The bitter public battle over the Pritzker family fortune offers a fishbowl view into how large sums of money can strain family ties.
The Pritzkers, who own the Hyatt chain of hotels, among other holdings, recently put to rest a very public battle over the inheritances of Liesel Pritzker and her brother Matthew. The pair claimed that their father looted their trust accounts in 1994 in the wake of an acrimonious divorce from their mother. In January, Liesel and Matthew were awarded a $560 million settlement, but not before a significant amount of the family's dirty laundry had aired in public.
Their experience is instructive to many other wealthy families and their financial advisors. One specific takeaway: Fostering togetherness and opening communication among family members are important first steps towards avoiding conflict.
Could a bit of bonding headed off the intergenerational melee among the Pritzkers? Probably not. But an increasing number of advisors are finding that family meetings — sometimes during vacations or advisor-created retreats — are a great way to head off trouble and to establish the advisor as the center of the family's financial universe.
Landing a wealthy family can make your practice, but it's important to know that managing the assets often requires becoming involved in family matters. “If you're going to do the quantitative stuff, you've got to do the qualitative as well,” says Eric Brotman of the Brotman Financial Group in Timonium, Md.
How deeply to get involved is a question each advisor must answer himself. But whatever the level of involvement, an advisor who places himself at the center of family meetings is serving everyone's interests well.
Some advisors decide to facilitate meetings themselves, occasionally at their peril. After all, it's one thing to sit down with a family and its attorney to discuss something as specific as a charitable-remainder trust. It's quite another to get involved with the emotional and historical issues that might be shaping the way the family relates to its money. In any case, an advisor needs to understand the pitfalls and benefits of family meetings and the professional help that is available to make these events not merely successful but real landmarks in a family's history.
When is a family meeting necessary? Experts say specific dollar thresholds are less important than what's happening in a wealthy family. “Family meetings are needed when there are transitions — changes in the family business, aging parents, illness and death,” says Richard Wagner of Worth Living, a Denver-based financial planning firm.
A meeting might consist of multiple generations with varied business, philanthropic and personal interests. For instance, the Rockefellers have been convening regularly for decades. Or it might just be Dad, Mom, the kids and the advisor going over an estate plan. But the size of the gathering is no predictor of how smoothly it will unfold. Only the advisor's preparation work can have an effect on that.
Eye on the Prize
Whatever the scope of the family meeting, it should have a definite goal — one that is set by the financial advisor organizing it. “Rule No. 1 — never call a meeting when you can't be sure what the outcome will be,” says David Lansky, consultant and founder of Family Business Innovations in Deerfield, Ill.
The purpose can be social — strengthening family bonds or establishing a shared vision. It also could revolve around business or financial issues — explaining an incentive trust or making decisions about the family-owned company, for instance. Or a family meeting can be about both bonding and business, but these two items should be kept separate on the meeting's agenda, says Lansky.
Myra Salzer, CFP, and president of The Wealth Conservancy in Boulder, Colo., describes a four-day retreat in which family members met after years of scant interaction. The setting was a resort with an amusement park, golf, tennis courts and boating — a place with activities for all ages. “Ages ranged from one year to 80-something,” she says. “The whole family was there, except for one member who had just given birth.”
Family members were the joint owners of a business that was the source of their collective wealth. But the company had hit recently some snags. The biggest sticking point was that family members disagreed over whether to distribute current income from the company or to reinvest the funds in the business to get it back on track.
The retreat specifically did not address the family's business issues. Rather, it sought to improve relations to a point that members would be able to civilly discuss financial matters at a later date. Because the contentious issues were put aside, the family bonded, with one member presenting a calendar marking the anniversary dates of the family's accomplishments over the decades.
A few months later, when directors of the family's business gathered to address some company issues, they voted on the contentious issue and decided to grow the business for the future generations of the family. Their business meetings have gone smoothly ever since.
The moral: “Sometimes the underlying goal should be getting to know each other and building better relationships,” Salzer says.
Bob Kenny, executive director of More than Money, an educational organization in Cambridge, Mass., agrees with this approach. “The purpose of the first meeting can be discovering what a family is all about,” he says.
Whatever the goal of the meeting, advisors and consultants agree it should be spelled out explicitly in a written agenda distributed in advance to everyone who will attend. Creating such a document usually requires a handful of preparatory meetings with the participants.
Lansky says advisors who neglect this prep work do so at their peril. He has seen the consequences firsthand: “The advisor had begun describing the estate plan when one of the heirs suddenly stood up and announced that he wasn't interested in the family's money and that he was moving to New York to have a sex-change operation.”
Finding Family Values
Wealthy families often are interested in teaching future generations how to represent the family well, and meetings can be a great setting for such instruction. The “wealth creators” often fear their offspring will succumb to the evils of entitlement and lack of motivation, says Courtney Pullen, a consultant and business coach in Wheat Ridge, Colo.
