Practical analysis for investment professionals
11 December 2012

Tools for Handling the Psychology of Family Governance and Intergenerational Wealth Transfer

When was the last time you vied with a clinical psychologist for a seat a wealth management conference? I’m guessing probably never.

But in a sign of just how much times are changing for financial advisers, CFA Society Philadelphia recently co-hosted a high net worth and family wealth conference with the Philadelphia Society of Clinical Psychologists. Remarkably (given the economy and budget cuts), the event was sold out.

If you think about it for a moment, though, this probably makes perfect sense: Squabbles over money arise in many settings, from failed business partnerships and broken marriages to dysfunctional family dynamics. In short, money and stress often go hand-in-hand.

In fact, a recent survey — “Stress in America: Our Health at Risk” — by the American Psychological Association found that money is a top source of stress for adults. Seventy five percent of people attributed their stress to money, and 70% reported that work is a cause of stress.

Not surprisingly, therapists and advisers are often called upon to help couples and families navigate the thorny emotions surrounding personal finances and wealth transfer. Many wealth management firms have picked up on this trend, emphasizing their non-investment services. Wells Fargo, for example, recently launched Abbott Downing to serve ultra-high-net-worth clients, their foundations, and endowments. It offers specialized services that include family dynamics, family governance, family enterprise planning, and financial and wealth transfer planning. Wealth management firms are also hiring psychologists to work with wealthy clients and families.

Over the years, Tom Rogerson, senior managing director and family wealth strategist at Wilmington Trust, has seen his fair share of bickering over money. He is fond of saying, “Okay, you’ve prepared the money for the family, but have you prepared the family for the money?” Unfortunately most parents, don’t have a clue how to talk to their children about what’s to come. (Wealth managers, this is where you come in.)

In his keynote presentation, Rogerson said it was important for financial advisers to incorporate family governance into their relationships with clients, noting that more than 75% of heirs choose a different wealth manager after they inherit the wealth. That in and of itself should be an incentive to get to know, and work with, younger family members.

Rogerson also noted that, according to work done by Roy Williams and Vic Preisser, 60% of wealth transfer failures are the result of a breakdown of communication and trust within the family unit.

So, if you are wondering where to start with all of this, a good first step is to encourage your clients to hold family meetings (see “Call a Family Meeting“). Then consider implementing — or learning more about — Rogerson’s five-step approach. Think of the process as five “tools” at your disposal:

  1. Educate the family by helping them understand the issues, including possible problems and solutions.
  2. Determine the communication styles of the various family members.
  3. Establish the family’s mission and vision by going through a values exercise.
  4. Encourage family philanthropy and help the family make philanthropic decisions together, based on their values.
  5. Establish healthy family governance.

Rogerson is a big proponent of teamwork within families and cited his own family’s experience by way of illustration. Several years ago, when his four children ranged in age from 5 to 15, he and his wife decided to entrust them with $5,000 each year. The children were to invest the money, which would be used for the family’s summer vacation. If the fund did well, they might go to Disney World, if it stayed flat they could visit family members, and if it lost money, they could go camping. To find out how the vacation destinations unfolded over the years, see “Teaching Teamwork, but With Real Money,” which appeared in The New York Times in 2007.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/xochicalco

About the Author(s)
Lauren Foster

Lauren Foster is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Previously, she worked as a freelance writer for Barron’s and the Financial Times. Prior to her freelance work, Foster spent nearly a decade on staff at the FT as a reporter and editor based in the New York bureau. Foster holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

2 thoughts on “Tools for Handling the Psychology of Family Governance and Intergenerational Wealth Transfer”

  1. Thanks a lot for this article, because of the emphasis laid on effective communication between family members and governance; as well as the mission statements with their Wealth Managers.It surely make the work of the Wealth Managers more easier; in as much as calling the family members to a planned meeting for the first time to know their goals and how to reach there. It undoubtedly gives the manager clear picture how to help them reach their goals.

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