre-defines this formula, often using a rolling 12-month average of recurring fees multiplied by an agreed-upon industry standard rate. This prevents subjective negotiation or litigation when a partner decides to retire.

Yes, any changes to ownership percentages or control person status must be promptly updated on Form ADV Part 1 and Part 2A. The SEC and state regulators require disclosure of any direct or indirect owners holding 5% or more of the firm's equity. Failing to update these filings within 30 days of the agreement's execution can result in regulatory penalties.

Partnership agreements should separate institutional retirement plan revenues from individual wealth management fees due to differences in servicing demands. Often, firms assign a higher payout percentage to the lead advisor managing the corporate 401(k) relationships, while splitting the residual firm profits based on equity percentages. This ensures that the advisor doing the heavy lifting on compliance-heavy ERISA plans is fairly compensated for their specialized labor.