I’m a Financial Advisor Thinking of Growing My Practice. How Do I Know if It’s the Right Time?


I recently received this question from an advisor:

“My daughter has been working as a financial advisor for a large company since graduating from college five years ago. She has been quite successful, and even I’m impressed with her growing expertise. Now that she’s earned her chops, we have been talking about bringing her into my solo practice to both create a succession plan and update the firm’s vision moving forward. I’m concerned about pulling the trigger because my income will be affected. I also struggle with the best way to structure her equity participation. What should I do?”

This is really three questions:

1) Should I hire someone now?

2) Should I hire my daughter?

3) How do I approach sharing equity?

Let’s address each question.

Should I Hire Someone Now?

Before addressing who should be hired, the advisor must first determine whether now is the time to hire and what role the new hire should fill. When dealing with a solo firm, I am generally in favor of adding an employee if for no other reason than to add backup. What if the advisor becomes ill, wants to take a vacation away from internet connectivity, becomes disabled, or passes away? From a financial standpoint, this could destroy the value of the business. Worse, it could leave clients in the lurch. As much as being a sole practitioner avoids the hassles of being an employer, it is not the best way to function in the long run.

So, if hiring an employee is recommended, how can the expense be justified and afforded? Obviously, growth is required to be able to absorb the cost of an employee. But growth is required for every firm. Why? Because stability is impossible. If your firm is not growing, it’s decaying. No matter how loyal your clients are, you will lose some over time—from moving, marriage or divorce, assumption of assets by a trustee, death, or other unanticipated occurrences. Without onboarding new clients, the business will decline. The bottom line is that reimbursement for the cost of an employee will come from growth.

Moving from a solo practitioner to a multiperson firm can help bring growth. The fact that the firm is no longer reliant on just one individual will encourage more clients to make referrals and will convert more prospects into clients.

Although it would seem less costly to bring on an administrative person than a professional, I think the solo practitioner’s first hire should be a professional. This provides a valid backup to the primary advisor and builds a foundation for further growth. My recommendation would be to hire someone who:

  • Has at least three to five years of experience.
  • Has their Certified Financial Planner (CFP) or other designation, such as Personal Financial Specialist (PFS) or Chartered Financial Analyst (CFA).
  • Is willing to pitch in on nonprofessional tasks often required in a small firm.

Should I Hire My Daughter?

Now that you’ve decided it’s time to hire someone, we will look at whether it makes sense to hire your daughter.

Based on your description of your daughter’s education and experience, she seems to meet the basic recommendations for your first hire. Beyond that, as with any employee, you need to critically consider whether she has the right personality, work ethic, and culture fit to perform well in your firm.

Because she is your daughter, you need to also evaluate whether a boss-employee relationship can be successful. Could your personal relationship be at risk? Do you both have the ability to separate work roles from family roles? What if it doesn’t work out? Are your spouses/significant others supportive? And, at a basic level, does your daughter want to work with you?

How to best use an additional employee could be an entire series of articles. But the decision of whether and who to hire is the first step—an important step in ensuring the continuity of your practice.

How Do I Approach Sharing Equity?

Unless you are looking at a merger or sale to another firm, committing to or even discussing an equity-sharing agreement before you’ve worked together is premature. Generally, equity should be considered:

  • After you’ve worked with an employee for some time.
  • Once the employee has become integral to the firm.
  • Once the employee has proved capable of bringing in new clients.
  • Once the employee has expressed an interest in becoming an owner.
  • Once you’ve become comfortable with sharing ownership with the employee—or anyone!

Finally, before discussing equity sharing, I think it’s a good idea to work with a consultant familiar with structuring deals. Most forms of ownership transfer should come with some form of financial commitment. This might not be critical when dealing with your daughter. However, in my experience, a financial buy-in cements the level of commitment.

The decision of whether, who, and how to hire an employee is one that should not be taken lightly. Yet because practicing as a solo advisor can leave the advisor and clients at risk, I recommend moving forward as soon as practically possible.

The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.


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