6 Things You Must Address When Hiring a Friend or Family Member
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We love doing business with people we trust, and our family and friends are the people we tend to trust the most. When it comes to doing business, particularly if it is work that is sensitive and requires a high degree of trust, it makes sense that we would gravitate toward a family member, a personal friend, or a referral of someone from one of these sources to do business. There are a number of benefits to doing business with people you feel you know – you may feel more open to talk about sensitive issues, and it feels good to help someone you know by giving them your business. I freely admit that I have done business with family and friends and likely will continue to do so. It can be a tremendous relationship.
However, when you consider working with someone where you have a personal relationship, you have to keep in mind that a personal relationship and a business relationship are two different things. In a business relationship, you are paying to have a product sold to you, a task performed, or perhaps a combination of both. The consequences of the decision you are needing to make, they could have large ramifications. Are you buying a vehicle from this person, one you will be driving for several years? Are you buying a home and looking at something that not only is a significant financial asset and liability, but something your family will be living in day in and day out for many years? Are you thinking about protecting yourself financially with insurance, or seeking financial planning and investment advice, all with decisions that can have enormous consequences with your financial health and future plans?
There are a number of business relationships where I commonly see family brought in to serve, and the results are not always glorious. When you choose to work with someone who is a family member or a friend, it is important to set clear expectations for the relationship. You need to make sure you will receive as great of service as every other client they have, and that you are not compromising financial protections that would be afforded to you in a different relationship. Here are three common relationships where family is brought in:
Financial planner/insurance. There are a number of personal and potentially sensitive topics that surround this area, so it may feel more comfortable talking to someone who you feel knows you. However, how they structure their business and make recommendations can have a serious, negative impact on your finances that leave you little or no legal recourse.
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Are they a fee-only, fiduciary financial planner? (most are not) Will they put that in writing? If they say they’ll act in your best interests, but will NOT agree to a fiduciary level of responsibility, then they are NOT a fiduciary. If they won’t do this, you are potentially sacrificing a level of service and legal protections afforded to you by advisors that work that way.
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How is the family member earning their money? Is it based on sales commissions, an advisory fee, or both? Are there conflicts of interest (usually yes), and if so, how can you be sure they are acting professionally and in your best interests?
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Real estate. Family are brought in ALL THE TIME to help buy and sell homes. It is one thing if they are a real estate professional and this is their full-time job, but in many cases that isn’t the case. Some common consequences include delayed listings, poor photography/staging, and pricing that is not market based. Whether they are a buying agent or selling agent for you, they have a conflict of interest if they earn their fee based on the selling price on the home, so you’ll need to keep this mind in making sure you are making a buying or selling decisions that is in your best interests.
Caregivers for elderly family members. Will they work in the family member’s best interests, or will they try to hide things under the rug. Worse yet, will they try to have that vulnerable family member sign a new will, change trustees for a revocable trust, or enter into agreements that are against their true wishes/wants for the benefit of the caregiver? Make sure that you have legal protections and independent means of authorizing activity so that everyone (including the caregiver) are protected from accusations and actions of taking advantage of that loved one.
My big question to you regarding entering ANY business transaction with a family member or friend or referral: If this person was not a personal contact, how would you evaluate their ability to serve you? Here are six important things you must address before entering that relationship:
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- Establish qualifications. How do you know this person is actually terrific at what they do? They may well be outstanding, but how do you know that to be the case? Ask them what qualifies them to do the work they are asking, how long they’ve been doing the work, and how they would work with you as their client. Sirens should go off in your head if phrases like “I do this all the time, whaddya mean?” or “Relax, I’ll make sure to take care of you, don’t worry about it.”
- Establish price. It is much harder to negotiate with friends and family. Do homework on what other professionals tend to charge, ask for their best price, and don’t be afraid to ask questions about how they justify their fees. Paying solid fees for good work makes sense, but they should be able to articulate how they get to the number they are offering.
- Accountability. Asking for work to be redone or a refund if work is done poorly can be challenging to question or express dissatisfaction toward someone you care about. That type of feedback can cause strain on a relationship that you prioritize and care about. The alternative to that is not giving feedback you would normally give, leading to holding in and building frustrations internally. You will eventually blow up, and the consequences may be large. And if you feel you need to fire them, or worse – sue them, will you be able to pull that trigger? If not, then hiring that family member or friend is not a good fit for you.
- Work with a contract. Your business should be treated like any other business, which means a written agreement that enforces expectations and protects both sides. If you aren’t comfortable with what you are seeing on paper, don’t do business with that party, even if that person is a brother-in-law or cousin or best friend.
- Managing expectations. Family members and friends sometimes take advantage of the relationship by being late to meetings, missing deadlines, and generally being presumptive about your business rather than working like they might for a stranger to earn it. As you explore the potential relationship, ask about what behaviors and workflow you can expect to them – and document it – and hold them accountable to it.
- Evaluate behavior. When money enters the equation, people sometimes behave differently. If your uncle is also your financial adviser, and see you get a raise, does he keep that confidential? Will he talk to other family members, or does he summarily ask for more money for his fees, irrespective of the work being done, because he knows that family relationship exists? Could there be jealousy, or resentment, or anger creeping into the relationship? Will they be bringing personal issues into your business? If any of these ideas are raising concerns, this person may not be a good fit for you.
There are tons of benefits to hiring people you are comfortable with and trust. If they are true professionals that can treat you with mutual respect and separate the personal relationship from the business one, it can be an extraordinary dynamic. You may get superior performance compared to even the best in the industry because you may find personal emotional comfort and support that a stranger working with you may not be able to immediately provide. As attractive as that may seem on its surface, I have highlighted a number of ways that trust can be taken advantage of, so it is important that you keep your eyes open for the risks involved. Finally, if anything is signaling to you that the relationship is not going to work or meet your needs, you need to listen to that as well and act accordingly.
About the Author
Steven Briggs is the owner of Briggs Financial, a fee-only financial planning and investment management firm located in Northern Illinois. Steven is also the host of the weekly podcast "Money is Personal" available on iTunes, iHeartRadio, Google Play, and PlayerFM, and author of the book "Spend Smarter in 28 Days" available on Amazon. Steven is an ardent champion of behavioral management in developing both successful clients and successful financial planners.
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