If you’re not talking with your clients about the impact of wealth on their family, someone else is. Clients today have a higher level of awareness about preparing their families for wealth.
On the 18th hole, one client told his advisor that he was taking his account to another firm. After a 20-year relationship, the advisor was stunned. When asked why, the client said the new firm had resources to take care of the family relationships, not just the assets.
“As professional advisors, we’re trained to assess clients’ financial situations from an analytical perspective. We lean on the truth of numbers and financial modeling. But often, before we can provide our clients with an ironclad estate plan or expertly managed assets, we must help them establish harmony within the family itself, says Matt Brown, a partner with Brown and Streza, LLP in Irvine, Calif.
Pay Attention to Family Relationships
Becoming skilled at spotting the red flags of family discord can be an opportunity for you to produce more value. Sweeping that discord under rug doesn’t make them go away. They just get bigger with time until someone trips and lands in litigation.
The cost to the advisor includes the missed opportunity to retain the business of the next generation, loss of assets under management due to redistribution to attorneys and a personal sense of failure of having let the client down. Not to mention perpetual planning because the family is unable to make a decision and members are afraid of being deposed.
Avoiding the softer conversations of wealth transition can land a family squarely among the estimated 70% of wealth transitions that fail. When personality conflicts, entitlement issues and disagreements become insurmountable, families can lose assets and experience irreparable family discord. More than half the time, wealth transfer fails because of a lack of trust and ability to communicate about money.
It’s important to learn how to spot these situations and know what you can do once you see them. Even if you bring in a neutral third party who specializes in helping families work through these disagreements, you’ll have helped your clients solve important issues that they likely can’t solve on their own, all while increasing your value to your clients.
Know Your limits
Randy Kaufman, Senior Vice President at EMM Wealth in NYC, brings in a family wealth coach when the emotions surrounding a family’s financial situation become secondary to the finances themselves.
Kaufman’s perspective changed after she read a 2016 Vanguard study titled “Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha®.” Vanguard is the largest provider of mutual funds in the world. The report helped Kaufman see that, as a financial advisor, just beating the markets doesn’t matter. “Three-quarters of the value added is my behavior as a coach,” she says.
Kaufman takes pride in being bold with her clients and telling them what she’s observing. “I have clients who love me because I’ll give them the needed advice, not what they want to hear,” she explains. “When I see a spending addiction, for example, I’ll say, ‘I’m observing this behavior. I could be wrong, but let me refer you to someone who can help you move forward.’”
One family she worked with experienced issues once the dad’s health began declining. When the mom took over, the adult children and spouses were relentless in demanding money. Kaufman brought in a family wealth coach to address the family issues head-on. It helped the family avoid bankrupting their estate.
Talk to the Kids
“Affluent families rarely have the conversations with their children about what’s expected of them as heirs to the family legacy. They’re flying blind, not really sure what the expectations of them are or what they should be doing,” says Jeffrey Verdon, Managing Partner of Jeffrey M. Verdon Law Group, LLP in Newport Beach, Calif. The sudden loss of the patriarch can throw the family members into a sustained disruption with devastating consequences.
At the beginning of the planning process for clients, family issues always arise, says Verdon. He often gets pushback when he suggests that adult children get involved. “Parents don’t want the kids to know they are rich, which is a funny phenomenon because the kids already know that,” he says. “Lack of communication with the adult children will only exacerbate the problems when Gen 1 dies. The lack of communication with Gen 2 will likely lead to problems and confusion. Gen 1 should go through the process of indoctrinating Gen 2 to the responsibilities of heirship.”
Watch for 15 Signs
Knowing when to step into a conversation about family dynamics will separate you from being a good advisor to an invaluable one. Here are 15 signs to watch for that signal family relationships (and result family wealth) are at risk:
- Family members are concerned that mom and/or dad aren’t as sharp as they once were.
- Family members aren’t speaking with each other
- The family is unable to make decisions, resulting in stalled estate planning.
- There’s little to no interest in bringing the family together for a family meeting.
- Communication within the family is mainly about money, suggesting a predominant sense of entitlement.
- You become the mediator between family members to resolve issues.
- There’s a hope that a foundation will bring the family together, but none of the family members are involved.
- The matriarch or patriarch are unwilling to share the estate plan with the next generation because they don’t trust they’ll be responsible with the information.
- The next generation isn’t equipped to manage significant wealth when mom and/or dad pass.
- Family members are jockeying for position in the family business.
- Cordial hypocrisy is predominant.
- Family members threaten litigation in jest.
- The kids have failed to launch.
- Expectations between generations are unclear.
- There’s been no articulation of the family values.
Eight Tips for Promoting Family Harmony
- Be bold. When you see something, say something. “I’ve observed that you often ask me to speak with your son on your behalf. May I ask what that tension is about? We may have resources available that can help”
- Have a confidential conversation with the next generation. Take your advisor hat off and get to know the next generation as individuals, not as beneficiaries. Ask them about their personal goals, what the wealth means to them and how you can help them on a personal level.
- Walk your clients through a 10-question quiz. In the book I co-authored with Roy Williams, Bridging Generations: Transitioning Family Wealth and Values for a Sustainable Legacy, we provide a 10-question checklist that measures family members’ readiness for wealth transition, along with instructions on how to score the checklist. Each question offers you an opportunity to start a conversation about the softer side of estate planning
- Educate your clients to the consequences of not preparing the family for the assets. Share stories of families that were unsuccessful in maintaining family unity and how that could have been avoided. Send them literature and offer to connect them with other clients who have taken steps to prepare their families.
- Close the gap between intention and action. Many families intend for their wealth to benefit the family, but few have taken steps to make sure that happens. Hold a family meeting, and don’t talk about money. Talk about the purpose, expectations and concerns, and come up with an action plan to engage those topics. Use the 10-question quiz to generate topics of conversation.
- Make family unity part of your onboarding process. Let your clients know upfront that your approach prepares the assets for the family and the family for the assets. You’re equally committed to ensuring assets and the family remain intact.
- Know your boundaries and introduce a neutral, vetted firm to teach the family new tools to talk about wealth in a safe way, align family values and prepare the next generation.
- Bring like families together for a “private briefing” and host a family coaching expert to address the topic of preparing families for wealth transfer.
Tips for promoting harmony among family members
Here are three strategies that can help you navigate the turbulent waters of family dynamics as they relate to money:
- Step out of your comfort zone, and ask questions that can identify the source of the issues. Inquire about the health of family relationships, point out concerning behaviors that need attention and make a focus on family dynamics an integral part of your process. If you are not asking the deeper questions about family dynamics, there is an excellent chance another advisor will. Asking questions like, “What keeps you awake at night?” or “Which of your children do you feel is most qualified to succeed you as the CEO?” will bring emotional issues to the forefront.
- Again, know your limits. When the situation goes beyond the level at which you feel you can be an effective mediator, call in a neutral family wealth counselor. Provide your clients with vetted family resources, and share examples of other family situations to help them see the value in getting the support they need.
- Show clients the potential cost of not resolving their issues. Show them some numbers that demonstrate the significant impact that unresolved family-relationship issues can have on their ability to preserve the family’s wealth. If the potential loss of family harmony doesn’t get their attention, maybe that will.
Knowing when you have crossed the line from advisor to therapist, and how to handle it, will give you more confidence to navigate your client’s family dynamics. Also, it will differentiate you as a highly competent advisor and can give you more consistent access to the next generation.
Amy A. Castoro is president of The Williams Group, a family coaching firm, in San Clemente, Calif., and co-author of Bridging Generations: Transitioning Family Wealth and Values for a Sustainable Legacy.