When your child isn’t fit to be your successor

Finding the right successor is a problem that has stumped business owners ranging from the crustiest of media titans to well-meaning financial advisors. If an unworthy child (or, say, three children) wants to take over the business, family dynamics can add another layer of complication.

George Hartman, CEO of Market Logics Inc., said he’s worked recently with two advisors who each realized their child was not cut out to lead the practice. Both advisors were students in his “Succeeding at Succession” course.

“We’ve had people completely change their notion of what their transition was going to look like,” Hartman said. “[One advisor] decided, after going through an exercise determining what he really wanted in a successor, that his son was not the right person.”

Hartman had asked his students to create a profile of their ideal successor, including credentials, years of experience, business acumen, people-management style and other professional and personal characteristics.

The advisor realized his son’s management style was opposite to his, and that the staff might quit if his son took over the business.

Hartman said he also tells advisors to conduct the “grocery store test.”

“A year after you’ve retired, you bump into some of your former clients in the grocery store. What do you want them to say about the way you left your business?” he said.

A third, and potentially most telling, method for determining if an intended successor is a serious person is to imagine them as your advisor.

“The ultimate question is, ‘Are you going to give this person all your money to manage?'” Hartman said. “And if you can’t answer ‘yes’ with some positive attitude, you probably have the wrong person.”

Breaking the news to the child should be done with forethought and care — ideally during a face-to-face conversation and not through an ambiguously marked-up document, for example.

Hartman said one option is to convene a family meeting to discuss the advisor’s wider estate plan, including the practice. If suitable, a third-party facilitator can conduct the meeting to create a sense of neutrality. If the child feels otherwise taken care of in the estate plan (e.g., they’ll receive the proceeds of the sale of the practice), that can soften the blow.

He added that these conversations can also come as a relief to children who saw succession as an obligation.

Regardless of who will take over the practice, the finale of an advisor’s career is a big event that every advisor should be ready for.

“[Your successor] is going to be the guardian of your legacy,” Hartman said. As one of Hartman’s mentors told him, “We’re not going to know how good of a job you’ve done for us until two years after you’re gone.”

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.