Joe Reilly, US-based independent family office consultant, interviews the author of a new book about how families adapt to wealth across generations.

(A version of this interview has already appeared in Family Wealth Report, the sister news service to WealthBriefing.) 

This month, independent family office consultant Joe Reilly goes back to interview Dr James Grubman of Family Wealth Consulting, about his new book: Strangers in Paradise: How Families Adapt to Wealth Across Generations.

Joe Reilly:  Malcolm Gladwell mentions you in his new book David and Goliath. How did you get to know Gladwell?

Jim Grubman:  Gladwell contacted me about two years ago. He was exploring the notion that presumed advantages in life can turn out to be disadvantages, and that presumed disadvantages might create long-term benefits by generating work-arounds and compensatory skills. Both apply to wealth. We all know that the disadvantages of economic scarcity drive some people creatively, which generates great success. What Gladwell wanted to know was whether wealth’s advantages had negative impacts in families, and if so, how. I explained how becoming wealthy ironically left many parents highly unprepared for raising their own children. He grasped that immediately, and he loved the idea.

Joe Reilly:  I just finished reading your new book, and was pleasantly surprised at its simple style - you seem to have taken pains to avoid jargon and pop-psychology while providing a robust framework for thinking about family wealth. What were the origins of the book?

Jim Grubman:  I did try to make the book very readable for a wide range of advisors and families.  The idea sprang from the work Dennis Jaffe and I have done since our 2007 Journal of Wealth Management article “Acquirers’ and Inheritors’ Dilemma,” that outlined the differences between acquirers and inheritors of wealth.  Over the years I’ve often been asked whether there was a book-length discussion of the concepts and recommendations. It took a while, but I finally did further research and wrote the book.

Joe Reilly:  Can you briefly explain the immigrants and natives metaphor that provides the backbone of the book? Where is the idea from, and why do you consider it so useful?

Jim Grubman:  Demographic studies consistently show that around 75-80 per cent of the wealthy are self-made, starting from working-class or middle-class culture, with another 10 per cent or so inheriting some wealth and then growing it significantly. Our unique insight as wealth psychologists was in understanding the importance of economic culture in forming identity. It dawned on us that wealth acquirers, raised in modest circumstances, had many characteristics of immigrants when they made the journey to wealth through business success, windfall, or even marriage. 

The challenges of parenting with wealth then jumped out as similar to the core dilemma of parenting in immigrant families: how do you raise kids in a culture you didn’t grow up in? Those kids are natives, while their parents are immigrants. From there, so many things fell into place. We’ve found that this metaphor clicks immediately with the different generations of wealth. It also clicks with advisors who work with the wealthy and see the challenges for both the “immigrants” and the “natives” they work with.

Joe Reilly:  How did other thought leaders in the space like Dennis Jaffe and Lee Hausner influence you?

Jim Grubman:  Conversations with Dennis, Lee, Keith Whitaker, and so many other wealth counsellors have helped hone these ideas over the years. We’ve all seen the family dynamics in play, but the metaphor of people migrating from one economic culture to another added an extra element of understanding. The conversation is now turning to how ethnic culture interacts with economic culture in global families of wealth.

Joe Reilly:  How long did it take to write the book, and was there anything that you had to leave out?

Jim Grubman:  The book has taken nearly three years, with the most intensive work in the past 18 months. I went deeply into the field of cross-cultural psychology to learn about how ethnic immigrants and their families cope with adjusting, individually and as a family, to geographic moves. What I discovered floored me. So much of it is parallel to what happens across generations in wealthy families. I then had to put it into a framework that was readable for a non-academic audience, with solid concepts but as little jargon as possible. I left out a lot of good material to keep the length down. Maybe that’s for a second book!

Joe Reilly: I think the greatest insight of the book is that the wealth management world is middle-class people advising other middle-class people who just happen to have wealth. I don't think many wealth managers think about their work that way. Why is this so important to point out?

