Move Beyond Traditional Business Succession Planning:

Establish a Holistic, Fee-based Practice

By Karl Bareither, CLU

Abstract:

Planning for the transfer of a business and other family wealth can be an interesting specialty for financial advisors.  However, the opportunity to earn planning fees, as opposed to sales commissions only, is usually overlooked.

Entrepreneurs often exhibit a strong personality and a need for control -- characteristics that serve them well in the business-building stage, but often work against long-term planning – especially succession planning.  Most plans, when they do exist, fail to consider the needs of all family members.  Advisors can benefit themselves and their clients by including all family members in the planning process and charging a fee for their services.

Article:

When it comes to planning for the future of the family business, anything can happen.  In some cases, the business owner may select a successor, and not tell anyone who that person is.  Or, in an effort to satisfy everyone in the family, the owner might leave the business in equal shares to multiple heirs.  Often, the full details of the plan do not become fully known until the owner dies and the will or trust is examined.  Only then is it apparent that the business succession plan was of the “ready, fire, aim” variety.  Here are some interesting statistics that underscore the importance of family owned businesses in America:

• Seventy-eight percent of a jobs created from 1977 to 1990 were created by family owned businesses. 1

• Family businesses account for sixty percent of total US employment, more than fifty percent of US gross domestic product (GDP) and sixty-five percent of all wages paid in the US. 2

• Family firms comprise 80 to 90 percent of all business enterprises in North America. 3

Considering their importance to the national economy, the lack of success in keeping a closely-held business in the family is startling.  Here are some rather dismal statistics on the effectiveness of family business succession.

• The average life span of the family owned business is 24 years. 4

• About 30 percent of family owned businesses survive into the second generation.  Only 12 percent survive into the third generation and only three percent operate at the fourth generation level and beyond. 5

• Of family business CEOs due to retire within five years, 55 percent have not yet chosen a successor. 6

The question is, why do so many family business follow this path to ruin? 7

It may be tempting to blame the business owner for being stubborn or shortsighted, but that would be unfair.  Often the business owner simply doesn’t know how to go about instituting a succession plan or is reluctant to initiate the planning process, for fear of provoking family disharmony or losing control.  The path of least resistance is to avoid the whole subject or simply create the plan in secret and hope it all works out.  When using the latter approach, the business owner can take some comfort in knowing that he or she won’t be around to face the music if the plan fails.

A second factor in business succession planning failure is the lack of knowledge about the wishes of other family members.  In some cases, it may be clear that only one child in the family is interested in the business, making that child the obvious business heir apparent.  Many times, however, other family members may have an interest or knack for the business, but that fact is never known because no one has ever bothered to ask!  Family dynamics, cultural factors or simple prejudices sometimes control the selection of the next generation of owners.  For example, the oldest son may inherit the business in spite of the fact that his younger sister is more qualified to operate it.

The third reason family business succession planning is difficult is because of the need of the business-owner parents to treat multiple children “fairly.”  “Fair” usually equates to “equal” in the business owners’ minds and “equal” leads to dividing business ownership among the various children – regardless of their interest or business capability.  It can be a cruel joke for the child who is active in the business to suddenly learn that he owns a minority interests in the business along with several siblings.  This is especially painful if the active child was led to believe that someday the business would belong to him.

Finally, the business succession plan is sometimes conceived as a plan that is separate from the plan to transfer other family wealth.  Without proper coordination, the estate plan, or lack of it, can sabotage the business succession plan.  The best wealth transfer plan takes into consideration the inter-generational transfer of all the family’s wealth, thereby assuring minimal estate shrinkage and smooth transfer of business ownership and management.

Advisors play into the trap described above, by working with the business owner alone in developing solutions.  In many cases, only the business owner and a few close advisors know what the wealth transfer plan is. 8  Too often, the reaction of the business advisors is to cave in to the overpowering personality of the business owner and simply work to satisfy the owner’s wishes with regard to planning.

One of the reasons advisors take the “owner alone as client” approach, is because of their focus on the transaction or sale.  The insurance advisor sees the opportunity to sell a product, the attorney sees it as a “sale” of his or her services, the accountant sees it as so many forms to complete, reports to develop, etc.  Generally, no one on the business advisory “team” views the planning as a process, with a beginning, middle and end, and the client as the entire family.  Indeed, some advisors view the concept of the “family as client” as contrary to their professional role.  Attorneys, for example, often believe that they represent the owner and other attorneys should be retained to represent other family members.  This view is consistent with the adversarial approach to negotiations typically held by most lawyers. 

