Bank of America Merrill Lynch has released findings from a nationwide study, entitled "Is There Love in Money? How Families Put Wealth Into Perspective," looking at how families tackle thorny issues around wealth.

Only 22 per cent of families talk openly and collaboratively about money issues, reinforcing the crucial role of advisors in helping facilitate difficult wealth-related conversations, according to a new study by Merrill Lynch’s private banking and investment group.

With the “great transfer” of inter-generational wealth well underway, findings from the study of 609 high net worth households shine an important light on how families today are coping with the financial and emotional challenges associated with wealth.

Above all, the study identified differing generational perspectives in the way people communicate and make decisions involving money. It warned that conflicts, misunderstandings and “unintended consequences” can arise when these are ignored and core values are not discussed.

Indeed, family relationships and communications often break down between parents and children, spouses, siblings and in-laws over clashes in viewpoints on topics such as the division of estate assets, conditions and expectations attached to monetary gifts, the reason for signing a prenuptial agreement, and the distribution or use of trust funds in an estate, Merrill Lynch said it found.

“The real source of these conflicts, and the greatest opportunity, begins with the way families shape different perspectives about the value and purpose of wealth,” said Michael Liersch, head of behavioral finance and goals-based consulting at Merrill Lynch Wealth Management. Liersch added that “different perspectives are healthy,” and that they matter because the way people frame information affects their actions.

“People may avoid sharing perspectives about wealth for fear of conflict, leading to money silence,” Liersch continued. “However, the ability to voice and to hear different perspectives in a collaborative way can actually be a source of conflict reduction, ultimately leading to positive and empowering outcomes for everyone involved.”

One of the topics the report looked at is the “perceived connection between love and money, and the relationship stress that can occur when family members have different interpretations about the meaning and motivation for financial gifts.”

Merrill Lynch noted that most wealth holders understandably intend to divide their assets in a way that shows equal love for family members. However, although fairness is an important consideration in estate planning decisions, not everyone always agrees on what is fair or not: while 59 per cent of Baby Boomers and 68 per cent of those over the age of 70 believe the fairest way to divide wealth is in equal shares among their heirs, only a third of Millennials consider equal shares as “most fair.” Instead, they believe that the amount given to each person should be based on individual factors including who has the greatest financial need, who put more time, energy and resources into the family and each person’s age, values, behavior and readiness to handle wealth responsibly, the firm said.

“The degree that rising generation family members integrate wealth into their lives in a healthy way is influenced by their engagement in money decisions that affect them,” said Stacy Allred, a managing director and wealth strategist in Merrill Lynch’s private banking and investment group and leader of firm’s center for family wealth dynamics and governance. “Too often, family money is shared without conversation about why or what it means. Without context, anchored in dialogue, education, values and purpose, wealth can undermine, rather than enhance enjoyment, growth or development.”

Communication “roadblock”

The study showed that families often avoid conversations about wealth because they don’t know where to begin or who should start the discussion. Around a third of Millennials said they feel it’s none of their business to ask and 42 per cent hold the view that only people interested in inheriting money would bring up the subject.

“These viewpoints can contribute to a communication roadblock,” Merrill Lynch warned. The study identified another disconnect: while over three-quarters of families believe the wealth holder should initiate the flow of information, the wealth holder is also the person they say is most likely to prevent open dialogue.

Adding to the problem, information about money flows in “only one direction” in 52 per cent of families, according to the study. Of those, 38 per cent said family members are “typically told about money, gifts or financial decisions affecting them” instead of having a conversation. The other 14 per cent said money decisions are “simply made for family members, usually out of a paternalistic desire to be protective or helpful.”

The insights resonate with previous research based on how wealthy families approach the “money conversation.” Among the most frequently cited, an Institute for Preparing Heirs study by Roy Williams and Vic Preisser looked at 3,500 wealthy families over a 20-year period and found that the reason why they often succumb to the “shirtsleeves to shirtsleeves” phenomenon is because their heirs weren't prepared to handle the wealth. Just 3 per cent of wealth transfer failures were attributed to tax-related issues or legal challenges while 60 per cent were caused by a breakdown of communication and trust, they found (source: Bloomberg). Even though the data is decades old - spanning 1975 to 1995 - more recent studies suggest that family wealth-related failures are still often caused by emotional, not practical, barriers.

Just under half (46 per cent) of respondents to a 2014 UBS survey, for example, said talking about their inheritance plans doesn't feel like a pressing issue, while 32 per cent said they don’t want their offspring to rely on the inheritance and 27 per cent said they don’t want their children to feel entitled to wealth.

Sameer Aurora of UBS previously said that wealth managers and advisors should position the inheritance discussion in the broader context of helping their clients with longevity planning. “Talking about inheritance planning is absolutely something advisors should be advocating more to clients,” Aurora said.