Advise Together, Rise Together

J. Christopher Cooke never entertained the idea of working with his financial advisor father for fear that, he says, they “might kill each other.”

Similarly, Mike McNamara was “scared to death” that if he urged his son and daughter to join his practice, he would, he says, “wake up five years later and have them hate me.”

However, both FAs overcame the fear of filial team-ups and are now enjoying the financial and emotional fruits that only a harmonious family practice can bring.

So, too, are many other advisors, who have realized that in union there is strength, especially when that union embodies family members — and especially now, during the turbulent financial crisis.

“Having somebody to lean on that you truly trust, love and know they have your best interest at heart is invaluable,” says Cooke, managing director-investments, Cooke Financial Group of Wachovia Securities, a subsidiary of Wells Fargo & Co. Secondly, “trust is far greater than with someone that’s unrelated — it allows you to make quicker decisions.” The Group manages assets of about $1 billion.

When Laila Marshall-Pence brought husband Dryden Pence onboard 10 years ago, what had been a sole proprietorship notched a big growth spurt. That’s because “we decided to become a firm as opposed to an individual practice. It’s the business model that attracts larger clients,’” says Marshall-Pence, of Pence Financial Management, in Newport Beach, Calif., which is affiliated with LPL Financial and manages assets of about $400 million.

Family practices — be they welcoming an advisor’s spouse, children or other relatives — vary widely as to division of responsibilities and compensation structure. Yet, all have one major commonality: They pave the way for a smooth business succession.

“I have an ‘If-Mike-Dies’ agreement in place,” says the jocular Mike McNamara, 60, whose son Justin, 29, daughter Alyssa, 27, and son-in-law Kirk Reed, 27, became part of his independent practice, McNamara Financial, affiliated with Commonwealth Financial Network, within the past six years. McNamara says the succession plan essentially states that, “if Mike dies, they buy the business, Mom gets some money, they pay her for a few years — and everything is hunky-dory from there.”

Family Businesses See Gains

Family practices are created most often when advisors’ children hop onboard — sometimes overcoming their or the elder advisor’s early reluctance. What are the chief benefits to these joint ventures? A broader range of wealth management offerings, a state-of-the-art practice — and, net-net, greater profitability, experts say.

Donald B. Barter, a Merrill Lynch Wealth Management advisor who has run teams since the 1970s, had tight specs for taking on a new FA.

“I’d been looking for a spark plug for more than five years, but was unable to find anybody that excited me,” says the senior vice president. “I finally found someone — he just happened to be my son.”

Though both father, 62, and son, 34, had discussed partnering before, Donald felt it was important for Jonathan to first prove himself on his own. After college, he took a job on Morgan Stanley’s fixed-income trading floor; by 2000, he was working on Merrill’s institutional sales desk. In March 2008, Jonathan joined Dad’s Barter Group, a move to the retail side. The FAs now manage about $600 million in assets.

“I’ve never had a moment when I doubted what I did,” says Jonathan, a first vice president. “For me, it’s a great career path, and I can own a business as long as I choose to. For my father, it gives him a great succession plan. Part of the deal, though, is that he’s not allowed to retire officially. I always want to know he’s there.”

Frequently clients breathe a sigh of relief when a son or daughter joins an aging advisor’s business. It’s a signal that the practice will endure.

“Some clients were very nervous that my father would start taking more time off. But when I came in and they saw continuity, they began to bring in a lot more of their assets from other relationships, ” says Michael I. Schwartz, second vice president-wealth manager, The Schwartz Group at Smith Barney, who has worked with dad Harold W. Schwartz since 2004. Michael, 30, takes care of most of the financial planning.

“I wouldn’t even know how to put it through on a spreadsheet,” remarks Harold, director-wealth management, 64.

Michael, earlier with Lazard Freres, came to Smith Barney as an FA in 2002 working on his own. “I thought the next logical step would be to provide continuity to my father’s practice and see if we could take it to a different kind of level,” he says.

Every year since, the Group’s profit has scored significant increases. In Boston, the Schwartzes manage assets of approximately $350 million.

With Chris and brother Brian’s arrival at the Cooke Financial Group, in Indianapolis, profitability tripled over 15 years. “Some of that is new clients and young legs,” Chris says. A number of new accounts told him, “I always wanted to work with your dad. But I felt like he was too close to retirement, and I didn’t want to give him my money. But now that you and your brother are here, I feel comfortable joining your group.” In fact, Chris, 43, and Brian, 41, have taken over day-to-day responsibilities from their 69-year-old dad, John Cooke, a Barron’s Top 100 advisor.

The addition of Justin and Alyssa — both joining right out of college — and Reed — after two years at an engineering job — enabled McNamara to convert from a mutual fund A-share practice to primarily managed money and boost revenues. He has about $220 million in assets under management from 1,300 clients.

“I couldn’t have done [the conversion] without Justin designing the portfolios and making the recommendations. I’m basically a front man,” McNamara says.

Alyssa is Dad’s paraplanner. Her husband Kirk works in operations. All three young people are on “a junior partner path to be full-fledged financial advisors,” says McNamara, in Marshfield, Mass. Their participation has enabled him to devote 90 percent of his time to client meetings; since last September, that’s averaged a whopping 10 a day.

Merrill’s Barter Group has a unique arrangement: Donald is based in Syracuse, N.Y., as always; but Jonathan makes his office in New York City, where he previously worked on his own for 12 years and formed many business connections. The Barters communicate all day by cellphone; but they hold joint in-person client meetings in both locations several times a month.

Jonathan’s “definite goal is to double the business in three to five years. I beat that into my Dad’s head every day,” he says.

Already, the younger Barter has revamped the practice from a horizontal business model to a more efficient vertical structure, whittled down its roster of money managers to the best of the best and is introducing more automation. He says he’s giving the practice “a boutique feel” by “culling” the FAs’ book to focus on top-tier clientele. Father and son have also formed partnerships that, under the Barter Group umbrella, have other Merrill advisors working with certain accounts the Barter team acquires.

Unique Family Issues

In most family practices, clients are shared; yet compensation approaches vary widely from team to team. The Cookes are three equal partners; but each year a different split, based on individual achievement, is determined.