While the adversary principle works well when considering guilt and innocence in legal matters, planning for the future of the typical family business is quite a different matter.  Here, the future security of the business itself is at stake, and that overall goal must be kept in mind throughout the planning process.  Perhaps the attorney could adopt the view that the “business” is the client and act accordingly.9

Defining the Wealth Transfer Process

Once wealth transfer planning is perceived as a process, it falls neatly into a series of steps and phases.  The entire process can be illustrated as a circle with nine distinct steps and three phases (see page XX).  The center of the circle, or the hub of the process, is the business advisor who assumes responsibility as process facilitator.  This is the wealth transfer specialist.

In Phase One, the specialist examines the objectives of the individual family members and evaluates the existing plan, if there is one in place.  This is a critical phase because it is during this phase that the family interviews are conducted and existing business, tax, legal and financial documents are reviewed.  If Phase One is completed with thoroughness and attention to detail, the specialist will have most of the information necessary to construct a new wealth transfer plan that will meet the needs of all family members.  This is a key component in developing a new plan with a high degree of success.

Phase Two of the process involves developing the new wealth transfer plan itself.  Here’s where the technical expertise of the specialist comes in.  It’s also in this phase where the specialist meets with other trusted family business advisors to gather their input.  If a plan already exists, the owner’s other advisors often have insights into why the existing plan was designed as it was.  These insights provide additional information as to the needs and objectives of the family and business.

Phase Three is the presentation and implementation phase.  Here the specialist reveals the new plan to the entire family in a retreat setting and assists in its implementation.  As in any effective sales presentation, viable alternative solutions are examined.  At the end of the presentation, every family member must be convinced that the proposed new plan represents the best hope for his or her own future as well as the future of the family and business.

The circle of steps and phases of the wealth transfer planning process rest on a foundation of columns representing the benefits realized by the family and the business in adopting an open planning process.

The Family as the Client

When most people, business owners included, talk about wealth, they mean money, property and other financial assets.  Wealth should be a more inclusive term than that.  Here’s a more holistic definition:

“Wealth comes in many forms and is not limited to greenbacks or the numbers in a bank account.  Health is wealth.  The love and support of friends and family is wealth.”

— John G. Boldt

With that thought in mind, shouldn’t planning for the transfer of a family business and other wealth include more than simply focusing on the monetary value of assets?  Surely, the love and support of family members should be an equally important objective of the planning process.  The best way to approach this goal is to include other family members in the process and factor into the planning all their hopes and aspirations related to the wealth transfer.

However, as previously discussed, wealth transfer plans are frequently planned by the business owner in secret.  Often, the business owner or the owner’s advisors do not even recognize there are others in the family with needs related to the future of the business.  Assuming this obstacle is overcome and the wisdom of including other family members in the planning process is accepted, it begs the question, “What is the best method for involving the family?”  There is a simple answer.

The easiest way to find out what the various family members think about the future of the business and their role in it is to ask them about it.  This means an in-depth interview of all family members – including spouses.   In some business-owning families, this concept would be immediately acceptable.  In other families, the thought of including everyone would, just as quickly, be rejected.  The challenge for the specialist then, is to convince the business owner of the wisdom of including the entire family and enlist the entrepreneur’s help in arranging for the cooperation of everyone involved.  That’s sale number one; convince the owner that everyone must be involved, and gain his or her assurance that all information gathered can and will be held in strict confidence.

There are a number of reasons why the entrepreneur should be willing to take this approach to wealth transfer planning:

The future of the business is at stake.  As discussed above, the business is much more likely to survive if the entire family knows and supports the plan for the future.  Appointing successor management early also provides the time and opportunity to develop skills and abilities, further enhancing the chances for continued business success.

Fair treatment for everyone involved.  “Fair” and “equal” are not synonymous.  By interviewing family members, the owner might well learn that some family members would be happy – maybe even relieved – if they were left out of the picture when it comes to the business.  Often, non-interested family members would be much happier if the business interest passed to someone else while they received some other asset.  Again, the only way to know how family members feel about “fair” versus “equal” is to ask them.  Excluding them from the planning process frequently guarantees hurt feelings and resentments down the road. 10

Better information and more ideas.  Including the entire family in the planning process results in a richer resource for planning options.  Creative ideas for the future of the business or distribution of family wealth may come from surprising sources.  Often, individuals who are not close to day-to-day operations, and consequently unbiased in their views of business matters, can bring a freshness to planning discussions that is lacking when input is restricted to the owner.

