Raj Bhatia: Don’t Shy Away From Hiring Your Own Child
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Welcome to Barron's The Way Forward. I'm Greg Bartalus and my special guest is Raj Bhatia, Private Wealth Advisor at Chicago-based Bhatia Group, a wealth management team within Merrill Private Wealth Management. Today we're going to discuss succession planning and the case for bringing a family member into your practice.

Welcome to the podcast. Thank you, Greg. So succession planning is very much a pressing issue today. Many advisors are getting older at a certain age and a lot of them don't necessarily want to sell, but family members often provide a solution. That was the case for you. Tell us a little bit about your career and the decision to bring your daughter, Arianna, into the practice.

Thanks for that and it's a pleasure to be on your podcast. The decision to have successors to my 43 years of practice, that thought process began perhaps 15 years ago. And as probably you may know that I've been with Merrill since 1981.

And so a time had come at that time for me to look for planning for succession. The senior management of the firm encouraged me all the way, and I started the process at that time. And my daughter grew up in a household where the dinner conversations were all around, you know, things like clients and markets and so on and so forth.

And fortunately for me, she decided to go into business and finance in her education career, as opposed to following her mother's footsteps and becoming a doctor. Now, since she graduated from Stanford, I've been eyeing a good successor who could work 80 hours a day, but Goldman beat me to it. They hired her and she spent five or six years there with them.

And when I saw her work the way she worked out there, I said, "Geez, I wish I could get an employee that'll work 80, 90 hours a week without complaining." And after a while, she decided that her training working in private equity in transactions, and she said to me that, "I've done that, and I recognize that you go from one transaction to the other, but, Dad, I have seen you build relationships

where your first client is still your client. That's what I want to do with the rest of my career. So the time was right, the firm helped me to bring her over, and that's how she joined me last year, and I'm glad that I got her in. Let me ask you, you mentioned earlier that the idea began to percolate around 15 years ago. What happened? Why did that happen then?

My wife and I were having a cup of tea in the evening, and she sprung a question on me that, Raj, we've been very fortunate since we've been in this business for all these many years, and you have a very wide-ranging set of investments, et cetera. If you get hit by the bus, how the hell are we going to handle this?

And that set in my mind that put in motion that, look, we need to have a succession plan. I need to train the people. I need to pass my investment DNA to them. And that won't happen unless I spend the time to do that. And I'm happy to report to you that that is where we are now. And when I get calls from other advisors in a similar situation, the thing I say to them is that big difference between retirement planning and succession planning.

In retirement planning, you're planning for one person. In succession planning, you're planning for many people. And start the process 10 years ahead of time if you wish to leave a legacy. Let me ask you about some of the dynamics because there's a lot going on. There's family issues.

Children often want to carve out their own identity, understandably so, blaze their own paths, etc. Tell me about the balance because there might be this desire that I want this, but you may also acknowledge that depending on the person, trying very hard might backfire. So you would need to calibrate your request correctly. But at the same... So unpack that for me a little. This is an extremely insightful question. Thanks for asking.

When you look at the dynamics that a capable young person who's had good training, good education, when they come into so-called family business, if you can call it that, they are aware that they'd have to fit in and they also are aware what role would they perform.

So the first words out of her mouth when she began to think about the offer that I was giving her in terms of joining me were, "Dad, you did well for yourself. It is your business you created. I don't want to join you to take a part of what you have done. I want to build on top of that." So in other words, if I built the first floor of my business, she doesn't want any of that. She told me I want to build the second and the third floor.

I said, you're very welcome because that's what I wanted to hear. The second part related to this was how would my team accept her? The second point that I'm unpacking here, my senior partner, Shen Li, has been with me for 15, 16 years. He said to me, he said, Raj, you can go blue in the face telling clients you have a succession plan. But when they see Ariana in the same Zoom as you are, they know you have a succession plan.

So those questions don't come up anymore. Now, that part came from my senior partner, and all of my team accepted that over a period of time that, yes, this is value-added. Yeah, so given that she carved out an identity within private equity and now brings that value to the table,

For advisors listening who may have a child, let's say, who they'd like to have in a practice, tell me, is there a sweet spot in terms of when they might bring them in? Because it involves, it seems, many trade-offs. So if you bring someone in who's very green, they don't have many skills, and the perception of potential nepotism may resonate a little more. But if you bring someone in who's accomplished on their own merit, it would help the business and be seen as, oh, okay, they're in good hands now. But if someone is maybe...

forged their own career for a very long time and then parachute in, there may be concerns they don't fully understand wealth management, right? So is there any kind of a sweet spot, if you will? And I acknowledge it's contextual and small firms are different than bigger firms, et cetera.

