Lack of engagement is one of the biggest challenges facing high net worth Americans with regard to family wealth, survey findings suggest.

Wealthy individuals see family friction as the biggest drag on their ability to achieve their financial goals, while many feel isolated when making important decisions, underscoring the importance of a “collaborative, family boardroom approach to wealth management,” according to a recent industry study, Algorithms of Wealth: Family.

The report, by SEI and Scorpio Partnership, looked at clients' goals and the hurdles they see in front of these. It concluded that family engagement is critical to financial success, but that some families may need more guidance in this area.

“Our survey uncovered an alarming lack of communication within wealthy American families,” said Michael Farrell, managing director at SEI Private Wealth Management. “Despite viewing the family as an important financial sounding board and being anxious about successfully passing wealth to future generations, high net worth individuals are not consistently engaging with their family members on the topic of wealth.” 

Perhaps due to uncertainty caused by lack of communication, SEI found it worrying that over a quarter (28 per cent) of the 275 high net worth respondents are not confident that they have an appropriate investment plan in place to ensure a successful transition of wealth to the next generation.

The report adds to a raft of existing industry insight on the growing role of family governance in wealth planning, involving a shift away from focusing purely on the financial side to recognizing and addressing the “softer” elements such as communication and education.

As highlighted by The Family Business Institute, “family governance is a more subtle topic,” with it often being the case that as families grow they find there is a need to formally discuss issues such as estate plans, business leadership transition and fairness.

As the industry has evolved in line with these trends, a number of firms in the space have responded to clients' needs for more holistic wealth management by creating roles dedicated to this area, such as was reported here, for example. All this has been amplified by estimates that some $60 trillion will be transferred from over 90 million estates from 2007 through 2061 – the greatest wealth transfer in US history (source: the Center on Wealth and Philanthropy at Boston College.)

The need for guidance among clients is clear, but as Farrell said: “The best financial decisions are made with input from family and trusted advisors as well as relying on personal intuition and knowledge.”