Many financial advisors have the same dream—that their sons or daughters will come work in their business and become their colleagues and maybe even eventual successors.

Many financial advisors also have this nightmare—that their partners’ or employers’ sons or daughters will come work in the business and become either their colleagues or their eventual partners or bosses.

The temptation to combine family and business is very hard to resist. After all, many business owners are looking for someone talented, ambitious and well-educated who shares their same values and who they can trust. Who fits that description better than their children? They paid for all the kids’ education, after all; they taught the kids all those values. The trust they have in the kids is instinctive. What’s more, they want to bestow on their children the same success, income and control they’ve enjoyed. They have a hard time watching their daughter or son otherwise go work for Goliath National Corporation where they are paid a meager salary and hope for a middle management promotion.

Much like tequila shots, though, the temptation is strong but the results often disastrous. I have seen key employees at financial advisor firms leave within a week of somebody’s family member being hired. I have seen long-standing partnerships break. I have seen vibrant cultures become awkward and lose energy and ambitious employees turn into chronic critics overnight after someone’s family member comes on board.

What’s worse, after all the damage is done and all those relationships are hurt, the son or daughter often leaves the firm anyway. Sometimes they find they don’t want to be an advisor. Sometimes they figure out they don’t want to work for mom or dad. They may get tired of clients and colleagues referring to them as “Phil’s son or daughter.” Or they may just find a better job in a more promising environment.

Everyone knows the track record is poor; everyone knows it’s highly likely it will end badly. Yet so many people keep doing it. We don’t have statistics on it, but my sense is that no less than one-third of the firms in the industry have employed family members or tried to. It’s an issue for small and large firms alike. Moreover, advisors also likely encounter the problem with their small business owner clients all the time.

I believe the simple answer is, “Just don’t do it!” However, I recognize that neither the decision nor the situation is very simple. So I would like to offer some suggestions that can perhaps improve the chances of success.

Recognize You’re Creating An Issue

One of the biggest mistakes owners make when hiring a family member is to act defiant—as if it’s not really an issue. “I can’t understand why I can’t hire my own son in my own firm?” What the other employees and partners hear is, “This is my family ‘farm,’ and I can do whatever I please, and I don’t care what you have to say, and you can’t do anything about it, and by the way, someday my son will do the same when he inherits the farm!” Obviously for the team, this is a terrifying proposition.

The only way to deal with it is to be transparent, acknowledge that it will create difficult issues and propose to the firm how you intend to safeguard it. Ask yourself:

• Is this an individual who is qualified for the job he or she was hired to do? How would the firm know?

• Is this person going to advance in his or her career regardless of achievement or primarily because Mom or Dad run the place?

• Will this person take away opportunities that should have gone to others?

• Can you trust yourself to be objective in managing your child?

• Will the child employee be a spoiled brat (like King Joffrey from Game of Thrones) who will disrupt the chemistry and culture of the team?

• How do we treat people as colleagues when we know they call the CEO “Mom?”

• Will a child employee inherit the equity and perhaps leadership of the firm someday, even though he or she may be neither ready nor talented enough for the job?

• What if the other partners did the same thing?

The owner/parent must lead here and propose the solutions—and first off, really listen to the team members. Their concerns may hold a lot of validity and perhaps speak to issues that have no resolution. There may be problems that simply cannot be solved.

Hire For A Real Job

If you are going to hire family members, you need to hire them for jobs that actually exist—that are part of a normal career track at your firm. Time and again, I see a son or daughter hired without a job description or a set of responsibilities. Often, the owners say the job is simply to “learn everything about the firm,” but they create no process or duties. The result is a young person who wanders through the office and the org chart frequently trespassing on other people’s areas of responsibility.

Even worse is to “invent” a job that wouldn’t exist otherwise. I have seen positions such as “director of strategy” (for a firm of five) or “chief of staff” or “partner in training.” One advisor in California hired his daughter, who was still an undergraduate, as “director of marketing” and her first project was to remodel the family’s vacation house.

Ask Children To Compete For Their Jobs

Ideally, a family member does not arrive in some kind of sinecure but instead competes with external candidates for a position openly advertised. The best-case scenario would be for the family member to apply like everyone else, be interviewed by the hiring manager and other partners and convince all of them that he or she is the best candidate available. Neither the process nor the result should be skewed in the person’s favor. If the candidates can pass this test, it will be much easier for the firm to accept them as part of the team.

It may be painful for business owners to possibly reject their children as applicants, but the possibility must exist for the team to feel the process was fair. Moreover, it helps the kids establish their credibility as professionals if they earned it.

