Is your brother-in-law your client? How’s that going? Many advisors are in opposite corners on the question “Should you do business with family members?” This can further be divided into three subgroups: Immediate family, In-laws and extended family members. Some live at a distance. Where do you stand?
It’s easy to make the case why you should do business with your nearest and dearest.1. Natural market. Your parents and close family want you to succeed. They trust you. They’ve known you for a long time. They feel you will treat them fairly. Ever better, you will treat them well. They know where you live. 2. It’s difficult to grow your businessif you focus on with whom you won’t do business. That’s taking large groups of potential clients off the table. It makes the job of building and growing a clientele harder. 3. They’ll do business someplace else. A New York advisor brought this point up. Suppose they respect your “I don’t do business with family” rule. They find another advisor. Everything blows up. They will be back on your doorstep asking you to take over and “Make me whole again.” Her logic is: “If you will be brought in after their portfolio is a train wreck, you might as well get involved on the front end and try to prevent it from happening.” 4. You could have helped. I heard this story from a New England manager. A friend lost a parent. They needed to sort out their finances. The advisor didn’t approach them for business, out of respect for their loss. The friendship cooled afterwards. The advisor asked why. The friend said: “I suffered a tragedy. You could have helped. You chose not to.” 5. You understand context. Financial planning questionnaires don’t ask: “Are you pleased or disappointed with your children?” They don’t ask: “What’s the strength of your marriage?” As a family member, you know a lot of those details. As a consultant on the West Coast said: “You understand the tapestry of their lives.” 6. Personal attention. In simple terms, you care. These people mean something to you because you are family. You feel personally vested in the outcome. They aren’t a client with an advisor they met for the first time. 7. Confidentiality. “Keep it in the family” is a powerful concept. If they need to reveal personal financial details, they often prefer to do it with someone in their circle of trust. 8. Fees and commissions. Obviously they will expect discounts. They want “the family rate.” However, they like the idea the fees they pay are going to a relative. It’s another aspect of “Keep it in the family.” 9. Accountability. You can’t disappear or avoid their calls. They can track you down when they want answers.
There are some pretty good reasons not to do business with family members too.1. Accountability. It’s November 27th. Suppose the market just fell off a cliff. You are the family’s advisor everyone has all their money with you. Tomorrow is Thanksgiving. It will not be an easy day. 2. 24/7 availability. The majority of your clients know they can reach you in your office during business hours. Family members feel you are like a customer service line that’s available all day, every day. They can call you late at night with questions. They think you carry all their account information in your head. 3. Bending the rules. (1) They placed a trade with the understanding payment is due in three days. You aren’t worried because they are family. The stock tanks. They don’t want to pay. They want you to unwind the trade, eating the loss yourself. Hey, we are family.4. Bending the rules. (2) They want to sign their spouse’s name on documents. They explain the do it all the time. The spouse might even verbally give their OK. There’s no power of attorney on file. “But we don’t need that, because we are family!” It’s still forgery. 5. Nosy parents. You have your parent’s accounts. Your brother is a client too. He’s about 25. Your parents are concerned how he is spending his money. They might be legitimately concerned he might have a drug problem. They want to know where and to whom he writes checks. They want to know about his ATM withdrawals. Unless your brother has formally granted permission, they have no right. You are in an awkward position. 6. The In-laws don’t like you.When you marry, you get the in-laws as part of the package. They might be “frenemies.” They might be overprotective of their baby sister, who is now your wife. They may think she could have done better. They have a low opinion of your profession. Why would you want to do business with them? It’s an accident waiting to happen. 7. Family fights. Maybe it involves inheritance. Family members and friends often take sides. If you are the “family advisor” you likely have clients lined up on each side of the conflict. You know about their finances. You are finding it hard to get them to understand you must be neutral. 8. Confidentiality. Many people don’t want close family members to know their intimate financial details, like how much debt they carry. They are concerned you will share information with your spouse, since you have admitted: “We have no secrets. I tell him everything.” When they need to bare their financial details, they prefer doing it with an impartial professional, outside the family. You want your secrets to stay secret.
There’s a case to be made for each position. Remember one of the greatest pleasures an advisor can have is doing business with people you like.