Allan Curtis had to hire and fire two financial advisors before he found the right business partner in 2003: his son, David. Until he popped the question, Curtis recalls, the two had never seriously considered working together. But seven years later, the father-and-son team manage the assets of 55 families for registered investment advisory firm Moneta Group in Clayton, Missouri. They couldn't be happier with their decision to join forces. (Moneta declines to disclose individual team client assets, but the firm as a whole manages $7 billion.) Curtis says clients view the father/son relationship as an advantage, and take comfort in the inherent stability and continuity of their relationship. Business is good. In the last five years Curtis says their assets have grown over 70 percent, despite the market wreckage of 2008.
“Finding the right person is a challenge,” says Curtis. He wanted someone who was not only highly qualified, but who had the right chemistry — someone who would fit well with his personality — and he was finding that to be tough. Today Curtis and his son share clients, but David is really the point person for client contact and conducts 90 percent of the reviews and many of the meetings himself. “Coming in was certainly an apprenticeship, and over the years we've become more of a partnership. But Dad never treated me as anything but an equal,” says David, who received his certified financial planner designation (CFP) in 2006.
Family teams like the Curtis' are common in the financial advisory business, and they are becoming more so, say financial advisors and industry experts. There is little industry-wide data to corroborate the observation, but plenty of anecdotal evidence. And plenty of good reasons, too. For one thing, as the financial advisor workforce grays, many advisors are turning to their kids to succeed them. Meanwhile, the popularity of working in teams has been growing in the wealth management business, and for some, family members make a natural fit. This especially makes sense in a business that is based on trust and where one's clients often seek financial solutions for multiple generations of a single family. In fact, some teams use the family business concept to win new clients.
Joni Youngworth, vice president of practice management at Commonwealth Financial Network, couldn't offer specific numbers, but says she's seeing more children coming into their parent's advisory practices today than 10 years ago. With the average age of a financial advisor around 55, according to the Financial Planning Association, most of them have kids who are through college and are just getting started in their careers. “I think we'll see that percentage increase now,” she says.
Raymond James Financial Services offers a snapshot of growth in family teams. The firm added 29 new family teams to its retail brokerage force last year, bringing the total number of family teams at the firm to 154 in 2010. Offices consisting of a single family team now account for at least 12 percent of the firm's 1,215 offices. In fact, family teams are big enough business for the firm that it has rolled out special educational programs for them. In 2008 and 2009, RJFS held its first “Family Succession Networking/Study Groups,” at the b/d's National Conferences. The meetings are meant to allow such teams to share stories, gather succession planning ideas, and make connections for further study group meetings or mentoring. RJFS also allows children to join practices as unlicensed assistants to get a feel for the business before deciding for sure whether it's right for them, says Sarah Cray, director of practice planning and acquisitions.
First Allied Securities, an independent broker/dealer, also offers training and education to advisors interested in passing their practices on to family members through its Next Gen University (NGU). Meanwhile, Commonwealth says half of the participants in its 2008 junior advisor training program Next Level Next Generation were children of senior team members. (The training program was suspended in 2009 due to cost cuts related to the economic slowdown.)
Family Bacon
It's no secret that succession planning is one of the financial advisory industry's biggest challenges. As the financial advisor workforce ages, many are realizing they don't have a plan for exiting the business. Of course, there are a number of factors that decide whether an advisor will bring a family member in to help, but many find that family members make the best successors, say consultants. That's because when it comes to finding a successor, getting a good personality match is often the toughest part: A lot of financial advisors go through the same thing Allan Curtis did, hiring and firing people who don't seem to be the right fit.
“One of the biggest challenges for founders looking for an exit plan is finding someone they know well, they are compatible with and can trust to maintain the legacy of the business as well as continue to take great care of the firm's clients,” says Dan Inveen of consulting firm FA Insight. “Frequently your own offspring can be the best fit to this criteria.”
A family bond can cement trust not only between the team members, but with clients. Maybe your clients even saw junior romping around the office as a kid before meeting him as a financial advisor. For example, Tom Grella, an advisor with Grella Financial Services, an independent team in Methuen, Mass., that manages $100 million in client assets, says a lot of his clients knew his son when he was five or six and stuffing envelopes in the office. They got to know him even better later as a young adult when he was tending bar with the help of his high school sweetheart (now his wife) at his dad's Rotary Club meetings. This built a lot of confidence and good will among clients, he says. “Tommy grew up in our business, so that issue of trust transitioned more easily” than for someone he might have introduced for the first time as a partner, Tom says.
