After years of grappling with the issue of retiring from his financial advisory practice, Gord Stovel found his answer while relaxing at a poolside bar during a family vacation in Mexico in 2004.

Stovel had run his Burlington, Ont.-based practice, now under the Assante Financial Management Ltd. banner, for 40 years. He knew he would retire soon, but had no idea who would be his successor.

“Initially, I was looking for someone else in the industry to take over my practice,” says Stovel, now 65. However, while at a resort on the Mayan Riviera with his wife, his two daughters and their families at his side, he began to think otherwise: “I thought, ‘Wouldn’t it be wonderful if one of my daughters had an interest in it?’”

A couple of days later, when the family had returned home, Stovel’s eldest daughter, Gillian Stovel Rivers, approached her father about joining the firm. She had been thinking about it for years, she says, but made her decision while on that vacation: “It took me a very long time to talk to him about it because I was making a 30-year commitment about my career.”

As the financial advisor population in Canada and the U.S. ages and nears retirement, Advocis reports, only 13%-20% of advisors have a formal succession plan in place. And although many advisors hope to sell their books of business to other advisors, many are considering passing their business on to their children.

It’s human nature for parents to want their children to take over the family business, says James Wong, vice-president of succession planning with BMO Harris Private Banking in Toronto: “It’s natural because we want to improve the lives of the next generation by giving them a foundation to build upon.”

Some advisors, such as Stovel, have managed to pass the reins on to the next generation successfully. A smooth succession within the family requires a plan that suits the needs of the older generation as well as there being genuine interest and commitment on the part of the successor.

Four years after that pivotal Mexican vacation, Stovel and his daughter are in the final stages of a seven-year transition plan. Stovel is no longer the main advisor on all client accounts; he only “pokes his head in” at meetings, while Stovel Rivers has taken the lead for 65% of the firm’s 140 households.

Although the Stovel transition has proved successful so far, the numbers indicate most family transitions fail. Only one in three family businesses survive into the second generation, even though 88% of family-business founders believe their children will take over their businesses, according to statistics from the Raleigh, N.C.-based Family Business Institute.

So, what makes a business succession within a family work? And how will you know your son or daughter will continue to take care of your clients and the business you built over the course of several decades? There is no simple answer, but examining family-business successions that have gone well can reveal the strategies that have worked.



> Determine Your Financial Objectives

Before considering handing over your business to your child, you need to be sure you understand your financial position, says Wong. For example, if you are dependent on the income from your practice, a transition within your family may not be for you. Typically, an advisor will be paid more for a book of business up front when it is sold to a third party than when it’s sold to children.

“You need to make some realistic evaluation about financing,” Wong says. “The reality is you are not going to get much up front because your child probably doesn’t have a large sum of money stashed away.”

Stovel was able to strike a balance between his financial needs in retirement and handing down his business to his daughter through a plan that included a two-year apprenticeship for Stovel Rivers, followed by a five-year “transition partnership.”

Stovel Rivers joined the firm in March 2005 as a salaried employee. That gave her the opportunity to learn the ins and outs of Stovel’s business while working on her certified financial planner designation.

In July 2007, when Stovel Rivers had earned her designation, she and her father signed documents allowing her to buy a portion of her father’s book over the next five years. Meanwhile, Stovel Sr. was able to cash out the portion of the book’s transferred value.

“Spanning the deal over five years allowed Gillian to build a book and master the skills of the trade,” Stovel says, “while I was still being paid.”

“If the children cannot pay for the business in cash, the children and parents must work together,” says Kelly Lecouvie, senior associate with Marietta, Ga.-based Family Business Consulting Group Inc. in Toronto. This strategy means both generations have to come up with a shared vision of the way the company will run. Parents should maintain the ownership and management of the company until they can fully redeem their shares, she adds.

Currently, Stovel and Stovel Rivers have two and a half years to go in their transition plan; Stovel Rivers will make the final payment to Stovel for his book on Dec. 31, 2011. Stovel has had to wait longer for his payout than he would have had he sold his book to an established, third-party advisor, which typically takes two to three years. But Stovel prefers to see his daughter with the business.

“I have relationships with clients that go back multiple decades, and I couldn’t leave them in the lurch,” Stovel says. “I need to know they will receive the kind of service they got from our team historically.”



> Let Your Child Approach You

When it comes to broaching the subject of business succession with your child, the best advice, say the experts, is to do nothing.

Gerry Guilfoyle, 65, founder of Toronto-based Guilfoyle Financial Planning Inc. , says he always dreamed about one or both of his two sons, Andrew and Blair, joining his firm, but he never dared to mention the idea.

“It had crossed my mind a number of times, but I didn’t say anything,” Guilfoyle says. “If I were a great hockey player, it wouldn’t mean my kids would have to be.”

Stovel, too, was careful to avoid foisting the subject upon his daughters. “You don’t want to make [joining the firm] a condition of the family relationship,” he says, “because if you do, you will be disappointed.”

By taking a passive stance, Stovel discovered that the daughter he thought more likely to take over the business was not interested: “I thought my daughter with an MBA, who is quite the corporate animal, would enter the business,” Stovel says. “But she wasn’t the one who approached me.”

Meanwhile, Stovel Rivers spent years considering the possibility of joining the business before approaching her father about it, she says. But once she did, she was confident in her commitment.

“I liked the way I could make a difference by helping clients enunciate what they wanted to achieve, and mapping out a way for them to get there,” says Stovel Rivers, who had worked part-time as a personal trainer while attending university. “That goes hand-in-hand with the financial business.”

Blair Guilfoyle also came to the decision to follow in his father’s footsteps without any prodding. After graduating from Queen’s University with a bachelor of commerce degree in 2003, Blair decided to pursue a career in marketing: “I didn’t want to enter the family business as a default option.”