Lower costs and tax savings.  It goes without saying that one of the principal reasons families plan for wealth transfer is to save taxes and transfer costs.  While it shouldn’t be the only concern, cost savings is certainly an important goal.  But, how can costs be reduced and taxes saved when a plan, developed in secrecy, is ultimately found to be unacceptable by some family members and leads to infighting and possibly lawsuits?  Plan to save money, yes, but do so while developing a plan that will actually work.

Improved family communication.  A major benefit of involving the entire family in the planning process is the effect it has on the family dynamic itself.  In many cases, the specialist will find that including the family in the business planning process is really the first time the family has ever discussed the business in an open and honest manner.  Parents and children alike may learn things about themselves, each other and the family business that they never knew.  Enhancing the family relationships alone is reason enough to pursue a holistic approach to wealth transfer planning.

Enhanced self-esteem.  Many of the characteristics mentioned earlier as necessary to build a business are at odds with building deep and lasting bonds with other family members.  It’s not uncommon for self-assured, domineering entrepreneurs to unwittingly squelch healthy personality development in their children.  Children who have been overly criticized all their life or denied the opportunity to become their own person, can be expected to experience great difficulty becoming responsible, capable adults.  Without intending to, the entrepreneur may have set up the next generation of business owners to fail.  Bringing parents and children together to work through a comprehensive wealth transfer planning process, on the other hand, is an excellent way to build confidence in the next generation of leaders.  If the process is successful, everyone will emerge stronger and more confident about the future.

The only effective way to interview the family members is by meeting with each individual or couple privately.  Most people are simply not going to be honest and open about their innermost feelings if other family members are present during the interview.  As part of the preparation for the interviews, the entrepreneur must make it clear to everyone involved that the process is confidential and individuals should feel free to express their true feelings about the family business and other family wealth.  The specialist must be totally committed to developing a confidential relationship with each family member and should resist any pressure to reveal the source of information gathered during the interview process.

The second opportunity to involve the family in the planning process occurs in phase three of the process.  It is at this point where the family is asked to adopt the new wealth transfer plan.  Again, excluding family members from this phase of the process endangers the entire plan.  Enter the concept of the family retreat.

The Family Retreat

A wealth transfer plan can be a pretty dry topic for most people – especially if their real passion is making widgets, raising cattle or selling cars.  Nevertheless, the new plan must be understood and accepted by everyone in the family or it runs the risk of failure.  Dropping by the company office, to deliver the new plan, neatly packaged in a handsome binder, will not generate the necessary level of understanding and support.  The specialist must relate sufficient detail about the new plan to family members in order to guarantee reasonably complete understanding and assure successful implementation.

The discussion of the new plan must be a group project structured to accommodate interaction.  The best approach is to gather the entire family together in a neutral setting, away from the business, where they can relax and enjoy themselves as they ponder the proposed new plan together.  A resort setting is ideal.11 

In planning for the family retreat, the specialist might be tempted to create a Power Point or flip chart presentation, and deliver a lecture-style explanation of the new plan.  However, rather than merely set the family down for a long, dull discussion of legal documents and product solutions, it is far more effective to structure the event in a way that takes advantage of the setting.  The family retreat is an ideal opportunity for the whole family to share concerns, hopes, dreams and fears about the future, and each individual’s role in it.

Conducting the Family Retreat

The first step in conducting a successful family retreat is to set the mood.  Again, the family is probably not accustomed to discussing business and financial matters in a deliberate, thoughtful way.  In the past, business discussions usually included an element of stress.  Something is wrong.  Something isn’t working.  Someone’s unhappy.  Reflecting on the benefits of owning a family business is something most families never quite get around to doing.  Well, here’s their chance.

The specialist should start the family retreat with the usual introductions and housekeeping items.  An agenda is helpful to let everyone know what is in store.  Establishing a casual, friendly atmosphere is essential.  The initial goal is to relax everyone and reduce any tensions that might exist. 