Now I lived through it again, very insightful question. Now there's an asset side of this move and liability side. As you pointed out, the liability side is seen as a nepotism. I would argue with you and I would present to you that the asset side many times far exceeds the liability. Now, and that is because once the clients, the clients want continuity.

And I don't have to go into that every time when they turn older or there is a change in leadership in the family, they don't want to have to go and look for another advisor. It's painful. Yeah. So when they see that you have a member of the family, there are three things that become apparent to them. He or she, whether it's son-in-law, daughter, whoever the member of the family is, they have grown in a culture that is the advisor's culture and have picked up some values from that.

And the fact that you're a long-time client of an advisor, you want that.

So that from the get-go is a positive. The second part in terms of capability is that this, our business, our profession is essentially as much in terms of understanding the needs of another person as it is to connecting them with the right investments and assessing their risk tolerance. It's kind of half and half.

So people coming to us, if you look at their background, they come to us from every sphere. And some of the most successful advisors have been folks who have been teachers in the past. So I won't use that everybody's got to have a PE background or something like that. No, you can have someone who has interest, who has empathy, who has seen what you have to do

to work with the clients over the years, have the values that your clients have already bought into, and they can be trained. Yes, and as so often is said, this is very much a relationship business, right? Yes, it is. And I'd imagine that a benefit of bringing in a family member is that

They grew up hearing these conversations at the dinner table. They understand the dynamics, the pain points, et cetera. And it's just very natural and they absorb it. And not to mention individual clients who they may have seen at dinners or whatever. So there's that familiarity with

With the younger generation, they already know it and it can most likely make the relationship even stronger, I'd imagine. Yes, definitely. Right. Here I am in California visiting with a few of my clients who've been there with me for a long time. And in every single meeting that I've introduced my daughter, they know my team already, um,

they're very, very glad that we are doing this. Tell me about how you manage the potential blurring of boundaries. So there's family, obviously, then there's the business. Maybe there are little gray areas here and there, but can you speak about the dynamics to that? Yes, I can. When you look at, again, let me unpack that into different aspects of having family because you spend a lot more time

In developing a team of 13, we have five of us are PWAs, private wealth advisors. We have three analysts and client associates. I found that when I took upon myself to have a succession plan and have successors, you see for having a succession plan, you need to have successors. And I find myself spending 30% of my time, as much as 30% of my time mentoring clients.

my team members. And because she's related to me, so we take the same Uber or we drop her off to her home. There's more time that she has with me and I am enjoying the mentoring process. So that is one positive part of it. The negative part of it may come in where I expect her to have independent opinion. Otherwise, she's simply duplicating what I'm doing.

In that independent opinion, there will be clashes of opinion. So what we have done is we have formed an investment committee, we have formed an advisor, we have formed an FA committee, five of us in the advisors and three of us in the investment committee. So we hash out things which may have different opinion in terms of investments and in terms of our protocol and our business strategy.

So there are five of us and three of us. So that gets diluted with just the two of us making those calls. Putting a spotlight on, again, listeners, advisors who have family members. Is there any general advice you could offer to help them decide if they should bring their child in? And I know it's a tricky question to answer because there's many, many, many variables, but maybe there are certain red flags where...

the child might be like, "I really have no interest," or they may be prone to interpersonal clashing with people or have a temper. I mean, are there any red flags? Just curious about that.

No, you're right. I've observed many of my colleagues within Merrill and outside Merrill who have been in this situation and some general good practices come to mind. One is that if your adult son or daughter or any other member of the family has had work experience outside for three to five years, whereas they know what it is in terms of presenting yourself and rising through the ranks elsewhere,

And because they know your business growing up in the same household, they know what it is, what it takes with the father or the mother's practice. Now, given that, they are aware of the differences. And then if you solicit them that, hey, I'm getting older, I need you. If they are okay and they express an interest, all they have to do is not express anything.

Zero interest. Got it. So you can then begin to bring them in, show them, have them spend some time, have them talk to your team members. So it has to be voluntarily. They should want to want to be in your business. Got it. If you get the slightest hint, jump at it. Interesting. Okay. And let me ask you, when...

I guess you can only speak for yourself, but when they bring someone in, is their embrace, if you will, of the profession typically gradual or can it be even an epiphany of sorts where they say, "Yes, this is for me"? I mean, I'd assume it's more gradual when there's an element of adjustment coming in. Okay. Yeah. Let me give you a little different take on it, what happened with me.