A family bond can also facilitate mentoring, something that can be very useful in a business where the failure rate for newbies is very high. Judith McGee of independent firm McGee Financial Strategies, which is affiliated with RJFS, says she put a lot of effort into mentoring her daughter, Linette Dobbins. After Linette joined the business 12 years ago, McGee helped her build off the operations experience she had won outside the business. Today Linette handles 70 percent of the client-facing responsibilities and 30 percent of the operations, and helps lead the 12 other full time staff.
“In a really healthy family dynamic there are shared values, trust, collaboration, partnership, and that unspoken thing — where people finish each other's sentences — that many advisors can't always get with an unrelated partner, not to mention it takes years to create,” says Ray Sclafani, an executive business coach to financial professionals and founder of ClientWise.
Families Serving Families
Some industry experts and financial advisors say that having family members on the team is, in fact, a great strategy for winning new clients, and for keeping or attracting multiple generations of a family. Take Scott Magnesen, managing director of the Oakbrook, Ill., Morgan Stanley Smith Barney branch, who over the last 28 years has hired four family members: his brother-in-law, cousin, son, and his father. Magnesen says hiring his father Vern twenty years ago, then-retired at age 57, helped him to relate to some of his more senior clients. Back then, Magnesen was only 30 years old. Today, his son Ryan, who is 23 years old, is helping him relate to the team's youngest generation of clients. Together, the team manages $1.4 billion for more than 3,000 families — including the children and grandchildren of some of Magnesen's first clients. Back in 1990 when Magnesen was a sole practitioner, the business was throwing off $2 million in revenue. Today, it generates $7 million in revenue. Magnesen says his biggest challenge is also the team's biggest goal: making sure they have a great relationship with the children and grandchildren of his clients in their 80s and 90s.
“The idea is that our business mimics what we're trying to do for our clients: build, preserve and pass on net worth to the next generation,” says Magnesen.
And then there's Grella Financial Services. It was started by husband and wife Tom and JoAnne Grella in 1991. Today the business includes their son, Tommy, who joined in 1991, and Tommy's wife Bridget, who joined in 2003. The Grellas emphasize the importance of family and the traditional family meal in their relationships with clients, and often communicate with clients over meals. Tommy says, “We often tell our clients, ‘The best family business decisions are handled at the dinner table and not at a conference room table.’” Indeed, it's not uncommon for one of the Grella's 400 clients to enjoy a homemade pizza straight from their imported Italian pizza oven during a client meeting in the Grella's back yard.
Tommy says the fact that Grella Financial is a family team appeals to clients. The Grellas work with several generations of some families: At least 10 families now have their children and grandchildren with the firm. “Our clients love the fact they can relate to my family and my parents and see the balance between the two. It just makes our practice that much more comfortable to a prospect and that's what the firm strives for — there is never a hard sell,” says Tommy.
Shelia Keator, 72, is a strong Irish mother of eight who started an RIA called the Keator Group, an independent wealth management firm in Lenox, Mass., that manages $400 million in assets. Before Keator would let one of her brood come to work for “mom's business,” she wanted them to get some outside experience. Turns out that ended up working in her favor, as today her three sons have specialized team roles based on their prior work experience. Today, the Keator team's banner on their website reads, “A Family Working For Families. Offering Generational Solutions. It's All About The Family,” with a picture slide show of Keator descendents from 1940 to the present Keator generation. This appeals to clients, Keator says. They often work with three and, occasionally, four generations of a particular family. In fact, they estimate that about three quarters of their clients are related to other clients. Some of them have been with the Keator Group for 30 years, and in a few cases they manage money for four generations of a family.
Making Junior Work For It
Of course none of this changes the fact that working with relatives has its own set of challenges. Kids who join a parent's team often have to work harder to prove themselves. For example, McGee's daughter Linette says her mother was harder on her than anyone, and she always felt she had to work harder, longer, and better. It's also not uncommon for relatives who have joined family teams to deal with animosity from other employees who think nepotism is involved. Magnesen says when his brother in law, Malcolm Proudfoot, first started and attended firm meetings, people would say to him, “Oh, you're just working for Scott Magnesen.” However, after working hard to prove himself, Proudfoot, a CFP, stands on his own today and is a member of the Chairman's Club, says Magnesen.
In fact, Magnesen says, the biggest challenge for most of his colleagues who have brought children in the business, is that parents say “my kids aren't as hungry as we are.” Part of the problem is the parents gave their children things they didn't have, and so Magnesen says they've got to find a way to motivate their kids and get them to match their parent's work ethic.
Cerulli Associates analyst Bing Waldert says financial advisors should approach family hiring decisions “with their eyes wide open.” He suggests immediately defining responsibilities and expectations, and setting compensation levels. “When you add the family piece, there is the potential to increase tensions,” says Waldert, so having clear standards and guidelines is crucial. Not every family is meant to work together, but when it works, family teams say it's a great way to do business. With some firms eager to help these days, teams have a better chance to keep it in the family.