Once the mood is set, the specialist begins by asking everyone in the room to respond to this question: “What are your expectations of this retreat?”  The family member responses are duly recorded on a flipchart or other suitable resource.  The purpose of this question is to give everyone a chance to “get their voice into the room” and state their expectations for the benefit of the others.  It also alerts the specialist to possible unanticipated expectations that may need to be considered.  This question is also non-threatening.

After recording the responses to the question, and discussing them as needed, the specialist moves on to a second question: “What do you admire most about your family and the family business?”

This is a subject that most business-owning families have never seriously considered.  There may be an unspoken awareness that the family benefits from business ownership, but in most cases, these benefits have never been openly acknowledged.  Mother and father may never have heard their children express gratitude for their sacrifice and hard work in developing such an important family asset.  Children may never have had the opportunity to make such statements.  Business owning families are no different than any other.  The day-to-day demands of life simply usurp the family’s time together.  Ironically, in this case, the principle usurper, that is the family business, is the very thing that generates the family’s wealth and often provides the family’s identity.  Everyone in the family probably realizes this, but no one has ever given the family members the opportunity to reflect on this fact and do so in the presence of the rest of the family.

Again, as the responses flow, the specialist records them for all to see.  The facilitation skill of the specialist is a critical factor in this process.  Everyone must feel comfortable sharing their thoughts and the specialist must work diligently to maintain a safe, secure environment for doing so.  Gentle probing and encouragement may be necessary.

A third question for the family group is. “What changes would you like to see?”

Again, each family member is allowed to respond in turn.  Responses are recorded.  This, of course, is the opposite side of the coin.  The previous question is designed to solicit positive responses, this question is quite likely to result in negative responses.  The positive climate produced by the preceding question will help maintain an overall positive climate.  The specialist’s facilitation skill is also an important factor here.

The family retreat is also the place where the specialist’s interviewing skills are validated.  If the individual interviews were complete and thorough, there will be no surprises for the specialist during the family retreat.  The specialist already knows the innermost needs and desires of all the family members.  Foreknowledge permits adequate preparation.  If the specialist has done all the necessary homework and is well prepared to act as facilitator, the family retreat will be a fruitful and rewarding experience for all concerned.

It is important for the entire family collectively to hear responses of individual family members with a facilitator present who can help the family members openly share their concerns and goals.

Implementing the Plan

The overall goal of the retreat, from the specialist’s perspective, is to gain consensus on the proposed new wealth transfer plan and obtain agreement to implement it.  Assuming the interviewing was successful, the specialist, working with other trusted family advisors, will have been able to formulate a plan that meets all or most of the needs and desires of all the family members.  The plan must be described in sufficient detail at the retreat to satisfy everyone present. 

It is especially useful to tie the plan presentation to the responses elicited by question three.  For example, assume a daughter indicates, in response to question three that she would like to leave the family business and pursue a teaching career, but fears that if she does, she and her family will inherit little or nothing from her parents.  As the specialist relates the details of the new plan, this concern is addressed directly.  “Jane, as you can see, the plan calls for the business to go to Sarah, but you will receive installment payments and other family assets as compensation.  Does this address the concerns you raised earlier?”

At the end of the presentation of the new plan, all family member should be satisfied that the best possible solutions have been identified.  Again, the better the information attained during the interviews, the better the solutions will fit the circumstances.

The retreat ends with the agreement to implement the new wealth transfer plan.  Of course, the specialist has the additional responsibility to see that the plan is fully implemented.  This usually calls for repeated follow-ups and additional work with the other trusted family advisors.

Compensating the Specialist

Obviously, the work of the specialist as described is time consuming and often difficult.  Given the earlier discussion of not focusing on the sales transaction, how is the specialist to be compensated for this effort?  Commissions on product sales or charges for legal document preparation can be part of the specialist’s compensation, but the additional work involved justifies charging a planning fee.  The fee is proportional to the complexity of the case, the market value of family assets and the number of family members to be interviewed. 

Details must be agreed upon in advance.  Generally, the fee can be structured in three equal parts with the portions to be collected at the end of each planning phase.  The first phase includes the family member interviews and gathering business and financial data.  Upon completion of the interviews, the specialist is entitled to collect the first portion of the fee.  After developing the new wealth transfer plan, the second portion of the fee is payable.  The final installment is payable following the implementation of the plan.  Depending upon the facts of the case, fees typically range from $6,000 to $33,000.

