Looking to cash out of the business?

One option for succession planning is for advisers to help train their children about the intricacies of financial planning and later introduce them to clients. It is a great way to keep any transition within the family.

Among the issues that need resolving are the psychological issues of which child or children are chosen as well as their training.

Is one child, for example, more capable and seemingly more interested in the advisory business? Chances are, advisers will also be dealing with the financial ramifications, especially if it is an inheritance.

“Selecting which child or children will control the business can make or break the future of the business, so this is generally the toughest decision for the business owner,” says estate planning attorney Steven Oshins, managing partner of Oshins & Associates in Las Vegas.

“The children of the business owner should be groomed from day one to eventually be able to run the business,” he says. “Otherwise, the business will likely become just another example where the children run it into the ground.”

Katherine Dean, national director for Family Dynamics for Wells Fargo Private Bank in San Francisco, and her team work with next-generation families of business owners and family offices at the intersection of family culture, leadership development and ownership.

“For a successful transition, you have to understand the dynamics of the next generation, their goals, their vision, passions, what excites them,” she says. “This step gets missed a lot, and people rush to fill in what they want to see.”

It helps a potential leader in the family better understand “what they’ve going to excel in, their communication style, and exposes them to a feedback process from what others are thinking about them,” Dean says.

Other key questions that need sorting out involve deciding what to preserve about the next-generation adviser-owner’s business and what needs to be changed to survive and grow, she says.

Creating a structure and initiating a governance system are also important.

Robert Keebler, a CPA and partner at Keebler & Associates, an accounting firm in Green Bay, Wisconsin, says that it is rare that all next-gen children want to join the business.

It is important that the current adviser take a serious and early approach to the needed outside education for the children and others who might be involved in the next-gen transition.

“Secondly, the financial trends in which the adviser changes ownership from the parents to the children must begin early,” Keebler says.

“Once a parent is certain that a child will take over a business, it would be wise to sell or option shares to the child,” he says.

“Generally, unless all the children are coming into the business, you will need a plan for the outside children. This might involve other properties or life insurance, but some effort at fairness is important,” Keebler says.

Both the adviser’s family and clients stand to benefit by keeping in the family, but ultimate success depends on how well the adviser understands the dynamics of the next generation in terms of goals, passion and vision.

This is part of a 30-30 series on smarter succession planning.

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Bruce W. Fraser

Bruce W. Fraser

Bruce W. Fraser is a financial writer in New York. He is writing a book about the ultrawealthy.