AMCs More Like Agents Than Partners

Michael LoBue writes: An all too common characterization of the relationship between an AMC and its client organizations is that of a “partnership”. As “feel good” a notion as this may be, I contend that it is fantasy more than anything else. There’s a danger being too literal when borrowing a concept — after a fashion we begin to believe our own spin. I admit that our firm has used it before, but always with some discomfort; we won’t make this mistake again.

A partnership is defined as:

“A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested.”

There’s nothing about the relationship between an AMC and its client organization that meets the above definition. AMCs don’t cover the risky ventures and bad debts of a client organization, anymore than a client organization co-signs on leases or capital improvement projects of its AMC. We certainly shouldn’t share in the earnings of client organizations.

Clearly both parties in the AMC-client relationship have risks and rewards resulting from the provider-client relationship, but aside from enhanced reputations, there isn’t anything they really share. And, shouldn’t that be enough? AMCs certainly value their reputations as much as any other business asset. An organization can grow, but there’s no guarantee that this growth represents expanded revenue for the AMC — it all depends on the nature of the growth and whether it increases demand for the AMC’s particular offerings.

Before someone interprets this position as: “he’s saying there’s nothing in the AMC-client relationship that leads to common goals”, let me be clear — there’s plenty to bind the two parties together for mutual benefit, but we should not kid ourselves into thinking it directly involves shared investments and returns. If I’m right and this relationship is not a partnership, characterizing it as such can lull both parties into thinking it is and inevitably lead to making lesser choices over the course of the relationship.

An Agent Relationship
A more likely candidate is that of an agent relationship. AMCs work on behalf of their client organizations to find and take advantage of opportunities for the clients. If the AMC is successful in this role the client benefits by having more impact in its profession or market, revenue continues to flow to the AMC, perhaps even increasing from the client’s successes, and the firm’s reputation is enhanced as a trustworthy and results-driven AMC.

There’s one other aspect of “agency” that I like; I think it’s more likely to focus on finding the client organization real successes — ones that make an impact in the organization’s profession or market segment, than merely generating busy work.

Posted in Management Model.

One Comment

  1. Pingback: AMC-Client Relationship is Not a Partnership

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