Jim Grubman:  Yes, most of the outside world thinks of “The Rich” and their advisors as some breed apart, very different from “us middle-class folks.” Yet not only are “The Rich” often recently imported from middle-class life, the vast majority of advisors also either come from the middle class or still are very much living in middle-class life. Unfortunately, many advisors have as little idea about how wealthy families must adapt to wealth as their clients do. It’s a hidden contributor to the shirtsleeves-to-shirtsleeves-in-three-generations phenomenon.

Joe Reilly: There is a great story in the book about a wealthy client who goes through great pains to make sure you don't have to pay for a parking garage during your meeting - going so far as to save a spot for you on the street. What are we to make of the wealthy that are excessively concerned about spending?

Jim Grubman:  That anecdote hits home for a lot of the wealthy who are overly anxious about spending and are unable to enjoy their wealth.  I’ve found that this money-anxiety is often a residue of the family’s early middle-class or working-class roots which persist into the new circumstances of wealth. The family holds onto thinking in terms of scarcity, leftover from their original economic culture. The only way to help is to provide gradual ways for the client to adjust to their new circumstances, like helping someone with a phobia make small steps to approach what they fear. Rational explanations don’t work. You must understand how deep the emotions go in clinging to the Old Country of middle-class life.

Joe Reilly:  At the opposite extreme are the over-spenders. Why do some newly-wealthy dive into consumption, from the perspective of your model?

Jim Grubman:  Those who are adamant “we are only middle class, now and forever” want to avoid making the adjustment to wealth out of fear or prejudice about wealth. The opposite want to assimilate into wealth as fast and as much as they can. They are the inhabitants of Robert Frank’s Richistan, wanting McMansions and materialism. In doing so, they abandon the good aspects of their economic roots, which damages them and their families just as badly as clinging too much to the Old Country.

Joe Reilly:  How do you deal with these two types of clients?

Jim Grubman:  Both need help to take a more balanced, integrated approach to transitioning from where they came from to where they now are. Immigrants to wealth must adapt by becoming bicultural – retaining the best elements of their heritage and their new life with wealth. Abandoning one for the other is less effective in the long run for the individual or for their family. Children and grandchildren need to know the family’s economic roots, yet they must also be prepared to live in the affluent world they now inhabit.  This is just like in immigrant families, across generations.

Joe Reilly:  Are there any insights from your work that would help wealth managers select talent to work with these clients? 

Jim Grubman:  To work best with families, one quality advisors must possess is openness, a personality trait that allows for creative thinking, willingness to learn, and true curiosity about the client and the world.  Remember – clients who are closed-minded about adapting to wealth don’t do as well in the long run as clients who sense they don’t know the new territory they now inhabit. The same goes for advisors. When you are working with immigrants and their families (which wealth management really is), you have to provide guidance flexibly tailored to the client and to his or her native children. That means you have to listen well.

Joe Reilly:  How important are family meetings for transferring these values?

Jim Grubman:  They are crucial. Families must talk about where they came from, where they now are, and where they are going. Yet all this is so often taboo. One of the most common and damaging guesses parents make in becoming wealthy is that talking about money will damage the kids. And so many advisors confirm this mistake, sadly, because the advisors themselves share the perspective of “don’t ask, don’t tell”.  Family communication is fundamental to successful parenting in the Land of Wealth. They help the family do the core process needed over time, which is adaptation.

Joe Reilly:  This is a rich topic, and you obviously have done a great deal of work on it. What is next for you?

Jim Grubman:  Dennis Jaffe and I are looking at new research he has done that is confirming the “cultural model” of wealth. Successful multigenerational families do seem to undergo the adaptations that are predicted by this new model. We are also looking at how nonwestern families with a strong familial or clan orientation handle the migration to becoming wealthy differently than western families with a strong individualist orientation. There’s so much yet to learn from this new perspective.  It’s tremendously exciting.