A transition plan for a financial advisory practice may include one channel in case of catastrophe and one for a segue to retirement.
For Mike Piershale, president of Piershale Financial Group in Crystal Lake, Ill., both plans occupy the Family Channel, with son-in-law Ben Barzideh the potential heir.
The same programming is scheduled at Altfest Personal Wealth Management in New York, where principal advisers and married couple Lew and Karen Altfest are relying on their son, Andrew.
“I have a plan in case of incapacity or death,” Piershale says.
“Certain employees will buy shares of my S corporation from me or from my estate, and Ben would have the controlling interest. He has been working here for about six years, doing a great job as a wealth adviser,” Piershale says.
Naturally, he hopes his transition will involve Plan B at some point.
“I’d like to work for at least another 10 years,” Piershale says.
“However, the time will come when I’ll have to step back or leave,” he says. “Therefore, I’m developing a plan to transfer the practice.”
In preparation, Piershale has “passed on some clients” to key employees.
“I want to get clients used to working with other people,” he says. “By putting employee pictures on our website, I’m trying to put the spotlight on others, so clients don’t always call and ask for me.”
Eventually, Piershale’s plan will call for a gradual sale of shares to selected employees, probably with some form of self-financing.
“I’m hoping Ben will be the one to take control in that situation as well,” Piershale says. “We’ve discussed some things I’d like him to do, such as taking leadership classes.”
Altfest Personal Wealth also has plans for catastrophe or retirement.
“In case of death, our children would inherit the business,” says Lew Altfest, a CFP and the firm’s chief executive.
“Andrew, who has been here since 2003, would have the controlling interest,” he says. “Our daughter, a successful artist, is comfortable with that arrangement.”
Again, Altfest doesn’t want to retire soon.
“At some point, the plan is to hand over the reins to Andrew,” he says.
Transfer of ownership would be done by gifts, which might generate some gift tax issues, but Altfest says that the tax aspects are already covered.
The key is that both of Altfest’s children accept their parents’ plan.
“We’ve been very open,” he says. “I’m an old-fashioned guy, and I’d like to keep the business in the family, especially since Andrew has proven to be capable.”
Nevertheless, passing down any business to the next generation can be risky.
“Some of my clients have had unfortunate experiences turning over a company to a child,” Piershale says. “If a successor doesn’t maintain things well, problems can arise.”
A family transition based on favoritism rather than facts may be bad news for other employees, clients and a retired adviser expecting continuing cash flow from an installment sale.
This story is part of a 30-30 series on transitions.