Financial advisors and financial institutions today often include services that help client families hold conversations about the future of their family wealth, define family mission and values, develop family governance, educate family members about financial responsibility and promote family meetings and events to develop connection for both business/financial and personal activities.
Their
motives are laudable-to help the family to develop its own voice and
identity and to respond to personal desires by family members for help
in passing their wealth to the next generation. In so doing, the
financial advisory firm also offers
a unique, personal and
differentiating service that creates loyalty and connection to the firm
with succeeding generations of the family. As financial institutions
face the challenge of recovery from the financial meltdown and loss of
trust by clients and find that their financial advice may not be enough
to develop loyalty in clients, they find that providing these personal
services is a good adjunct to their wealth management services.
Managing the family's wealth involves the work of many professionals in a multifamily office, private bank or trust company, or financial advisory firm. But anchoring the institution to the family is the presence of a relationship manager, a sort of family doctor whose role is to define needs, help the family get services, explain and educate them about options, and help make complex decisions. The RM has to not only help the family see and navigate according to the big picture of options and the family's goals, but also to deal with emerging issues and everyday choices that emerge.
Like a general practitioner in medicine, the relationship manager is expected to be conversant with a wide variety of services and skills, and also to have the personal capability to relate easily with family members about their concerns. The RM must educate them on their responsibility as stewards of family wealth. The relationship manager thus has to have both personal relationship skills as well as a wide range of technical capability. He or she is also expected to take the time and be available to get to know the members of the family and link them to specialty services and advice.
By engaging the family, in particular members of different generations and those with different levels of control and involvement in wealth management, the RM often stirs up difficult and challenging issues within the family that may conflict with the style of operation of his or her institution. For that reason, while the provision of such services is welcome, this essay offers a sort of consumer warning label that describes some of the side effects that an RM and financial advisor should be aware of.
A financial institution offers a family a fiduciary responsibility for the family wealth, and a professional attitude that is designed to take family emotions and interests out of financial decisions. The fiduciary advisor offers expert advice that is premised on three qualities-objectivity, stewardship and rationality. Fiduciary advisors take financial and business decisions into a world of professional management, and out of the personal interests and emotional dynamics of a family. While in some families the institution is a collaborator, in most situations the financial advisor is expected to make day-to-day expert decisions to manage the family wealth. While they provide personal services to family members, such as tax and personal financial planning, they are not always designed for high levels of family involvement. They also presume that there is one overriding definition of what the family wants, that synthesizes the needs and wants of many individuals from different genders and branch families. There is a traditional ethic of principles that underlies most fiduciary advisors that I suggest is quite different from some of the emerging principles for family collaboration that are implicit in some of the family relationship services that the institution offers.
I want to contrast the traditional assumptions of a fiduciary with the emerging principles of family collaboration that are embodied in the newer approaches for family engagement and shared governance. Up until a few years ago, the traditional view was the only serious perspective that a professional would take with a family. Now, there are two possible views-those of the fiduciary and relationship manager-and in many ways they contrast and lead to different styles of family involvement.
It may be that since different elements of the family-perhaps members of a second or third generation, and the patriarch or wealth creator-lie at different points at the continuum, the RM may, by asking questions, inadvertently activate a conflict within the family.
As an advisor to the family, it may be difficult for the RM to be effective and helpful if the family becomes engaged in either a conflict of values and organization across generations or different family branches.
The RM may have the best of intentions. Indeed, compelling a family to focus on its issues could be viewed as a service. But being a representative of a fiduciary who is supposed to be detached from such family issues and trying to mediate these issues in the family can place the RM into a conflict of interest. If, say, a third-generation female who has never been involved in family wealth management is introduced into the design and operation of a family trust or limited partnership, and then she asks her father or grandfather about her rights to make decisions about her own wealth or why the family is involved in certain businesses or has certain rules, the RM may find that his actions have greatly displeased the elders who lead the family.