As I was on a succession plan doing the CTP, which you all know that all of our firms have a program to assist you in bringing the next generation in there.

So as I had begun this process four years ago, I did mention to Ariana, and we used to have dinner time conversations, that I'm on a path here, and the window is short. So you do what you need to do. You can have full consideration, and then I'd love to have an answer for you. What I mentioned to her was that you solve for...

not having regrets later in life. This has been a guiding stone for me when I talk about investments, talk about clients. Minimize regrets. Most people optimize income and optimize returns. I say minimize, and this is not my words, it's in the literature and some of the famous professors are the ones who have said this. So when I said this to her, it was obvious that look, rather than coming back 10 years, dad, why didn't you ask me to join your business? It would have been a lot better.

And now here I am in different parts of whatever it is in the rest of the world, whether it's in this business or another. So knowingly, if your child, if your adult son or daughter says, geez, dad or mom, thanks, but no thanks, then you have read them the Miranda rights.

And it's up to them. Then they can't say that I have a regret because you did not encourage me. It can work out. When it works out, it works out very well. And yes, I've seen many situations. And what's your downside? There's nothing lost by asking. Why not? And also if somebody comes and says, geez, this is not for me. I want to be a sculptor, a painter, or a musician. Then what have they lost? It's like two years of internship before they're able to decide this is not for me. Yeah, yeah.

Yeah, I agree about the regret minimization. It's incredibly important and well worth remembering. What has been the most pleasant surprise for you after bringing your daughter on the team? See, my expectations bringing her in were simply this, that she likes the business, she likes the day-to-day activities,

client contact, she likes working in the firm and so on and so forth. What the same things I would have for any other employee. And so the positive side of that was that her background

And her interest in client contact was, as I knew as a father, were very high. And this helped her to accelerate her progress in our business because we have a lot of client contact. And of course, it is a lot of finance and economy and other parts out there. So she took to this part.

What was sort of a less of a surprise, perhaps it'll take time, you could say is that a 40-year-old practice, 42-year-old practice working for any of the large brokerage companies, there are a set of rules you have to follow. And for someone who is coming into a family practice, the large company, taking to those rules...

are what takes time, maturity, and experience. So that was the stuff which I said, hey, this needs a little bit more maturing, and I spent a lot of time on it. Yeah, there's a learning curve, I think. There's definitely a learning curve, and a frustration curve can be there too because you've got two constraints, family and the firm you work for. Right, but that's obviously certainly a doable problem. Yeah, yeah. It's a doable problem.

Okay. And then one, and the final, uh, it's really not a question. I'll just give you more of the floor. Is there anything that we didn't discuss that you think is important that listeners should know? Or do you think we've essentially covered what's most important? Um,

Well, one thing comes to mind, and that is that, as I mentioned, the upside in these so-called changes, moves, events can be huge. And the downside, I think, is limited in the sense that, hey, it's nothing irreversible should these things not work out. The thing that I would suggest to people is that give it a fair amount of one-way action.

In other words, I'd say a minimum three to five years of runway where you're spending the time to mentor and that will produce better outcomes and results. And number two,

Treat them as equals because if they're joining your business and you're still treating them as sort of how you see them as your offspring, as they say, they're born of us, but they're not us. So you have to acknowledge that and be ready to have a mechanism, a structure in place where the best argument wins or the best suggestion wins as opposed to monologuing.

Mom said this, dad said this, and this is my way. Very egalitarian, not top-down. Don't do that, yes. Those are the things you have to compromise as they have to joining you. So the compromise on both sides, that's all I would say. Okay. Well, that seems like very sound advice.

Thank you. Well, thank you. It was a pleasure having you on. It's been a total pleasure. Thank you. I appreciate the opportunity and thank you, Greg. You're welcome. My guest was Raj Bhatia. For more podcast and the latest wealth management news, visit barons.com slash advisor. And you can also listen to this podcast on iTunes, Spotify, and Amazon. And be sure to check out The Way Forward Next Generation, a new Barons Advisor podcast.

That shines the spotlight on the emerging leaders who are shaping the future of financial advice. For The Way Forward, I'm Greg Bartalus. Capital Ideas isn't just a podcast. It's 90-plus years of data-driven insights from Capital Group, one of the world's largest active investment management firms. Available wherever you get your podcasts. Published by Capital Client Group, Inc.