I recently received a question from a financial advisor who is considering growing their practice and bringing their daughter on board. The advisor is concerned about the right timing and how to structure equity participation.
Experts suggest that before hiring anyone, it’s important to determine whether it’s the right time to hire and what role the new hire should fill. Even for solo firms, adding an employee is recommended for backup purposes and to ensure the continuity of the business in case of unexpected events. While being a sole practitioner has its advantages, it may not be the best long-term approach.
The expense of hiring an employee can be justified and afforded through growth. Without growth, every firm will decline, as client attrition is inevitable. Hiring additional employees can help bring growth to the firm. When it comes to deciding which type of employee to hire, it may seem less costly to hire an administrative person, but experts recommend hiring a professional as the first hire. This provides a valid backup for the primary advisor and establishes a foundation for further growth.
Now, let’s address the question of whether it makes sense to hire the advisor’s daughter. Based on her education and experience, she seems to meet the basic recommendations for the first hire. However, it’s important to consider her personality, work ethic, and culture fit within the firm. Additionally, the advisor needs to evaluate whether a boss-employee relationship can be successful without risking their personal relationship. It’s crucial to separate work roles from family roles and consider the potential impact if things don’t work out.
When it comes to equity sharing, it’s advisable to work with a consultant experienced in structuring deals. Committing to or discussing an equity-sharing agreement before working together is premature. In most cases, equity should be considered with a level of financial commitment to solidify the employee’s dedication to the firm.
In conclusion, the decision to hire an employee should not be taken lightly. It’s crucial to ensure the continuity and growth of the practice, but the timing and role of the hire must be carefully evaluated. When it comes to hiring the advisor’s daughter, her qualifications and fit within the firm should be considered alongside the potential risks to their personal relationship. Consulting with a professional in equity structuring is also recommended before discussing equity sharing. Overall, expanding the practice with the right hire at the right time can lead to future success and stability.