(Andrew had joined their father’s business in 2003.)

Blair worked as a brand manager in the Toronto office of New York-based Colgate-Palmolive Co. He found that a career in financial services had a number of advantages over a marketing job at a large corporation: “I saw the [financial advisory] industry as a means of taking control of my own destiny, being able to manage my time and working with clients I wanted to work with.”

However, Blair says, had his father forced the subject of the family business upon him, he might not have felt the same way.



> Let Them Work Independently First

If John Davies, senior consultant with Investors Group Inc. in Halifax, had any concerns about his son Jonathan’s capabilities as a financial advisor, there was one surefire way to quell them: allow his son to build up his own book of business.

“My son needed to prove himself and get to certain achievement levels on his own,” says Davies, who has been with Investors Group since 1993.

Jonathan Davies joined Investors Group in May 2008, independent of his father’s practice. “Coming in and working with family is a lot different if you didn’t experience the business yourself first,” the younger Davies says. “Most new advisors don’t have a parent to rely on for business and must start from ground zero.”

Had Jonathan relied on his father to provide for leads for new clients, he says, he wouldn’t know if he could survive the “trenches” of the business — the rigours of cold-calling, meeting prospects and getting those first clients.

“Initially, Dad went about his business and I went about my business as if we were separate entities,” says Jonathan.

Working for another firm gives the son or daughter a new perspective on his or her parent’s business, says Wong. “A child who works outside the family business for another advisory firm can learn a system and bring their own ideas to the table,” he says. “It is also a great way to test the waters and make sure the career is right for them.”

The child’s experience doesn’t even have to be in the same field, Wong adds. “It is about having the experience of working for someone else,” he says. And it is about developing a work ethic and a business persona.

That is why Blair Guilfoyle benefited by getting a job in which he developed his marketing skills. “There is no better experience in learning how to run a business than managing a brand,” he says. His work at Colgate-Palmolive put him in touch with all facets of a multinational packaged-goods business, including finance, sales and operations. “Because of that job, I can leverage my brand-management background and co-ordinate the marketing activities of the firm,” adds Blair, who oversees the Investors Group branch’s client newsletters and marketing materials.



> Relinquishing Control

Making a succession plan work within a family is largely a matter of allowing your child to contribute his or her attributes to the business. “A parent has to let the son or daughter find their own voice in the business,” says Stovel Rivers. And the only way to do that is to make the child an active participant in the management of the business.

Initially, as a parent, Stovel had difficulty with this stage. As the sole founder of his practice, he says, he had to learn to “check his ego at the door” and give Stovel Rivers room to work and make decisions on her own. The first step in relinquishing control for Stovel was to put his daughter in charge of a major practice-management project, reorganizing all the firm’s client processes. The project involved creating standardized procedures for all activities, including client calls, meetings, creating schedules and documents.

“I had a process, but it was a disorganized process,” says Stovel. “Behind the scenes, I told Gillian: ‘I want you to tear the client practice apart for six to nine months, and put it back together again in a more organized fashion’.”

Re-engineering the firm’s processes enabled Stovel Rivers to demonstrate her strengths as an organizer and planner. The success of the project made Stovel feel more comfortable about delegating more responsibilities to his daughter. Another benefit of the project: giving the firm a more organized process for dealing with clients helped ensure an even smoother succession.

“If you can build a transition plan around a process rather than around the people, your retention factor is a lot higher,” Stovel Rivers says. “It sends the message that I’ll never be Gord, but I am Gillian and I have value. The client is there because of the winning process, not because they like the person.”

Another method of integrating a son or daughter into your practice is to segment your client base. Guilfoyle made room for his sons in his practice by dividing clients among team members according to each individual’s strengths. For example, Guilfoyle handles clients who have already reached retirement. Andrew, a chartered accountant, works with business owners. Blair handles the accounts of lawyers and other high-income professionals.

“Having a clear definition of roles and responsibilities allows us to stay focused on what we bring to the table,” Blair says. This strategy is more effective than the sons trying simply to follow in their father’s footsteps.

Davies and his son, Jonathan, have applied a similar approach: Jonathan focuses on insurance. Being new to financial services, Jonathan has found insurance to be an effective tool in helping him bring in new clients. He also is the go-to person when it comes to the insurance needs of his father’s existing clients, a responsibility previously held by a former associate.

> Have An Exit Clause

When Stovel was approached by his daughter about her joining the business, it was both “scary and thrilling” for Stovel.

“It’s scary, because once you get into that relationship, there’s the real possibility that the relationship won’t work,” Stovel says. “If it doesn’t work out, how do you fire a daughter?”

To prevent such a difficult situation, the father and daughter created a six-month checkpoint system during Stovel Rivers’s apprenticeship period. Every six months during that first two years, the two would get together to discuss a “go or no-go” arrangement.

“As business people and as parent and child, we would have an honest discussion,” Stovel Rivers says. “We would decide whether we should continue with the process of me being in his business, and being in line as his successor.”

Allowing your son or daughter to manage the business in an apprentice role before transferring ownership is a great way to test the waters, says Wong. But you must follow through: “You can’t bring them in for many years, dangle the carrot of ‘You are going to run this one day, son,’ and then never make the transfer.” That causes disenchantment on the child’s part and you risk jeopardizing your succession plan.

Stovel and Stovel Rivers knew they were ready to make the transfer by the end of the daughter’s two-year apprenticeship period. Had she said at any point that she wasn’t ready or wanted out, Stovel says, there would have been no hard feelings.

“At the end of the week,” Stovel says, “there is still the Sunday-night dinner table.” IE