Pullen, who facilitates family meetings, says, “A meeting can be about capturing the collective wisdom of a family.” At one meeting he facilitated, he says, “People arrived at the family vacation home and started telling stories. I started taking notes and wrote down the values I heard in the stories — things like hard work and tough love,” he says. “The next day we talked about them and how to convey them.”
Some meetings have charity-oriented activities for children as young as seven or eight years old, according to Paul Pagnato, Jr., first vice president and private wealth advisor at Merrill Lynch in Washington, D.C. He tells of a family that has its own foundation and encourages the children to find their own interests. A 9-year-old girl who loved horses discovered — through her own initiative — a nonprofit that adopted abused horses. “The family got behind her and gifted money to a stable they could visit,” he says. “They now own two of the horses they rescued.”
A discussion of values also can lead to drafting a mission statement or revising one that hasn't stood the test of time. The process can be by turns challenging, revealing and fulfilling. “It can also be fun,” says Pullen.
Mission statements can define a family's philanthropic or charitable goals, but that's not all. “When you have a family mission statement, you can go back to it to find answers,” Pullen says. For example, a controversy, like whether to subsidize a family member who opts for a low-income profession like teaching or social work, can be solved by referring to the mission statement.
Wagner observes that some meetings bring together individuals who haven't spoken to each other in years. “Emotions can be very close to the surface,” he says. “Sometimes there's the ugly specter of people 53 and 55 reliving the conflicts they had at three and five years old.”
Sometimes irate family members are on good behavior in the presence of financial professionals or in a neutral setting. But don't count on it. “In one instance we could hear the shouting from the hallway,” says Karen Altfest, one of two financial advisors at the New York firm L. J. Altfest & Co., where families sometimes meet in the conference room.
“We've learned to listen first and not jump in with the rest of the people,” she says. “We put the issues on the table and maintain a professional demeanor. We repeat back to make sure we understand what each person is saying.”
Whether a financial advisor should act as facilitator depends on the families being served and on an honest assessment of the advisor's own skills. Justin McLaughlin of A.G. Edwards in Naples, Fla., brings families together when the offspring of his older clients are visiting. Scott Kays of Kays Financial Advisory in Atlanta, holds intergenerational seminars, encourages clients to bring in their adult children for private meetings and sends his email newsletter to the younger generation.
When trouble does erupt, advisors might be tempted to fix things themselves. Often it's better to bring in an outside facilitator. Lansky, who has a background in theater and psychology, uses techniques from improvisational theater in family meetings and in training financial advisors as facilitators.
“In improv, we're flexible as to who plays which role in a particular scene,” he explains. “A different person playing the role brings a different experience and sheds light on a whole new perspective.” For instance, a patriarch might play the role of the heir and vice-versa. Once, when a group of financial advisors was playing various members of a family dealing with the transfer of wealth, they began to emulate characters from All in the Family.
“Drama is a way to confront challenging issues without personalizing them,” says Maryann Fernandez, president of Shaking the Tree Interactive Productions, a nonprofit focusing on education in wealth issues.
Shaking the Tree offers a library of plays especially written to help wealthy families deal with troublesome issues. “They've been written by our creative team, which is dedicated to working with high-net-worth families,” she says. “Wealth amplifies problems, personalities and motivations. The plays deal with communication, love, trust and the challenges of decision-making.”
A family can draw on the dramas already written or may engage the creative team to create something new. “Each play is cast like a main stage production with professional actors. We have a professional director. We make everything as real as it can be,” she says.
The plays don't reach a conclusion in the usual sense. This leaves an opportunity to discuss the challenges with the actors who are still in character and who have been specially trained to respond spontaneously and sensitively. She adds, “The actors ask family members — ‘what would your advice be?’ This provides a chance to exchange ideas about difficult subjects.”
Most advisors won't need — or have a chance to offer — anything quite so elaborate. But experts agree: A little bit of intelligent planning can go a long way towards keeping an important meeting from turning into a soap opera.
FAMILY MEETINGS DOS AND DON'Ts
Encourage high-net-worth families to gather together as a way to head off conflict over how the family fortune is handled.
Arrange such a meeting without first knowing what issues will arise and how you will address them. The goal of the meeting should be spelled out in a written agenda distributed in advance to the meeting's participants.
Arrange for the family meeting to address nonfinancial matters, such as how the clan feels about a ne'er-do-well member.
Play amateur psychologist. If you doubt your ability to handle a nonfinancial matter, call in a third-party specialist to help guide the meeting through the rough spots.
Be prepared for the possibility of the meeting degenerating into animated disagreements.
Get sucked into participating in the disagreement. Listen, observe and then become part of the solution.