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Succession planning specialists say that only about one out of three family businesses successfully transfer from the first generation to the second. Although family business transfers have not been commonplace among independent financial advisors, this appears to be shifting. Boomer advisors see their children as an appealing

alternative to grooming an unknown or selling to a consolidator. Even though financial advisors by nature are intuitive, generally good communicators, and have witnessed their own clients’ anguish over transitions, many suffer from the same affliction when it comes to their own plan: How to transfer the business without destroying the family?

Parents couch their concerns in terms of fairness, work ethic, the need for experience, and getting a fair price for the practice. Children cite issues of having the right business model, authority to make decisions, and affordability of the purchase. Very often, they are talking past each other.

I recently had a conversation with an advisor who joined his father’s practice several “bumpy” years ago. Initially, he described his concerns as a conflict with his dad about how to transform the practice to be more substantial and relevant to current circumstances. But the real issue was: “As the son, I am currently facing a crossroads of staying with the business or going on my own. If I stay, there are questions as to what I should be entitled to in terms of compensation, responsibility, and future ownership opportunities. If I stay with my dad,” he continued, “What should be my role? How should that be structured? What is fair compensation? What percentage of revenue should I be entitled to as a non-owner, non-profit-sharing employee? Should I be entitled to ownership? To whom do I report?” That last point seemed to give him the greatest heartburn since he obviously had been reporting to his dad his entire life.

He conceded that the option of leaving and starting his own RIA did not excite him. So the true crossroads wasn’t between staying with the business or making a go of it on his own. The real issue facing both his father and him was between continuing their patterns of dysfunction or learning a new way to resolve their differences. When pushed, it appeared that son and father were on different pages because they had no framework for discussing their differences and negotiating an agreement.

Strategic Decisions

The key for them is to try to make decisions about the business–including compensation, ownership, and responsibilities– in a strategic context. What business are they in and why? Where do they want the business to be five years from now? What will they need to invest in as a business to fulfill that vision? If you have a clear goal for the enterprise and a plan to achieve it, then you can evaluate whether certain actions will move you closer to your vision or detract from it. This helps to neutralize issues related to ego, control, and money by putting issues into the context of what you are mutually trying to accomplish.

A good place to start resolving conflicts is to have each party define their own definition of success. They should consider personal fulfillment, business fulfillment, money, time, responsibility, the nature of the people they work with, family relationships, personal ambition, and career goals. Parent and offspring need to know their own answer and it’s equally important to convey that answer to each other.

When he was honest with himself on the answers, the son’s choice to remain in his father’s business or go out on his own became much clearer. Unfortunately, conflicts arise between many parents and children in business–and sometimes in their personal lives–because both are reluctant to convey what’s important to them.

If I were a young advisor, I’d want to have a frank discussion with my father over what I hope to accomplish in the business, what I’d want out of the business relationship, and how I expect to be recognized emotionally and financially. If I were the father, I’d approach the same issues from my perspective. I’d want to talk about how to structure the transfer of ownership, (e.g., gift, partial sale, discounted sale).

If family members can’t come to agreement on a business relationship or on a set of action steps that will be fulfilling to all parties, then should they split? If neither trusts the other, they may have to do that anyway. In our experience, parents who own practices are wrestling with demons related to their identity; their own financial security; and loss of control.

The children, on the other hand, are tormented by the idea that the purchase price will be a financial stretch and deep down, they feel a good parent should give them the business, not sell it to them. The baby boomers who made sure their kids got everything, now want them to act and behave like entrepreneurs yet didn’t foster this spirit during their upbringing.

Recently I conducted a retreat for the Wealth & Estate Planning Group of London Life in Toronto. Over two days, fathers, mothers, sons, and daughters from 15 practices came together to discuss how to effectively make the transition. I partnered with Judy Barber, a family business consultant and licensed marriage and family therapist from San Francisco. My job was to address the hard issues of business succession, and she was to address the soft. The overlap is where the magic of family transition occurs, or conversely, where the dream ends tragically.

We asked each person to identify his struggles in the family transition process. The list was lengthy but provocative:

  • How do we start the conversation?
  • How do you keep it professional?
  • How do you address a job transfer?
  • How do you make the deal affordable?
  • How will the transition affect other family members?
  • How do you move from parent and child to business partners?
  • How do we ensure other family members perceive fairness?
  • At what point will the parent let go?
  • What needs to occur for the parent to have enough confidence in the kids?
  • How do parent and child trade places?

Avoidance & Failing to Plan

All of these issues are solvable, but that there are two major pitfalls that prevent successful transitions: Avoidance of sensitive topics, and failure to plan.

According to Barber, both parents and children convey mixed messages, and those conflicted thoughts and feelings make it difficult to discuss critical subjects. For example, a parent may say to a child, “I only want you to work on ‘A’ clients, or top-priority clients,” but then assign them all the low-priority clients. Or, in private, Dad may say, “I’m excited to have you as an advisor,” but in client meetings, introduce her as his “little girl just learning her way.” He’ll tell a client something like: “She’s going to take over the relationship, but if you have any questions or concerns, you can always call me.”

Parents and children also avoid sensitive emotional issues. Among the common taboos are the fear of aging and dying, the impact of their relationship on marriages, one’s identity in the community, the fear of losing control and the fear of competition with the next generation. Underlying all of this for many is the fear that aging will make us the powerless “child” after always being the parent–a role reversal many of us already see in our normal lives.

Families fail to plan because a decision can be frightening for both parent and child, but for different reasons. Parents are not always ready to recognize that the son or daughter has become an adult. They also struggle with transitioning from being the boss to a consultant, and then out of the business altogether. They sometimes see their children’s eagerness to create a succession plan and a new business model as a monster that needs to be put back in the box. Barber points out that when people lose their role in an enterprise, there is a period of mourning that includes all the stages of loss, including anger and grief.

She suggests a couple of techniques:

  1. Create an intentional dialogue. Apply the techniques of listening (hear the feelings behind the words), summarizing (restate what you heard without expressing your own opinion), validating (acknowledge that what the other person said makes sense for whatever reason you can justify), and empathizing (acknowledge what they are feeling).
  2. Manage the overlapping issues. From a family perspective, a relationship is based on loyalty, emotions, belonging, continuity, and harmony. From a business perspective, a relationship is based on tasks and responsibilities, competence and commitment, growth and change. To manage the overlap, it is important to devise means of effective communication, including listening, clarifying roles in the business, and for the parents, creating a constructive process of training and involvement so the next generation so can build up sufficient confidence to assume responsibility, and eventually control.

Effective succession planning is not totally about relinquishing ownership control. Eventually, the founder will need to contemplate how responsibilities for leadership and management are transferred as well. As the roles transition from parent to child, the father or mother will need to be clear about the criteria to ensure competence, commitment, and accountability, and what they will do to ensure their child does the right thing, to mitigate the anxiety and risk to the whole family. But the parents also need to manage their own demons, to remain fully committed to making the transfer work: for the sake of the business–and the family.


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