Pitcairn Update, October 2018
Click here to download the printable pdf version.
Family leaders work hard to create and sustain wealth that will extend to future generations and create a lasting family legacy. Yet when it comes to actually talking about wealth and communicating what it means for the family, many avoid critical conversations and delay discussions.
It’s the elephant in the room. Everyone is aware of the importance, but few want to openly discuss it. According to researchers at North Carolina State University, parents are more likely to discuss saving, spending, and earning with children, but family finances, parental income, investments, and debt are off-limits. Avoiding these topics could have dire consequences, particularly for affluent families.
Families’ reluctance to talk about money is understandable. Conversations can be awkward and sometimes touch on deep-seated family issues that threaten to erupt into full-blown disputes. But avoiding the topic of wealth is not a lasting solution to these problems. It only delays the inevitable conversations that will have to happen eventually.
Consistent, effective communication is fundamental to a family’s success in the short term and in maintaining wealth momentum through generational transitions. Research from Virginia Tech found that good communication can have a compounding effect. Families who communicate effectively are able to work through issues and enjoy more satisfied relationships over the long term.
Often, the most crucial communications around family wealth come down to a few key conversations. With a little bit of preparation, these conversations can be far more productive and less contentious. There are several best practices family leaders should keep in mind.
- Create a structure. Discussions about family wealth demand planning and a strategy to make sure the conversation is productive. Communicate essential information during family meetings or other structured times.
- Solicit input ahead of time. One effective tactic is to ask family members to complete a questionnaire in advance of any significant conversations, then hold a family meeting to discuss the results openly. Be sure to share the agenda ahead of time. It can help family leaders navigate expectations and objectives.
- Get outside help. Having a moderator at family meetings, whether it’s a family member, family office advisor, or other external participant, can help keep family members focused on the discussion at hand and prevent disagreements from breaking out.
Armed with these best practices, family leaders can take a more thoughtful approach to communicating key elements and takeaways concerning their family’s wealth. Here’s a closer look at seven of the conversations families should make sure take place.
1. Have “the talk” early
Among affluent families, less than half of children know their parents’ net worth, according to research from Personal Capital. More than 20 percent of parents said they never intend to share that number with their children. Family leaders may be reluctant to share specifics with family members, particularly children who may not have context to understand all the implications and nuances of a family’s wealth.
Every family’s approach to sharing specifics about wealth will be different. But that doesn’t mean it’s acceptable to avoid the topic altogether. Conversations around family wealth should start with general concepts when children are young and gradually get more specific as they get older. The earlier these discussions start, the better. Begin by talking about the family’s values and basic financial topics like savings and interest. This evolving communication should occur simultaneously as children take on greater knowledge, responsibility, and stewardship over the family’s finances and decisions.
2. Discuss the opportunities and obstacles that come with wealth
Family leaders often feel nervous telling children exactly how much money is coming to them – and when. They worry that the knowledge of wealth may have a negative effect on their children’s ambition or drive.
That’s why the conversation can’t stop at talking about net worth or inheritances. Sharing specific details about a trust are crucial, but the discussion must be part of larger conversations about the challenges that come with considerable wealth. Parents should stress the importance of education and pursuing passions regardless of finances. They should put a priority on education and make it clear that children will be held accountable – perhaps financially accountable – if they are unable to demonstrate a commitment to contributing to society. The conversation should enable younger generations to lead a fulfilling life because of their wealth, not in spite of it.
3. Talk about family history
Affluent families tend to have a multi-generational perspective. They take pride in where they came from and where they’re headed. Having conversations with children about family heritage and history, including how the family amassed its wealth, can provide crucial context as a child grows up and takes a more active role in the family. It’s also a powerful way to share values and behaviors that can be passed from generation to generation.
Research shows it’s beneficial for children as well. Emory University researchers found that children who know more about their relatives have higher self-esteem and are better at handling stress. Consider starting your next family meeting with a story about a family member or take time to swap memories of lost loved ones during the next family gathering.
4. Talk about inheritance plans
Younger generations’ needs or wants may be markedly different than what’s in the actual plan for managing or distributing wealth. In other instances, siblings or younger family members may be frustrated that wealth is not shared “equally” across the family. Individual family members may also have different ideas about how spouses and partners are viewed within the context of a family’s wealth.
These are not easy conversations to have. It’s important for family leaders to manage family members’ expectations from an early age. At the same time, family leaders must also respect the opinions of younger generations. They may not ultimately change the stipulations of a trust or adjust an inheritance, but younger generations should feel they’re being heard. These topics benefit most from the best practices described above – defining the scope of the discussion in advance and relying on external help to facilitate the conversation.
5. Teach that privacy is paramount
Every affluent family approaches privacy a little differently, particularly when it comes to their assets. Families should set examples for children on how to talk about wealth from a young age. This can help younger individuals in a variety of social situations. It can also help family members avoid outside influences with ulterior motives concerning the family’s money.
In today’s world, privacy has a digital component as well, and affluent families face a greater risk of being compromised. According to Campden FB, more than a quarter of ultra-high-net-worth families have suffered a cyber-attack. Family leaders should communicate the importance of keeping certain details private both online and in the real world.
6. Share the family’s approach to giving
When it comes to philanthropy, a family’s specific priorities and practices can reveal a lot. It connects to the values and beliefs the family holds most dear and says a lot about family leaders’ approach to succession planning and the mark they want to leave on the world.
The topic of philanthropy is a natural opportunity for communication with younger family members. Sharing insights about why the family gives the way it does can offer a lot of institutional knowledge. Offering family members a chance to better understand and play a role in giving create opportunities for education and can help guide the family’s vision for the future.
7. Explain the role outside advisors play
Many successful families develop deep connections with advisors and external experts who help manage the family’s assets and operations. In some cases, these trusted advisors are almost a part of the family.
Families should make sure younger generations understand the specific role these external advisors play in their family. Younger family members should meet with outside advisors and develop their own relationship with them. It benefits advisors by offering a more complete picture of the family and gives family members another place to turn for advice, comfort, and assistance.
Good communication goes beyond planned conversations
Effective family communication is central to maintaining positive wealth momentum. These conversations must take place in order to ensure a family’s success into future generations. But good communication goes beyond scheduled conversations and a transfer of information. Successful families are communicating all the time – sharing stories, imparting values, asking questions, and making memories. Wealth should be a part of these natural conversations. With the right communication approach, family finances can be a source of unity, not division, for families.