In addition to charging a fee, individual specialists must decide for themselves whether to sell commissioned products, use no-load products, or employ other professionals for product sales.  Any of these solutions are workable.  In any case, both the specialist and client must agree upon all aspects of the financial arrangement before work begins.

To protect the interests of the family, the fee structure should include a satisfaction guarantee.  If at any time, the client feels the process is not helpful, the specialist should be willing to suspend the process and refund the client’s money.  The pledge to refund the fees will also help the specialist discriminate between good and poor prospects for this process.  Knowing that unsatisfactory results would mean returning the fees causes the specialist to be very careful in selecting the families as clients.10

A corollary benefit to the specialist of treating the entire family as the client is the ability to expand the client base.  Positioning the family as the client means that each family member sees the specialist as the principle resource for family business matters.  When the entrepreneur dies, becomes disabled or retires, the specialist will be well positioned to guide the transfer.  This also positions the specialist to serve in an advisory capacity for the individual family members in their new planning needs. 

Without a connection to the family, the death of the entrepreneur often means the end of the advisor’s working relationship with the business.  Unless a concerted effort is made to cement a relationship early on, the next generation of owners often establish working advisor relationships of their own.

The Role of the Wealth Transfer Specialist

Throughout this discussion, the term “specialist” has been used to indicate the person who will manage the planning process and collect the fees.  Who is eligible to play this role?

An obvious choice is the insurance or other professional working in the family business market.  But other family business advisors could also serve in this capacity.  The business accountant, attorney, or trust officer, for example, could equally act as the facilitator of this process.  The most important factor is that the individual has the necessary knowledge and facilitation skill to effectively conduct the family interviews and facilitate the family retreat.12

A larger question is the skills, training and experience of the advisor wishing to assume the expanded role discussed here.  Most professionals working in the family business market have the necessary technical expertise, or access to it, to manage the development of the new plan.  The technical aspects of transferring family wealth are well established and not the subject of this article. 13

Ethical Considerations

The issue of fees versus commissions was alluded to earlier.  There is nothing inherently unethical about collecting both a fee and a commission, but doing so surreptitiously is improper.  The key is disclosure.  The specialist must use a well-designed fee agreement that discloses all aspects of the financial arrangement.  As long as all compensation sources are fully revealed, and agreed upon in advance, there should be no ethical dilemmas.  It’s also good business practice, of course, to fully document monetary agreements and contracts.

Every business advisor is governed by some type of code of ethics that guides decision-making in these kinds of situations.  The Professional Pledge portion of the Society of Financial Services Professionals code of ethics serves as an excellent example.

In all my professional relationships, I pledge myself to the following rule of ethical conduct: I shall, in the light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself.

The relationship of the pledge to the “golden rule” is easy to discern.  Providing the same level of service you would expect for yourself is a good measure of your objectivity.  Furthermore, since the specialist will become involved with the family in a very intimate way, it is even more important that the golden rule be observed with regard to the information gathered.  Certainly, you would want your own family’s personal and financial information handled in a responsible manner.  You can do no less for your client families.

Facilitation Skills

Most family business advisors will posses at least a modicum of skill when it comes to relating to people and gathering information through personal interviews.  Insurance professionals, in particular, are well equipped in this area due to their training and on-the-job experience.  Facilitating a group discussion of a potentially controversial subject, with people who may tend to be emotional about it, can present special challenges. 

In addition, some families may present further challenge in the form of alcohol or drug abuse, or other symptoms of dysfunction, that must be considered when developing the plan.  Indeed, in some cases, the specialist may have to go so far as to employ a professional counselor or family system therapist to address these types of special needs.  Once the decision is made to pursue a holistic approach to wealth transfer planning, the advisor serving as quarterback of the planning team must assume the responsibility for the success of the process.  That includes pursuing the additional training and development necessary to equip oneself to manage a complex group-planning project.

Benefits for the Specialist

There are a number of reasons why the family business advisor would want to become involved in this time consuming process as opposed to simply continuing to do business on a transaction basis. 

One benefit to the advisor, of course, is the addition of a new source of substantial revenue for his or her practice.  The fees families are willing to pay for the kind of help described here are substantial.  In addition, these services are not widely available.  Few advisors are willing to offer or are capable of delivering these kinds of services to business-owning families.  Advisors wishing to expand their practice by including these additional services for a fee are differentiating themselves in a meaningful way, from virtually every other family business advisor they are likely to meet.

