“From shirtsleeves to shirtsleeves in three generations,” a well-known American proverb, encapsulates the tendency for family fortunes to be eroded quickly. Most languages have a similar version, indicating this is an innately human problem.
For companies who make their business out of managing family wealth, trying to prevent the dissimilation of clients’ fortunes is a priority. One point of view that has gained some credence within the wealth management community is the necessity to address the psychological or emotional aspects that come with managing money. According to Marty Carter, who runs Baton Consulting, these issues must be addressed to sustain fortunes over multiple generations.
Carter says wealth managers may encounter issues such as clients overspending, not sticking to financial plans, or the children not being trained properly, and the underlying cause is that the plans often don’t take into account psychological realities.
In the family discussion, “’it’s too easy to assume silence means agreement,” says Carter. “Silent fighting often happens in discussions over money.”
There’s also the mentality, prevalent among some who have grown up with extreme wealth, that “there’s always more where that came from.” Perhaps a wealth creator had a fairly hard childhood and so wanted to spoil his or her children, but they have actually done a disservice to the younger generation, explains Carter.
And while over-spending may not seem like a key concern for a client with a $30 million fortune, it is important to live within your means whatever they are in order to free up the necessary resources for long-term investing. After all, the running costs of yachts, planes and multiple properties add up very quickly.
Starting the conversation
These issues are often hard to broach, especially for advisors whose knowledge and experience lie in altogether different fields. Due to this, some engage specialists to work with their clients, giving rise to a relatively new breed of firm which comes into the family discussion specifically to tackle these issues.
Carter’s process involves a two-stage conversation. Firstly, there is the family history meeting, to try and look back over at least three generations of the family’s past and get members interested in their personal history. And these meetings should involve spouses too, in order that they feel connected, she says.
The next part of the process is the family money meeting, which is not about the financials, but about what family members want to use the money for, and what’s important to each of them.
Another approach is one that has been created by the Chicago-based firm Inheriting Wisdom, founded in 2004 by Dr Carolyn Friend and Dr James Weiner: the “legacy wheel” represents aspects which families deal with of both a tangible and intangible nature. On one side there are the tangible decisions – financial, legal, medical, cherished possessions – and on the other, there are the intangibles – spirituality, accomplishments, family culture. “Usually when people talk about money, they are thinking only about the tangibles. We believe you also need to talk about the ‘dragons’ that exist in families: jealousies, greed, the things that get in the way and how to manage them,” Dr Weiner tells Family Wealth Report.
“For the first time ever, we live in a time where it’s possible for four generations to be alive at the same time, and at least three often are. Also, families can be spread out all over the world,” says Weiner, highlighting the gap which must be breached to find common ground in families.
Reframing the conversation
There are many sides to this: first of all money is a taboo, as Weiner and Friend point out in their book, the Legacy Conversation; secondly, when it is talked about, it is usually started at from a financial angle; thirdly, as always with people, miscommunication prevails. A well-intentioned piece of advice can be taken as a confirmation of someone’s insecurities. In their book, Weiner and Friend provide the following example: Often we tell second-, third- and fourth-generation wealth holders "behave responsibly." We do this because we believe that unless they manage their wealth successfully, all will be lost. But this admonition backfires. How easily the message turns into scolding. "You better be responsible! We all know you couldn’t have created this wealth, and you probably don’t deserve it."
The viewpoint that firms such as Baton Consulting and Inheriting Wisdom advocate is: start from a more creative, personal angle, and end up with money, rather than starting to talk about finances and ending up at personal roadblocks. After all, a new approach can help shed light on problems that appear deeply ingrained.
Another organization that is looking at the wealth conversation is Shaking the Tree, a non-profit organization that uses theatre as a medium to raise the intangible issues around wealth.
Shaking the Tree provides “Living Case Studies” to explore the emotional issues around business succession, corporate governance in family enterprises, trustee/beneficiary relations, family decision-making, and the responsibility of inherited wealth, including philanthropy. “Family members recognize themselves in the story,” says Paul McKibbin, a family office consultant and founder of the ten year old organization. “Afterwards, the actors stay in the first person, and draw on the experience of the audience for advice and solutions. Allowing the actors to play out scenarios can help the family ‘step back’ and gain objectivity, trying out new approaches from a safe distance, and engaging in the discussion from a fresh perspective.”
This industry is still at a relatively early stage of development, and the wider wealth management industry is also in a state of flux. It has yet to be seen to what extent wealth management firms will embed efforts to address the issues that drive families apart in their practice. Dr Friend believes that once advisors realize the positive outcomes this can have on the end results, they will clock on; both she and Dr Weiner insist the most successful firms outsource this capability. And as wealth managers seek to differentiate themselves in an evermore competitive world, it may well be a growing phenomenon.