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Advisor News Multi-generational financial advisory practices are on the rise

‘Parents and children can read each other’s body language and they appreciate what the other might be thinking. Parents also know their children’s strengths and weaknesses,’ says Sam Febbraro, executive vice-president, advisor services, at Investment Planning Counsel Inc.

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As retirement approaches for many financial advisors, some are not looking very far for an eventual successor to join their teams. That’s because these advisors are welcoming their children into their businesses to serve clients in a multi-generational setting.

“[Family-run advisory practices] are absolutely something that we’re seeing in our business today – and I believe [this trend is] on the rise,” says Sam Febbraro, executive vice-president, advisor services, at Investment Planning Counsel Inc. (IPC) in Mississauga, Ont. “I’ve been with IPC now for almost 20 years and it [hasn’t always been] as common as it is now.”

Although bringing children on board isn’t the only way to develop a succession plan for an advisory practice, many families find the idea appealing. Advisors’ children, for their part, have witnessed the financial freedom and professional success that the investment industry has offered their parents, Mr. Febbraro says. Likewise, seasoned advisors are often looking for young advisors to join the business who share their same values and work ethic – and whom they can groom and mentor. Those qualities sometimes makes their children good candidates.

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“[For advisors, their] successor is seen as a reflection of the hard work that they invested over the years. It’s about building their legacy,” he says.

One of the advantages of bringing a child on board as a successor is that, in many cases, there’s already significant trust in that child, so it can seem to be much less risky than hiring someone outside the family.

“Parents and children, in most cases, can read each other’s body language and they appreciate what the other might be thinking,” Mr. Febbraro says. “Parents also know the strengths and weaknesses of their children.”

Trust not only extends between family members, but also to client relationships; if clients are loyal to a senior advisor, they’re more likely to give their advisor’s children a chance.

For example, Fred Esposito, senior vice-president and investment advisor with the Esposito Advisory Team at National Bank Financial Ltd. in Edmonton, says his clients are confident in his son, Mckenzie Esposito, an investment advisor in his team, because of the faith and trust they have in the elder Mr. Esposito.

“The advantage Mckenzie has – and it’s not that he gets a free pass – is that [clients] trust me, so they’re going to trust him until he shows them that they can’t,” says Mr. Esposito.

For Mr. Esposito, one of the major perks of bringing his son into the business is the extra time they get to spend together. He never encouraged Mckenzie to join the industry; instead, his son developed a passion for the business while helping at the office during a summer break from university. The arrangement has been beneficial for both of them. They also serve business owners and their families, including family businesses, so it’s created an added element of connection to clients and their children.

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“When it works well, it’s another layer of intimacy with your family. When it doesn’t work, it’s another layer of hell,” says Dr. John Fast, owner and family business consultant at Family Enterprise Solutions in Waterloo, Ont. That’s because the situation can fall apart for many reasons, one of which is that the child may not develop into an independent adult.

Dr. Fast recommends children work three to five years elsewhere first to develop confidence, independence and professionalism before making an “adult decision” to join their family’s practice. This will also provide children with an opportunity to sharpen their skills as another employer will likely offer more thorough professional development, particularly in the case of performance reviews.

“Doing an honest and rigorous performance review on your own family member is notoriously difficult because it clashes against the goodwill that exists in families,” Dr. Fast says.

As organizational processes can sometimes be overlooked, it’s particularly important that when a family member does join the business, rules and expectations are set and that proper documentation, which can include contracts and job descriptions, is in place.

According to Mr. Febbraro, families should put in writing when a succession plan may occur; what happens when someone becomes incapacitated or dies; and what the consequences are if the job description requirements aren’t being met. Working with a child can seem exciting at first, but enthusiasm and commitment can wane, he adds.

Families should also apply these processes to interpersonal matters. For example, families should decide whether the child will call the parent “mom” or “dad”, or by their first name around the office. And if families choose to go on a first-name basis, they should still be transparent and explain their relationship to clients, Mr. Febbraro says.

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Similarly, family advisory teams should create a plan on how they will communicate – particularly when there is tension or discord. For instance, unresolved emotions from family matters can creep into business conversations, causing heated disagreements. Instead of storming into a family member’s office, it’s better to set up 10 minutes to talk later in the day.

“Family businesses can be emotional and they’re always running non-stop,” Mckenzie Esposito says. “The challenge is that, sometimes, family members can forget that they’re also business partners. ... [So,] it’s important to have a process around how you deal with conflict because it’s inevitably going to happen.”

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