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The Practice Doctor is IN

Passing the Practice on to the Kids: Family Succession Best Practices

by Al Depman, CLU, ChFC, CMFC, BH
Practice Management Consultant

Al Depman photoSuccession planning is one of the hotter topics in the financial services business these days as the core advisor population ages and fewer companies are investing in bringing on new advisors. Consequently, some advisors are tapping their sons or daughters for their succession strategy.

Having worked with quite a few of these family transitions, I can offer some of the collected wisdom from a variety of advisors who have successfully negotiated these waters. Let's focus on three specific questions:

1) What steps can be taken to make this plan successful?

2) What things would cause this transition to go wrong and make it tough for the next generation?

3) What should the next generation do (or not do) to boost the odds of success?

1) What steps can be taken to make this plan successful?

Make sure the child has some outside work experience before joining. Understand that the 10,000 hour rule is in play. If the child gets the 10,000 hours of financial services experience and/or the 10,000 hours of exposure to the reality of sales and service in another organization prior to joining mom or dad, all the better. If not, the parent should be prepared to have the child get those inevitable hard knocks on the job. This is the case with Jeff Daney, who started in the financial services business in 1996 and joined his father's practice (Robert Daney, Jr.) nine years later, ready to go. They are part of the Financial Design Group, headquartered in Toledo, OH. Gavin Lodge, on the other hand (same firm), started fresh out of college with father Harry in 2010. It took a long three-year ramp up to get him comfortable with his dad's processes and clientele, with a lot of rocky intervals and bloody noses.

Nicole Winter, of the North Star Group in Minneapolis, began taking over for her father ten years ago. She says: "Even though you are family, treat it as a professional relationship. Have written objectives, business plans, marketing strategies, and a buy/sell arrangement. Define compensation. Make a pledge to be honest with each other. Have a clear division of labor based on inherent strengths. Seek out training opportunities with family business consultants. Maintain a clearly delineated boundary between work life and personal time. My Dad used to try to kiss or hug me at the office and I strictly forbade it (unless we were in the copy room and no one was looking). No talking about work on Christmas Eve with the family!"

Identify as early as possible if the child has the aptitude and drive to be successful in the business. Rick Cooper, an advisor in Muncie, IN, had his son Jeremiah start with him from scratch right out of college in 2007 to take over the business. The stresses of the sales business ended that experiment, and his son dropped out after a year. Recently, however, Rick has brought his daughter, Jordan, on board. She has a five-year solid dose of life experience in the mutual fund world. While she's new to the sales and marketing end, she is going in with eyes wide open, and so far is knocking 'em dead. Rick tells us: "Map things out as much as possible ahead of time. With Jordan, we were careful to design a solid, documented timeline for development—licensing, product knowledge, sales techniques, and prospecting basics. All had checkpoints and validation points clearly spelled out and held accountable to."

2) What things would cause this transition to go wrong and make it tough for the next generation?

Moving too quickly or trying to bring in the child the same way the parent started in the business. The environment is different now than it was 20-30 years ago, and grooming someone to take over an established practice is (often) a different process than starting a new practice. Brad Pratt (Pratt, Kutzke and Associates, Mankato, MN) is a 30-year veteran of the insurance and investment business. When he brought his son, Bryan, in to his business in 2004, he was cognizant that the nature of his practice had radically changed from his early years at Prudential as an insurance agent. Bryan brought a sophisticated knowledge of investing from his post-college years with a retail mutual fund company. Now he is fully involved with his dad's practice with a specialty in fee-based financial planning. This is a different skill set than Brad needed to start in insurance sales. Interestingly, Brad has recently brought his daughter, Darci, into his business as a marketing director, and Brad's partner, Dan Kutzke, has his son, Mark, doing portfolio analysis and research for the investment arm of the firm. Mark had securities and small business experience before coming aboard.

Nicole adds: "The biggest issue is the parent not handing over the reins—not letting go. This undermines the son/daughter, demonstrates a lack of trust, and stunts productivity. The parent needs to refrain from being the 'know it all' and facilitate the son/daughter adding value in their own way (allow learning to be reciprocal)."

3) What should they do (or not do) to boost the odds of success?

From Bryan Pratt:
"For the child: listen and learn. Try to view your parent less as 'parent', more as 'business mentor.' View it as entering a lifelong career; not as just a job. For the parent: groom the child to be a partner, not a subordinate. Be willing to give up some control. For both: commit fully—to be successful takes a potentially large financial and time commitment for both parties."

From Nicole:
"The next generation should strive for the best post-secondary and post-graduate education they can receive. The next generation should gain experience outside of the family business before succeeding their parent, whether it be with an industry competitor or other industry altogether. Don't come into the business by default. I spent several years 'proving myself' in the marketing field before joining the family business. When I did succeed my dad, I was confident in my abilities and could bring real world experience to the table including management of a $30 million marketing budget in the early 1990's. I had a business network of my own, and a proven track record, which made me qualified to succeed my dad. I had a better shot at gaining respect at our company because I had already earned it."

Horror story from the files:
Jack (the father) is 75 years old. Three years ago, he decided to scale back his practice. He would "die with his boots on", as it were, but wanted to pass the practice on to his son, Mark. Mark and I started working together and realized all of the above wisdom was missing.

  • Jack had started as an insurance agent, dabbled in investments, and did a terrible job of client management.
  • Mark tried to call the "A" list clients, and few returned his calls or wanted to talk to him.
  • The client relationship management system was bare bones—no client notes or contact records existed for Mark to study.
  • Dad basically combed over his clients over the years and sold them anything possible. He didn't set up or develop any future sales opportunities that Mark could transition to.
  • Essentially, Mark inherited some renewal business from Dad's life insurance book, but it wasn't enough to sustain him. So he started his own practice from scratch and is struggling to keep it alive.

I've worked with quite a number of these family successions—the good, the bad, and (as with Mark) the ugly. We can help! Just drop me a line.

The Doctor is OUT

© 2015 Al Depman

Al Depman, CLU, ChFC, CMFC, BH, a.k.a. "The Practice Doctor", is's Business Practice Consultant, and contributor to "The Wall Street Journal." He is the creator of "The Practice Management Assessment" tool and materials and has authored numerous articles in professional publications on practice management, and author of the book, How to Build Your Financial Advisory Business and Sell It at a Profit, available from McGraw Hill. Al combined his Liberal Arts studies with 10 years of management experience with McDonald's Corporation to enter the financial services world 25 years ago. Since then, Al has evolved from an MDRT-level sales rep into a full-time consultant specializing in helping others engineer their business practices to the next level. Contact him at

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