Succession planning that’s all in the family

Sixteen years ago, Jessica Abrams’ life revolved around her pony. To buy the horseshoes and other accessories she needed for shows, the then 14-year-old baby-sat several days a week and carefully saved. Little did she know that her future boss was making note of her money-managing abilities. “Jessica has always been good at math and with numbers,” said her mother, Holly Hunter, a certified financial planner and founder of Hunter Advisor LLC in Portsmouth, N.H., the firm where Ms. Abrams now works. “It had been part of her plan to go into financial planning as a career.” Rather than searching for a possible successor among other staff members in their practices, many advisers, such as Ms. Hunter, are recognizing that their children may be just what they are looking for: a future firm leader. Passing on the business to a child ensures that someone they already know and trust will be leading the practice, advisers said. “The clients know they will be dealing with the same people, and the staff won’t have somebody they don’t know running the business,” said David M. Smith, a certified financial planner and president of Lifetime Planning Inc. in Camarillo, Calif. He and his son, Eric, are partners in the firm, with the younger Smith slated to succeed his father in 2010. However, the path was a little different at Hunter Advisor. The mother-daughter duo currently is working on a succession plan and discussing partnership options. The dialog has not been without hitches. “The first time we had talked about it a couple of years ago, I felt like she wouldn’t be a good fit,” Ms. Hunter, 52, explained. “At the time, I didn’t think she was terribly sensitive to how many hours are required to run a business.” Prior to joining her mother’s firm as a junior planner this May, Ms. Abrams, 29, was a client service manager with a small firm in Albuquerque, N.M., where she handled financial planning and worked 35 to 40 hours a week. But that was nowhere near the 50 to 60 hours a week her mother normally worked. Ms. Abrams, who’s preparing to take the CFP exam next March, said that working with her mother has influenced her outlook. “I was looking for a company that I could eventually be a partner in,” she said. “Since I’ve had time to mature a bit, I see my mother as someone who is dedicated to her business, instead of thinking, ‘My mom works an awful lot.’” Questioning whether a child would be up to task, like other succession anxieties, is part of the planning process, advisers noted. The possibility that a prospective successor may dislike the job or that their goals may not match with those of the firm’s owner were key issues when Dan Gannett, now a registered principal at Park Place Wealth Advisors Inc. of Orinda, Calif., decided to accept his mother’s offer to join the practice last year and leave a 15-year marketing career in Silicon Valley. “The opportunity was discussed around family gatherings for a number of years,” he said. But after having three children, Mr. Gannett wanted to work for an employer who understood his family obligations and wouldn’t require extensive travel. “When you’re thinking of a career, you have that pro-and-con list: What are the goals? What if I hate it?” he added.
His mother, Jean, knew that Mr. Gannett, 40, had the qualities she was looking for. “He’s a caring people person,” she said, “and I knew that if I took that as the key element, I could train him on everything else.” She invited him to join the firm, providing him with an incentive fund that would pay him for his efforts if he decided to stay. But Ms. Gannett, 60, also was prepared for the possibility he wouldn’t accept her offer and made sure to keep tabs on her local peers to see who would make a good buyer and maintain Park Place’s reputation with its clients once she retired. “Many of my colleagues are in the practice of building a business model by buying the firms of people who retire,” she said. “I was thinking, ‘If we had a problem, who would buy us?’” But Mr. Gannett joined the team, earned his Series 6, 7, 24 and 66 licenses, passed the California insurance exam in five months and now is training to become a certified financial planner. “There is an unspoken pressure around earning the professional designation,” he said. “As a CFP, you lend yourself credibility among the clients.” Sometimes making a successful succession pitch to a child is the easiest part of the process; working together can create new and unforeseen challenges. James W. Brock, 68, a senior financial adviser at Brock & Associates in Tulsa, Okla., urges ad- visers to approach their successors-to-be as peers and avoid slipping into the authoritative role that comes naturally to parents. When sons Beau, 45, and Brandt, 43, joined the practice in 2000, the elder Mr. Brock wanted to establish adult-to-adult relationships and develop cooperative rapport. For five years leading up to the brothers’ start with the firm, the family would take weeklong trips together and find ways to work as a team. Even cooking meals became a collaborative effort, the elder Brock said. The brothers, who became certified financial planners and are now associate financial advisers, eventually will own the business 50-50. “The problem I see with these transitions is that the older members of the family retain that authoritative attitude, and when younger members join the practice, they continue in a subservient role,” the elder Mr. Brock said. “It took five years to understand that we could be friends, and not just parents and siblings.” Some adult children wading into their parents’ advisory practices find that learning the financial planning business means taking a few steps back.
That wasn’t an issue for the Brocks, since Beau had a master’s degree in business and experience in marketing, while Brandt was a licensed actuary. But when attorney Eric S. Smith, 35, left the San Diego district attorney’s office to enter his father’s practice — Lifetime Planning — he became, in effect, “an intern.” “Going from being a professional to doing grunt work was somewhat of a challenge,” he said. Although now a certified financial planner and successor-designate, Mr. Smith said he spent his first week reorganizing his father’s office and helping the 20-year-old firm transition to an online database — all for much less money than he earned as an attorney. “I wasn’t being paid much, because my father never had a partner, and there wasn’t enough revenue,” he said. “I knew I could only do support work for so long; I needed to contribute new clients and assets.” David Smith, 63, thought it best to introduce his son to the financial planning business and to clients by having him sit in on meetings. After Eric earned the CFP designation, his father gave him a few clients, which increased firm efficiency and provided the budding adviser with a base. “I kept the clients I had been seeing for many years,” said the elder Mr. Smith, 63. “But some like one personality more than the other,” he added, describing his skills as more marketing centered, while his son’s legal training has added an analytical tone to the firm’s planning. At Hunter Advisor, Ms. Hunter and Ms. Abrams are continuing to adjust to each other’s work styles and to weigh their succession options. One possibility is Ms. Abrams’ taking over the business herself. Another is running the firm with a partner in order to have a better work-life balance. Knowing that she still has a way to go before she is ready to lead, Ms. Abrams is nervous about living up to her mother’s example. “She has put her lifeblood into this company,” she said. “That she is willing to pass it on to me is a little scary, especially now when I’m not really established.” But both have learned from each other over the past few months. “I now have three people between 29 and 34 working for me,” Ms. Hunter said. “I work quite a bit from home now, and I don’t have to be the one who does everything all the time.” The attitude shift is perceptible to Ms. Abrams, who said that their relationship is maturing. “She has changed and sees me more as an adult, not just a kid,” she said. “I’ve taken to calling her ‘Holly,’ which feels comfortable to me at the office, but at home, she’s still Mom.”