Joe Reilly, president of the Family Office Association, recently spoke with Dr Jim Grubman, of FamilyWealth Consulting, about resentment of clients, thorny family problems and whether wealth managers should have full time family governance experts on staff.

In a guest interview for Family Wealth Report, Joe Reilly, president of the Family Office Association, recently spoke with Dr Jim Grubman, of FamilyWealth Consulting, about resentment of clients, thorny family problems and whether wealth managers should have full time family governance experts on staff.

JR: Are there unsolvable family problems?  Is that the wrong question to ask?

JG: I do believe there are some family problems that do not respond even to expert consultation. Despite the availability of good facilitation or even some family members with decent communication skills, some people in the family system will either refuse to participate in solutions or will actively sabotage or escalate problems in ways that are highly disruptive to the family. My colleague Dennis Jaffe and I wrote a paper where we talked about “Red Zone” problems and “Red Zone families” in which severe addiction, poor communication, extremely poor governance and decision-making, and a longstanding history of injustice creates situations that are essentially “unsolvable” by standard definitions.

JR: How can you determine when you need to engage a family on tough issues, such as intergenerational wealth transfer?  

JG: The key issue here is being able to assess when a family is becoming stuck and having trouble moving forward, particularly when decisions need to be made. Many families either are procrastinating or are running into such consistent conflict that decision-making has become stymied. Here the advisor needs to have a conversation with the main decision-makers to assess whether the advisor can facilitate the process or perhaps outside experts are needed to get the process moving again. Most families have issues they need to contend with - but these can linger for long periods of time without major impact on wealth management or with the family. Knowing when the family has become stuck in an objective sense is a necessary determinant for becoming more active on the part of the advisor, either as a facilitator or as a resource for a referral.

JR: Do you think wealth management firms should have a full-time family dynamics person? How large does a firm have to be before this becomes necessary?

JG: I would guess that less than 2 – 5 per cent of top wealth management or family office level firms have family dynamics staff available on a regular basis at all. Full time in-house family dynamics personnel are still extremely rare in the industry. If the role is defined as providing direct service to the firm’s clients, then I think mostly the larger wealth management firms need to have a full-time family dynamics person. You have to have a certain minimum number of clients in order to make this financially feasible. A firm needs to be at least at the moderate level (approx $8 - $10 billion dollars of assets under management and above) in order to make this viable.

However, if the role is more broadly defined to include internal consultation and training for the firm’s advisors, then many top wealth management firms could use a full-time family dynamics person. In general, I would estimate that firms that are at least in the moderate range of AuM could start to consider having a family dynamics person approximately half time, while larger firms above the $10 billion level would have enough work that a full-time family dynamics person would be recommended.

Many firms believe that a larger percentage of multigenerational families with inherited wealth versus newer, younger entrepreneur families should be the deciding factor in hiring a family dynamics expert. The reality is that most UHNW families run into some family dynamics issues and, with proper education and availability, could use occasional services from an expert. Other firms believe there is no point in hiring someone because most families don’t ask for such services. The degree to which clients ask for family dynamics services is only part of the equation since this depends on how services are integrated with relationship management, how services are priced and paid for, and how the services and issues themselves are conceptualized. 

JR: Most wealth managers are laser-focused on the client’s financial needs, what business do they have getting involved with their personal issues?

JG: Actually, it may be the other way around. Most wealth managers have relatively few skills for handling family dynamics issues, which feeds upon the wealth management process in such a way as to make the technical and financial tasks more difficult for certain clients. It is the 80/20 rule: 20 per cent of clients cause 80 per cent of the stress and often 80 per cent of activity for wealth managers. These are the challenging clients whose problems compound wealth management throughout the firm and I like to think of as in the “Red Zone.”

My experience is that, when relationship managers gain skills for working with their clients’ non-financial issues, they often are freed up to become more efficient and effective in working with a broad range of financial and other technical issues. Clients’ personal and family-dynamics issues are as much a part of financial services as they are a part of healthcare services. Having skills and training for handling or triaging these in financial services serves the same benefit as in healthcare: it frees up front-line advisors to do more efficient service for all their clients. The “feeling overwhelmed” factor goes way down.

JR: Many clients are challenging to work with in addition to having complex financial issues. How do you approach and deal with the issue of resentment developing towards your clients?

JG: This does surface sometimes in the advisor’s frustration and judgmental attitude with clients who either seem spoiled or where the advisor just doesn’t take seriously the problems of the wealthy. I address this during training mostly through evidence that surfaces in role-plays where the advisor misses a key issue or acts without empathy in a way that becomes obvious to the client. I coach the advisor (and those who are observing the role-play) gently and non-judgmentally to see how their view affected their approach to the client. Most reasonably insightful advisors accept this as helpful feedback and often start to make change based on it. Advisors with less emotional intelligence have a harder time understanding and accepting this but they generally miss other things as well and so have limitations in their skills overall. I tend to find that most advisors, with a little coaching, are quickly able to at least see the world from the client’s eyes.