Don’t Be The First Employer

In fact, one of my longtime clients has a great piece of guidance for his children: They should work at least five years somewhere else before they come to his firm. His rule allows the children to gain some experience, establish their careers and, very important, establish their confidence. The experience of working somewhere else gives them perspective on what a real workplace is like and how they must deal with situations on their own without help. If they have never worked anywhere else or done anything else but work for dad, they’ll have a hard time convincing others they’ve achieved something on their own.

Put Them On A Normal Career Track

Once family members are hired, they should pursue the normal career track in the firm, joining at an appropriate position for their experience and following the same rules of advancement as everyone else.

A career track will also help them manage their expectations, understand when and how they are advancing and what they need to do next. Children of the founders often feel crushed by the expectations placed on them. They feel as if they need to immediately be as knowledgeable and as productive as their mom or dad, which can discourage them. The career track helps them manage their own expectations about themselves.

Don’t Manage Your Own Family

Ideally, a family member working in a business is as far removed in the org chart as possible from the owner parent. If a child should work in the business, he or she should be managed by another partner and should receive feedback and career guidance from other partners in the firm. The parent should be entirely removed from any compensation or advancement decisions, if that is possible, and in general should entrust the careers of children to associates.

This also means accepting and not interfering with the decisions of those partners. If they believe the young person is not ready for promotion or a pay increase, the worst possible scenario is for the parents to interfere to get the kids advanced. Such a step would destroy any credibility the owners have and any sense of fairness.

This approach will also help the kids, who can work with more confidence and not worry about whether clients and team members see their success stemming from the parents. If the children work in their parents’ shadow, they’ll feel it many years after the parents have left the business.

Never Anoint Kids As Partners On Day One

The greatest fear other partners and staff have is that a child will be “anointed” partner or CEO as birthright. Unfortunately, founders frequently and merrily pour gasoline on that fire by telling everyone this is exactly the idea they have in mind.

Yet the children might have no talent for a leadership role, and what’s more might have no interest. Maybe they are good advisors but poor leaders or team players. In fact, no one should ever be anointed a partner or a CEO in the first place. It’s a right that must be earned. People preparing for the role need to show they can pass every test other employees can and be just as good, if not better.

This is a good time to pull out your ownership agreement (or shareholder or operating agreement) and reread it carefully:

• How does your firm approve new owners/partners? Can one partner or a small group force the others to accept a new partner who is also family? Many firms choose to prevent that by requiring a super-majority.

• Does the firm have the right to approve transfers of equity? Can a partner simply transfer shares to her child or would she have to go through the firm? Many firms require that the firm buys and sells all equity or approves all transactions to prevent such transfers or deals with family members.

• How do you choose a CEO? Is there a board that oversees the actions of the CEO? How effective is the board?

Larger firms with more partners will have more tools at their disposal to create a formal process protecting the partnership. Small firms may find themselves with fewer options, but still, this could be a good opportunity to call your corporate attorneys for advice and perhaps a revision of your governance documents.

Be Prepared For Kids To Leave

Children leave us. It’s a good thing. They are eager to establish themselves, to explore the world, to discover who they are and what they want to do. They frequently reject the ideas and directions of Mom and Dad precisely because they came from Mom and Dad. They may have bigger ambitions than to take over the family firm or they may choose different careers. Their lives may simply take them in different directions. For that reason, they often leave the firm. Or worse, maybe after the parents have passed it to them, the kids eagerly sell it to the highest bidder.

Any plan for the children later heading the business needs to account for this. It’s one of the biggest reasons bringing family into the business is problematic. Thus, an open and transparent dialogue is necessary not just within the firm but also among the family members.

Family Will Make Financial Decisions Very Difficult

The worst financial deals and worst conflicts I have ever seen have been among family members. A father selling his business to a son. A wife setting the salary of her husband. A son-in-law buying the business of his father-in-law. These situations are emotionally charged because families are emotionally bonded. That means financial logic often flies out the window during business transactions among them.

Parents might impose harsh conditions on their children for buying. Children might think they’ve always been treated poorly. Where an employee may think, “This is not the raise I was hoping for,” a daughter will think, “You have never appreciated me! (And you never took me to skating practice!)”

So when it comes to making financial decisions, these are good times to rely on third parties—your partners, accountants, consultants and valuation experts.

The conclusion here should be very simple and obvious. You should avoid hiring family members, but if you do, treat them like any other employees. In fact, go to great lengths to treat them like any other employee—no better and no worse.   

Philip Palaveev is the CEO of the Ensemble Practice LLC. He’s an industry consultant, author of the books G2: Building the Next Generation and The Ensemble Practice and the lead faculty member for the G2 Institute.