Serving as a wealth transfer specialist as described here, has the additional benefit to the advisor of adding a new level of job satisfaction to what might be described as a “mature” practice.  Advisors looking for a new challenge can certainly find one by pursuing fee-for-service wealth transfer planning.

In the end, the benefits to the client family should drive the consideration to do this kind of work.  Planning for the future of the business is one thing, planning for the future of the family and the business is quite another.  Think of the process as an opportunity to renew both the business and the family.  At the end of a successful holistic planning experience, the business will be on sound financial footing.  Just as important, the family will find it has truly communicated – perhaps for the first time -- during this process.  Using this approach to wealth transfer planning has the potential to enrich both business and family life, possibly for generations.

Conclusion

Reflecting back on the family business succession statistics at the start of this article, surely there is a problem with the traditional approach to wealth transfer planning.  The problem cannot be attributed to inadequate technical skill on the part of planners or a shortage of advisors.  The reason family business succession planning so often fails is simple – the families fail.  There’s usually nothing in the plan itself that causes failure, it’s the failure to fully implement and carry through with the plan that is ultimately responsible.  And the reason the plan is not implemented properly is usually because there is lack of support for it among family members. 14

The benefits to the family of using a holistic, inclusive approach to wealth transfer planning can be summarized in the following twelve principles:

It’s a family affair—not just an owner’s affair.  An inclusive process assures a higher likelihood of success than a plan based simply on the owner’s wishes without regard for the needs and concerns of other family members.

It’s a process—not a transaction.  The focus is on establishing open, effective family communication, examining all the information available, creating a suitable wealth transfer plan and then monitoring the new plan to keep it up to date.

It’s an open agenda—not a closed and secretive one.  One of the most common characteristics of the typical planning process is its focus on the wishes of the owner and his or her need to develop a plan in secret in order to avoid potential family conflict.  The open process is the direct opposite.  No secrets.  No hidden agendas.

It’s an asking format—not a telling one.  The basis for the information gathering is the individual family member interviews.  Contrast that with the typical plan developed in secret and then announced to the family post-mortem.

It enhances the quality of family life through inclusion—not exclusion.  Enhancing the quality of family communication is the foundation of an open process.  The key is inclusion.  Individuals within the family are not left to worry and wonder about the wealth transfer plan and their role in it—they are included in the development of the plan from the start.  The result is increased family trust and enhanced quality of family life.

It’s a way to open family dialog and communication—not close discussion.  Something important happens to families who learn to communicate through this process.  They extend the newfound communication skills to other facets of family life.  Once the family experiences open communication, it becomes a habit—just as failing to communicate once was.

It recognizes that the greatest resource is people—not plant, equipment and real estate. This model recognizes that the most valuable asset any business has is its people.  Take care of the people in the family business and most of the problems will take care of themselves.

It deals with both “external” and “internal” matters—not one at the expense of the other.  The open process model includes matters typically thought of as outside the business and therefore not subject to scrutiny during the planning process.  All family matters—those internal or external to the operation of the business with the potential to impact its future—should be included in the planning process.

It ensures an examination of all issues—not a whitewash.  Again, the open communication feature that is the hallmark of the process assures all issues of importance to the family and/or the business are considered.  No legitimate concerns are glossed over or hidden under a cloak of secrecy.

It seeks input from all owner advisors—not excluding those who might differ.  Business advisors are often willing to consider the advice of other advisors to the family—if they agree with them!  The open process encourages differences of opinions from advisors as part of the process of examining all aspects of business and family needs and arriving at optimum solutions.

It uses an objective facilitator to conduct a family retreat—not a free-for-all anger tirade.  The facilitation skills of the specialist is the best assurance that the family retreat will remain focused on the planning needs and end up as a positive experience for everyone.

It assures a money-back guarantee if not totally satisfied—it is not a risky venture.  This feature protects both the business family and the specialist.  If the work is not satisfactory, the business receives a full refund of the fees paid and the presence of the money-back guarantee inhibits the specialist from taking questionable cases just to earn a fee. 

These twelve principles taken together outline the overwhelming advantages of the open process model for the family, the business and the specialist.  Rather than a win-lose sales situation, the open process model offers a thorough, ethical, effective, satisfying and profitable experience for the specialist and the family.

To ignore the family dynamics when developing a wealth transfer plan is to develop a plan with a high degree of potential for failure.  Rather than permit your clients and their families to experience the loss of the family business, why not move beyond traditional business succession planning and add real value?  Pledge to meet the needs of your client – and the family – in your practice.  In so doing, you will enrich both the family and the business for generations.

