In the rough-and-tumble world of financial services, there flourishes a dynamic, nurturing niche: the parent-child financial advisor legacy practice.
With ever-multiplying FA teams at wirehouses and large regional BDs, along with the big move to independence, filial practices have been on the increase. And they are expected to remain so, though no major studies have been conducted to date.
Giving impetus to the trend are veteran advisors with an eye toward retirement who are seeking to structure reassuring succession plans. Large firms, in fact, are encouraging parent-child practices as a way to keep client assets in-house.
At the same time, the coming of age of the the millennial generation — with its abiding love of high tech and growing appetite for digital financial services — creates an attractive opportunity for FAs’ like-age children to join their parents’ thriving practices.
“Many advisors, particularly successful ones, are keen to acquire younger clients. So having a child come into their practice who will focus on acquiring same-generation clients helps. Because [FAs’ children] are also more tech-savvy, they can help their parents grow online services, which more and more advisors recognize is key to attracting and acquiring the next generation,” says Sophie Schmitt, senior analyst, wealth management team, with Aite Group in Boston.
Only 21% of a financial advisor’s client base is age 40 or younger, according to an Aite study in 2014.
On-boarding FA trainees in their 20s or 30s brings fresh perspective and modern approaches to practices where senior FAs cling to “old-school” ways. Further, a legacy practice serves as a competitive advantage by reassuring clients and prospects that a next-gen advisor will be there once the parent advisor exits.
Of course, to make such practices work, it’s essential that parent and child enjoy a mutually respectful relationship and get along unusually well.
In San Francisco, Abu Farukh, 65, senior vice president-investments at Golden Gate Wealth Management of Raymond James, brought daughter Misty Farukh into his business eight years ago, when he was with Smith Barney.
Now, Misty, 30 and an associate vice president-investments, does most of the practice’s financial planning. Overall, she has promoted and facilitated one-stop shopping for clients’ financial needs.
“Misty brought the younger side,” says Abu, whose $80 million practice is with RJ’s employee channel. He has been an advisor for 36 years. “For our clients with kids and grandkids, Misty definitely makes the relationships much deeper. She speaks the young people’s language. I don’t. Since she came in, we’re taking care of multiple generations.”
In union there is strength. The same goes for unions of parent-child FAs.
“Alex is helping me take care of our clients better than I could on my own,” says Jerry Goss, 66, C.E.O. of Goss Wealth Management, whose son, 32, joined his practice in 2009.
Many children are partners compensated by a revenue split; others are salaried employees and earn bonuses. In most instances, a single book of business is serviced by the parent and child together.
To be sure, next-gen FAs are taking their parents’ practices to a higher level by introducing new and different ways of operating. For instance, young advisors often put more stress on efficiencies, preferring to rely on systems, processes and flow charts. Free of digital angst, they routinely employ electronic technology to accomplish tasks for which their parents used pencil and paper for many a decade.
Conveying to his two daughters all the client information he had kept in his head for more than 30 years was something of an ordeal for Manuel Rey, 64, managing director of Rey Financial Group of Wells Fargo Advisors. Jaclyn, 30, joined Dad nine years ago; Ashley, 28, followed four years later. Both women are now associate vice presidents-investments.
“Before, it didn’t matter if the information was in writing because my father was the only person talking to the clients,” Ashley says. “But our [clientele] is a web, and half of them are related to one another or are best friends. Jackie and I want to continue to build off those relationships.”
The three advisors, based in Short Hills, New Jersey, manage client assets of about $190 million; accounts average $2 million to $5 million.
Open communication within the team is key to making the Rey practice work. Indeed, that togetherness manifests in one 20-by-30-foot office, which holds their three desks and a conference table.
“I’m living a dream here! I’m the happiest dad in the world!” enthuses Manuel, who emigrated from Cuba at age 10. The Rey motto: “Family first, Family second, Family third!”
“I’m trying to pass the business over to my daughters,” Manuel says. “I know they’re not going to lie or stab me in the back.”
Trust is of course paramount. But perhaps the biggest impediment to a successful parent-child partnership is the senior advisor’s reluctance to relinquish control, while the child is impatient to make changes. Therein lies a power struggle.
“I recall times when Misty has challenged me; and I thought that if it were somebody else, I’d probably tell them: ‘You’re done — out of here!’” says Abu Farukh, a native of Bangladesh who came to the U.S. in 1970 to attend college. “So I had to learn to compromise; and she had to learn not to keep challenging me on everything.”
Patience and persistence helped the Rey sisters convince their father to make changes.
“If you want to keep growing and get where you want to be in the future, you can’t do what you did 30 years ago,” Jaclyn Rey Pennella told Dad.
In the bible of FA parent-child do’s and don’ts, the first, and perhaps most important, commandment is: At the outset, clearly delineate in writing your daughter or son’s role, responsibilities and compensation, including how that could shift as the practice evolves.
At the Roberts/Hutto Group at Merrill Lynch, in Sun City, a suburban Phoenix retirement community, Ed Roberts’ role was hazy when he joined his parents’ practice in 2000. Brother Craig, four years Ed’s senior, already had been working there for nine years. But with no specific plan, Ed got off to a rocky start; and in 2004, three years after Craig became lead advisor, he left. Three years later Ed returned but not without making sure his role was carved out and specific.
“The first time was difficult because I was the younger brother and outsider. I wanted to have more say in the business,” says Ed, now 48.
Dave Roberts, 75 — who retired in 2010, as did wife Ann, a certified financial planner — admits: “When Ed first came in, we made the mistake of not giving him more responsibility.”