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When all in the family is too close for this advisor’s comfort

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We all want to provide our kids with the best start in life, but it can get uncomfortable when our adult children ask us to invest in their new venture. This is just as true for parents of new advisors as parents of any other entrepreneur.

A colleague recently asked me about how I would respond to the following email, “Our son has just started a career as a financial advisor working for ABC. He is helping us with a piece of our portfolio. We are planning on opening an annuity with the funds currently in each of our Roth IRAs.”

Over the years, we have seen many clients that wanted to buy something from one of their children. It is natural to want to help.

That said, I usually get a little knot in my stomach because, if they proceed, there is usually a bit of a mess to clean up.
My first step when I’ve been in this situation myself is to take a deep breath and remind myself that my job is to act in my clients’ best interests. I genuinely believe that if the clients’ children succeed as advisors, and serve their parents so well that I lose them as clients, that is a great outcome.

Now, there is a significant difference between advice and sales. My clients already know this. This knowledge is one of the reasons they hired us in the first place and likely why the purchase is just for a piece of their portfolio. They know that if this weren’t their son, they would not be giving the ABC rep any attention. But, I don’t go into the wisdom or lack thereof inherent in the potential purchase, yet. First, I want to focus on helping the kid have a good career.

Obviously, some people succeed in financial sales but it is not easy. I’ve been in financial services for over 26 years and I can only think of one of these kids that made a career of a sales position. It was purely P&C insurance and he was mentored by a good, professional agent.

I share this information with my client and discuss the typical approach I have seen and the ramifications.

The parents are stuck with what they bought and we face the task of getting them out of the things they never would have bought.

The kid is supposed to talk with friends and family, their natural market, about the new career. This will usually generate some sales.

The problem is: the kid can’t make a career on friends and family. They must be able to keep selling to less familiar faces. Eventually, the natural market is tapped out and the kid must move on to a new job. The parents are then stuck with what they bought and we face the task of getting them out of the things they never would have bought, and back into what they need. This can cost them in the form of transaction fees, taxes, surrender fees and the like.

I also emphasize that I am in no way suggesting the son is trying to harm his parents. He took the job and is probably excited about the possibilities. He may believe the product is great and this is a good use for it but ABC doesn’t train or compensate their reps to analyze the products they sell and objectively compare to the universe of alternatives.

Having been through this scenario several times, I find that most parents realize the product is not the best choice but they want to buy it anyway to help. I tell them I understand and think that is admirable but it can also be expensive. This is often the point that I explain why we didn’t put the client in the product in question. It would be cheaper and better for the parents, to just give the child what ABC would pay in commissions. I also point out this could even be better for their son since a cash gift isn’t taxable income to him.

I let them know that I am very happy to chat with any of them or all of them. If he is really interested in financial planning rather than product sales, I can point him toward some good resources to explore that, too. Heck if the kid were local, I’d talk to him about our entry level opening.

I finish by reminding my clients that I work for them and if they want to proceed with this, fully understanding the financial ramifications, I understand. After all, I’m a parent too and have spent a few bucks on things for my kids that an objective observer would have recommended against.

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