Family ties bind brokerages to heirs

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For some independent employee benefit brokers and advisers, business is personal — or more specifically, a family matter that involves multiple generations. The arrangement, depending on whom you ask, can be a blessing, curse or little of both. But it’s also a means of deepening blood ties and supporting loved ones in perpetuity if enough careful thought has been given to succession planning.

Michelle Maher, director of operations at the Cleveland Company, runs the business with her brother John Cleveland, who is six years older and considers her more of a partner than a sibling.

“I was kind of the pesky little sister running around bugging him,” she says of her brother. “But he coached my hockey and softball teams, and he taught me how to drive. He and I have always gotten along very well.”

Maher believes they have complementary skill sets, with Cleveland excelling at simplifying and communicating difficult concepts to her number-crunching aptitude. The siblings bought the shares of their father, Sam, who retired in 2010, and sister, Anne, who left for another opportunity. John’s son, Tony, and his son-in-law, Herbert Roldan, also work for the firm.

Long known as the economic engine of U.S. commerce, family businesses account for 64% of the nation’s gross domestic product, as well as generate 62% of all jobs and 78% of all new job growth, according to research by family business experts Joseph Astrachan and Melissa Carey. They also estimate that family-owned firms comprise 80% to 90% of all business enterprises across North America.

In some cases, more than one family is calling the shots. At Arrow Benefits Group, the third largest HR/benefits firm in the North Bay outside San Francisco and a United Benefit Advisors partner, Keith McNeil co-founded the company with Jordan Shields.

Five of roughly 35 ABG employees are principals in the firm who hail from two different unrelated families that started with small insurance agencies. A few other family members are also involved in the business, while others have left for various reasons.

As a result of melding their own cultures and business approaches, McNeil says he and Shields created “a company that is more in tune with how the world’s changing.” For example, the management team is much more open to staffers telecommuting than it was a decade ago.

Complicated decisions
In a market driven by mergers and acquisitions, McNeil says family dynamics change, or at least complicate, decisions to buy or sell. “If you’re a solo producer and someone dangles some dollars in front of you, you may say, ‘Great, I’m ready to go. I don’t mind taking my money and going off to the Caribbean.’ But if your children are in the business, it’s a different story.”

Some firms might want to perpetuate their family-owned agency and resist selling out to a large, national company that may not share their values, he explains. And the fact is, McNeil says the benefit brokerage arena often involves the children of producers. “It’s not like someone goes to college and says, ‘I want to go sell benefits,’” he says. “They grew up in it.”

Having second and third generation relatives in the industry generates “a ready-made perpetuation plan that someone who doesn’t have family doesn’t have,” McNeil says.

A 2016 PwC survey found that 43% of family business owners do not have a succession plan in place, while a Peak Family Business survey in 2011 predicted that only about one-third of family firms would successfully transition to the next generation.

The issue is not lost on Mark Bagnall, VP of benefits and HR consulting for Arthur J. Gallagher & Co. in the Arizona market, which bought his eponymously named firm in December.

Working alongside his daughter, Cynthia Walter, for the past decade, he decided about two or three years ago to wind down his involvement in the family business. And since his daughter didn’t feel comfortable worrying about the financial end down the road, he decided to sell. A deal with Gallagher, for whom he’ll continue to work until February 2018 and may stay on afterward as a consultant, was finalized in December. Of three offers made, Gallagher proved to be the best fit for clients of his independent firm in terms of products and services.

“I was getting to the point in my career where I really didn’t want to commit my financial resources to something in the future,” he says, and jeopardize his retirement. His daughter is president of the Arizona region and oversees the Phoenix branch office.

One challenge from both a business and personal standpoint is to dispel any perception that family members are given an unfair advantage over other employees, says McNeil, though no one has ever griped to him about the issue.

In a family-owned business, brokers and advisers say it’s difficult to separate work from life. But establishing expectations for relatives can be critical to not only to family unity, but also business success, according to Bagnall.

“Even though you’d like to leave the issues at work, somehow they always crop up after hours,” he says. “That cloud’s always kind of hanging over your head.” However, he has always made it a point through a 40-year career to rarely talk shop in front of family members.

John Cleveland says it’s imperative “to be brutally honest about performance expectations, and when things are not working, you have to talk it through because all the non-family staff are watching.” If a family member isn’t pulling his or her weight, then he believes co-workers who aren’t related will perceive an air of nepotism “that’s going to drag down the morale of the operation.” He says hard-working families who set the tone for others will garner respect.

His litmus test for success is a simple one. “The bottom line is we’ve all got to sit across the table from each other at Christmas dinner and get along, and if the decisions we’re going to make prevents that from happening, then we’re going to have to make a decision so as to allow that to happen,” he says.

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