Practice Strategies

Starting Conversations Over Wealth Transfer And Other Challenges

Tom Burroughes Group Editor January 13, 2023

Starting Conversations Over Wealth Transfer And Other Challenges

This publication recently interviewed the Merrill Center for Family Wealth about the challenges and problems that UHNW clients bring to the table, starting with shyness about starting conversations.

Families can be scared of talking about money and business handovers, and when the stakes are high – as with the wealthiest dynasties – reluctance to start conversations can be a big problem.

This news service recently reported on how billionaire families want younger members to get experience outside a family business, or go on targeted education courses, to prepare for when it is time to take the helm. But shyness about starting conversations is a problem. 

“Our experience is that the readiness of individuals to manage that wealth as it comes their way is not something the current system is well-positioned to address,” two senior Merrill figures told Family Wealth Report recently. FWR spoke with Valerie Galinskaya, managing director and head, Merrill Center for Family Wealth™ and Matthew Wesley, MD, Merrill Center for Family Wealth™. 

“Most people simply don’t know how to start these conversations and so the entire set of dialog can seem scary, awkward and unnatural," Galinskaya and Wesley said. “However, with a bit of guidance, families can make substantial progress in ways that feel organic to who they are – and even liberating. Many families tell us that they feel discussing these issues was like lifting a weight or airing out the house after a long winter. It just feels good.”

One of the stock expressions of this industry is “intergenerational wealth transfer” and, depending on whom one believes, the sums in play run to tens of trillions of dollars, possibly up to $84 trillion. (Quite how this breaks down into liquid and illiquid assets is unclear.) A large part of what certain wealth managers do is to prepare families to manage the transfer to avoid problems such as creating listless and unmotivated inheritors or break up family-run firms and damage communities. The recent pandemic also sharpened some of these issues by raising awareness of mortality to a degree many will have found uncomfortable.

FWR has spoken to other wealth managers about how they’ve worked with clients in this environment, such as Morgan Stanley in this article here. Firms continue to probe how ready – or not – UHNW families are for succession. (See an example here from BNY Mellon Wealth Management.) The practice of guiding advisors on how to handle families’ complex needs is also a driving force behind the US-based UHNW Institute. The Institute has developed a “10 Domains of Family Wealth” methodology to assist this process.

Sharpening dialog
“We think the pandemic didn’t fundamentally change the conversation, but it did slow everyone down to pay more attention to it,” the two Merrill figures said. “Our experience was that families had more time focused on these issues during the height of the lockdowns. We have also found that the pandemic changed how families meet and discuss these issues – with videoconferencing becoming much more prevalent, these conversations have moved toward more ongoing dialog versus episodic attention only in big family meetings.”

“There is no question that wealth concentration at the higher levels has raised the stakes for families, particularly those with more than $50 million in net worth. That, coupled with the fact that we are seeing declining birth rates, makes the intersection of the tax code and its impact on family dynamics all the more acute than it was even a decade ago.” 

Galinskaya and Wesley noted that in the US, wealth transfer planning typically occurs behind closed doors with attorneys and the paramount focus is almost always tax reduction. 

“However, the impact of that wealth transfer is felt by human beings who live in family cultures. Our experience is that the readiness of individuals to manage that wealth as it comes their way is not something the current system is well-positioned to address.”

Planning must match the family culture which is often driven by factors that include but also transcend the reduction of estate taxes and, for planning to be successful, it must be in balance with preparation, they said.

“In our experience, unbalanced plans simply fall apart in the long run. We are frequently asked `How much should I leave my children?’ Our answer is `As much as they are prepared to receive in a form they are able to use wisely.’”  

Adding value
For a business such as Merrill, helping clients frame conversations is a big part of the “added-value” proposition that such firms can provide – even more important when other parts of the value chain, such as investment, become increasingly commoditized.

“Wealth management firms that continue to focus on their products and services but fail to understand how to connect with the deep human needs of their clients risk becoming only vendors facing price compression and automation,” Galinskaya and Wesley said. 

“As Abraham Maslow would suggest, the financial firms that determine how to support the wellbeing of their clients will differentiate and those that empower their clients to transcend themselves – to become greater heroes in their own journey – will thrive,” they said. (They were referring to Maslow’s “hierarchy of needs” – a theory of motivation which states that five categories of human needs dictate an individual's behavior.)

FWR asked Galinskaya and Wesley how digitalization of wealth management have affected wealth conversations. 

“Those not facing the complexities of generational wealth are looking for efficiency and lower costs. At the upper ends of the economic scale people are faced with complex qualitative issues that technology is not capable of resolving.”

“There is no app that can raise your children in the middle of affluence or make nuanced lifestyle choices for you. Some of those things can be supported by technology at the margins, but these human issues cannot be fully addressed by it,” they continued.

“To the degree that individuals continue to face human questions that can’t be digitized in reductive ways there will be room for learning, exploration and dialog. In that sense, while many see technological developments as a threat, we welcome the innovation that frees people to get beyond rote technical problems to address these more real and substantive issues,” they said. 

The wealth sector is far from unique in facing these trends. 

“Any firm that has created a great brand – and more importantly how they delivered on that brand promise – can be helpful. Any company that creates exceptional client service can provide lessons. In our work, the inspiration comes from all sorts of sources – organizational development, developmental psychology, post-modern philosophy, cultural anthropology, evolutionary biology, international peace making, human industrial design, coaching, conflict resolution, film making, chaos theory, creative songwriting and a host of other fields,” they added.

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