AtBNY Mellon Wealth Management, the focus has been very much on family governance as a differentiator, and a way of building relationships with the whole family. But Tom Rogerson, managing director of family wealth services, says the firm’s approach emphasizes practicality over an in-depth psychological process.

Rogerson has been at the firm for 10 years, having joined from the estate planning industry. However, he soon began to specialize in managing family dynamics and conflict, and in 2006 designed a program around this that saw his focus shift solely to this area.

He says the discipline is “absolutely becoming more prominent.” In fact, he compares it to estate planning industry when he joined it in 1983. At that stage it was a cottage industry, says Rogerson, but has now become much more mature; he sees the family dynamics business going the same way. “Currently, if you know where to go you can get some great advice – but you have to know where to go.”

Tax opportunities

Of course, current tax opportunities have put legacy issues at the heart of the wealth management conversation. These include the $5 million exemption in the estate tax under the 2010 Tax Relief Act, as well as the $5 million exemption from the gift tax and generation-skipping tax.

“For a husband and wife that adds up to $10 million, and advisors are saying ‘you should step up and transfer this now’ but often the family isn’t ready,” says Rogerson.

Neither are wealth managers ready according to figures for retaining next-generation clients, which are reported to be in the region of 5-10 per cent. “The question is how do you build this business? And family governance helps us build it by making relations with all the family,” Rogerson tells Family Wealth Report.

An easy sell

He says that, despite the taboo surrounding some of the subjects inherent in family dynamics – death, conflict – it’s an easy service to introduce to clients.

BNY Mellon introduces the offering at an initial meeting with potential clients, says Rogerson.

“We don’t charge for this but it is a tremendous differentiator. Most high-end investment firms focus on investment performance and fees in the first sales meeting – we absolutely focus on that too, but we also bring this in.”

This is despite the fact that many HNW individuals are unaware of the need to tackle these issues head on.

Rogerson cites two studies to illustrate this point. One, by Roy Williams and Vic Preisser, surveyed 500 families that had made and lost their fortunes, which shows – from families that had actually been through the experience – that the predominant cause was a breakdown in communication and trust. On the other hand, a forward-looking study by Family Office Exchange, of families which are currently wealthy, shows they expect their wealth to most likely be eroded by factors such as investment, taxes and politics.

The point: there is a huge disconnect between the real and perceived threats to family wealth. Indeed, Rogerson says very few clients approach BNY Mellon specifically for this service, but are impressed when they learn about it.

“If are anywhere close on that, we thought: wouldn’t it be wise to help families with this?” he explains.

BNY Mellon’s approach

Rogerson runs most of the family presentations to audiences internationally, across the US, Europe and Asia, himself, while the firm has also trained further members of staff internally to run individual family meetings.

He describes the firm’s approach as being very practical, as opposed to delving into the intricacies of family relationships.

“Many companies, when they realized there was a need for this service, brought in a psychologist, but we realized there was a disconnect between this approach and the mentality of the entrepreneurial nature of many of our HNW customers. This psychology approach was in depth, but there weren’t many hard results and it’s not very scalable,” says Rogerson.

While he is not saying there is never the need for a psychologist to come in – and BNY Mellon could outsource this for a customer if it were necessary – it is not what the firm itself is looking to offer.

He also emphasizes that, when it comes to family governance, a company can only be a facilitator; given the right tools, the family has to do a lot of the hard work. Again, this goes against the deep psychology approach.

“We at BNY Mellon will do the heavy lifting for investment management, but with family governance the family have to do the heavy lifting – we can get them started.”

How will the industry change?

When asked about whether the industry is developing, and whether BNY Mellon sees its competitors launching services in this space, he says “absolutely”. He also says that, as well as the banks and large RIAs, more and more small firms are incorporating this offering.

In terms of in-house versus outsourced offerings, Rogerson says it’s not an either/or approach.

“Outsourcing can be really critical if families want to go into real detail – because that’s not our specialty. It complements what we do and helps us establish relationships.”

So in a world of money in motion, perhaps family governance could really be key to making some of it stick for wealth managers.