• Richard Forrestel, Jr., Testimony on behalf of the Association of General Contractors of America before the Committee on Ways and Means, U.S. House of Representatives, January 28, 1998.

• Financial Planning, November 1999

• J. H. Astrachan and M. C. Shanker, “Myths and Realities: Family Business’ Contribution to the US Economy: A Framework for Assessing Family Business Statistics,” Family Business Review, Summer 1996

• Ernest Doud, Sr., “Unraveling the Mysteries of Family Owned Business”

• Joseph Astrachan, PH. D., Family Business Review.

• Arthur Anderson/Mass Mutual study, 2003

• For a comparison of family-owned businesses that have planned for succession with those that have not, see Stephen M. Avila, PhD, CPCU, Ramon A. Avila, PhD, Douglas W. Naffziger, PhD, “A Comparison of Family-Owned Businesses: Succession Planners and Nonplanners ,” Journal of Financial Services Professionals 57 (May 2003)

• For a discussion of family and business relationships and the role of the advisor, see David Bork, Dennis T. Jaffe, Sam H. Lane, Leslie Dashew, Quentin G. Heisler, Working with Family Businesses: A Guide for Professionals, San Francisco: Jossey-Bass, Inc. 1996

• For a discussion of the ethics involved when attorneys view the family as the client rather than the individual, see Dirk R. Dreux, IV and Joe M. Goodman, Business Succession Planning and Beyond: A multi-disciplinary approach to representing family-owned business, The American Bar Association, 1997.  This book approaches family business planning from the perspective of a family system and business system.  Chapter 6 examines ethical consideration for attorneys working in a family business practice.

• Cultural factors sometimes figure into the principle of including the entire family in the planning process.  Ethnic, religious or lifestyle prejudices sometimes make intra-family communication difficult.  One of the challenges the wealth transfer specialist may face is the need to help a family overcome one or more of these barriers to effective planning.  If the problem turns out to be insurmountable, the specialist should probably decline to work with the family.  Accepting a case where one or more family members will be excluded from the process due to prejudice can potentially lead to refunding the planning fees.  Excluding some members will make it unlikely that a plan can be developed that will be suitable to everyone.  Under the terms of the satisfaction guarantee, the specialist would be bound to refund the fees in that case.  Therefore, if this scenario exists, it would be better for the specialist to decline to accept the case.

• Karl Bareither, CLU, with Tom Reischl, CLU, ChFC, MSFS, Becoming a Wealth Transfer Specialist , CA: FBR Publishing, 2003

• For a discussion of how families can evaluate and choose a wealth transfer specialist, see Karl Bareither, CLU, with Tom Reischl, CLU, ChFC, MSFS, Planning a Family and Business Legacy , CA: FBR Publishing, 2003.  Chapter nine, Selecting a Wealth Transfer Specialist, reviews the characteristics and skills required to be effective in this role.

• For an excellent treatment of various techniques for transferring the family business, see William S. White, JD, CLU, CFP, Timothy D. Krinke, JD, CFP, David L. Geller, CLU, ChFC, CFP, “Family Business Succession Planning: Devising an Overall Strategy,” Journal of Financial Services Professionals 58 (May 2004)

• Family Firm Institute Web site, http://www.ffi.org.  This is an excellent resource for all matters concerning family owned businesses.  There are numerous articles available at this site addressing many aspects of wealth transfer planning.

An Open Process Model

Biographies

Karl R. Bareither, CLU is president and founder of FBR System, Inc.  He is a fee-based wealth transfer specialist with 30 years experience in the family business market.  Since 1995 he has been teaching other financial services professionals how to use a holistic, open process for wealth transfer planning.  He is author of Becoming a Wealth Transfer Specialist and Planning a Family and Business Legacy.  He is a life member of MDRT and the Top of the Table. 

He may be reached at Karl@fbrsystem.com.

Thomas C. Reischl, CLU, ChFC, LUTCF, MSFS, is a free-lance writer and training consultant in the financial services industry.  He has 30 years experience in both personal sales and home office capacities.  He has written numerous articles for financial services publications and is the author of two books for financial service professionals; Ethics and the Sale and Ethics and Customer Service.

He may be reached at Tom@fbrsystem.com.

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