Around 85 per cent of the time that families fail in their goal of passing on wealth it's down to a failure in communication, according to GenSpring Family Offices’ head of next generation Jill Shipley.

Around 85 per cent of the time that families fail in their goal of passing on wealth it's down to a failure in communication, according to Jill Shipley, head of next generation education at GenSpring Family Offices.

The theory that skillfully addressing family dynamics makes the legal and financial sides of wealth planning more effective has become almost universally accepted in multi-generational wealth management. In fact, the Institute for Preparing Heirs has found in its field work that most wealth transfers fail in spite of excellent tax and estate planning.

“Sixty per cent of the time it’s because of lack of trust and communication in the family and 25 per cent of the time it’s because of unprepared heirs,” says Shipley. “So to me, I put that together and say that 85 per cent of the time that families are failing to accomplish their goal at passing wealth onto their children it’s because of an issue with communication.”

Because of this, the next gen program that Shipley runs has communication at its heart. But even as the industry has come a long way in addressing this, talking about money in society – and even within families – has been such a longstanding taboo that real change is slow. And there are obvious consequences of this.

Failing on financial education

“When it comes to looking at the next gen I think one area where we really fail our young people is in preparing them to manage their personal finances,” says Shipley. “Parents aren’t teaching children and schools aren’t teaching children.” Finance has become more and more complex over the years, and education has not nearly kept pace. “They [children] are seeing their parents walk up to a wall with a piece of plastic and cash comes out,” she adds.

Money has become an abstract concept. Perhaps many adults don’t feel comfortable talking about it because they’re insecure in their knowledge. Another reason, though, is that parents have “been raised in a cycle of no communication about money, it’s not polite to talk about money,” says Shipley. Which is where GenSpring sees a role for itself: as an external force, a mediator. “We really try and fill that void,” she says. 

Meanwhile, Gen X and Y are growing up in an environment where “privacy means something totally different” and it’s “critical to talk about confidentiality, risk management,” says Shipley.

“This generation has been raised using Twitter where the concept is about…sharing every aspect of your life. There’s a lot of risk to that across the board.

“For families of wealth it’s critical that we’re talking to the next generation about confidentiality and risk management, not just online but with our insurance policies, with our understanding about taxes, with our understanding about pre-nuptial agreements,” she adds.

Early is key

“We recommend families talk to their children as early as possible,” says Shipley. Using the example of a pre-nup, having a process in place early on takes the emotional component out of the decision. If a process has been decided upon before a descendant has a fiancée, both partners will know it’s not a personal decision.

GenSpring’s program for next gen clients divides up topics into five “buckets”:  personal money management, investing, asset protection, personal and professional development, philanthropy and family wealth.

In some areas it will work with children as young as five. For example, personal money management is taught in terms of a child’s allowance, and they are showed how this can be broken into parts for saving, giving, spending and investing. This is then tied in with the philanthropy bucket, as they are encouraged to think strategically by visiting the charity they choose to donate to and asking people there about how their money was used.

Other elements, such as professional development, become more relevant as young clients grow up and face the challenges of becoming an adult, such as finding a purpose.

“I am an advocate of having a reason to get up in the morning. For our self esteem, for our self confidence it is critical that we have something, some passion, a calling that inspires us to do something with our day...Even if you don’t have the need for income,” says Shipley. “This professional development looks at aligning what you do with your time with discovering who you are, what your preferences and talents are.”

Program delivery

Around these buckets programs are built for clients which are then delivered through one-on-one sessions, family meetings and some larger workshops run throughout the country. The preferences of younger clients must influence the delivery. For instance, Shipley has found that Gen Y would rather not have to travel. “Oftentimes it’s easier to Skype and to Facetime. I’m a big believer that there’s no substitute to face-to-face communication so I really like the technologies Skype and Facetime because I think they give us the ability to connect.”

This is backed up by a recent study from Cisco, which found that young wealthy clients view video interaction as essential to developing a trusted advisor relationship.

Getting buy-in

Building relationships with young clients is a priority for many firms, but also an area where “many firms fail,” Shipley says. The oft-quoted statistic is that 90 per cent of next gen clients leave their advisor when they inherit.

“One of the biggest issues is that they aren’t brought in,” she says. “It does not work for advisors to walk in and begin the relationship [with the next gen] as their parents’ advisor. You have to get buy-in.”

However, it's a challenge for advisors, who are often employed and paid for by the parents. 

“I think it’s extremely important we’re offering the next gen an opportunity to say what it is that they want, what is it that they need, and starting out by talking to them about their life goals,” says Shipley.

At GenSpring this process starts with giving young clients a checklist on which they can tick off everything they’re interested in learning about. What has emerged is that most are very interested in taking up what is on offer.

“We ask them to then prioritize, and we start from what they think is the most important thing, not what their parents think is the most important. That helps earn their trust.”

Different perspectives

And that’s part of the problem: within families people naturally have different perspectives over wealth and inheritance.

“The difference that I see in the parents’ perspective and children’s perspective is where there isn’t full disclosure of wealth transfer – that’s probably the biggest concern of the next gen,” says Shipley. “A lot of that has to do with going back to communication.”

Work on this is two-sided: she discusses with older generations the importance of “breaking the silence,” and highlights “the risks of not communicating.” She also works on strategies to decide when the right time is.

“That involves them thinking deeply about their own attitudes about wealth, about their own experiences, about their upbringing, and then to specifically define what are the behaviors that they need to see in their children before they are comfortable to divulge that information.”

Meanwhile, she tries to get the younger generation to understand their parents’ concerns, and then acts as an outside facilitator to the dialogue. While she believes the facilitator role can be very helpful, she cautions against “triangulating”. The point is not to relay messages, but ultimately to bring all parties together with enough understanding to begin talking to one another.

“It’s not always as fast as maybe either party would like but I’ve seen great tangible shifts in families from getting more comfortable with being open and honest and communicating with each other,” she says. “In some situations you can’t [achieve this], and everyone has a right to do what they want with their life and with their wealth…but as advisors we have a responsibility not just to placate our clients but to share with them the best practices.”

However, she warns against advisors becoming embroiled in deeply dysfunctional family relationships, referring to Keith Whitaker and Susan Massenzio’s “traffic signal” theory of functionality (as expanded on by James Grubman and Dennis Jaffe in Private Wealth). While advisors can bring families together they should refer clients to experts when it is called for.

Overall though, one of the things Shipley is most optimistic about is the way the wealth management industry has latched onto the concept of family dynamics and is pioneering ways to account for this within the wealth planning process.

“I have to tell you, I love what’s happening in our field. I love the recognition that the soft stuff in families is the hard stuff,” she says. “There has been such a significant shift in the openness…Even the idea of sitting down in a family meeting has become much more comfortable, and I really credit a lot of the leaders in this industry.”