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.

In fact, the older generation most often holds to the traditional model, in which the family is relatively detached from decisions and oversight, with the exception of a single family leader. As they learn about the complex nature of family trusts, partnerships, corporations and boards, the younger generation may feel that this learning entitles them to have a voice in decisions. A family conflict over power and authority can be ignited, which can escalate into a family feud and lead to litigation and demands by next-generation family members for control of their assets, leading to the breakup of shared family institutions. An innocent family meeting or education session can open up this Pandora's box.

It must be recognized that there is a great difference between the realm of family wealth management, which is regulated tightly by complex legal and financial structures that only an expert can fully understand, and the realm of personal and private family relationships. The presence of family wealth is both a special opportunity for family members and a constraint, as it forces them into partnerships and activities that can make them feel like confused and captive partners in an entity that they only dimly understand. The family lives simultaneously in the world of the wealth entity, and the world of the private extended family, which is personal and beset with rivalries, emotions and different statuses and roles.

While these two realms are private, one personal and one organizational/legal, the family also lives in a community, where their wealth is visible and their affairs and actions are scrutinized by the media and the public. A family disagreement can spill into public view when a conflict leads to litigation or a disaffected family member goes public with a grievance.

Recently, family members have gone public in books and other media with internal family conflicts about values and the disposition of the family wealth.

The RM has a curious role. He or she represents the financial legal entity, with traditional fiduciary responsibilities. But the service may also pull the RM into the family on a private and emotional level. As an outsider, the RM is not always welcomed or privy to the personal family world, except through being drawn in by individuals who have concerns. How does an RM who hears a concern or complaint from one family member act as a mediator and bring the issue to the family's consideration? In trying to do this, the RM can venture into a family conflict where they are neither competent nor have the ability to exercise the leverage they need to act as a real mediator. If they bring an issue from a young family member to an elder, and the elder says it is none of their business or acts punitively toward the family member who raises the issue, the family will hear about this and their trust in the RM will be compromised. As a general rule, the older generation has the power and authority and is less open to the new ethic and principles, and the younger generation wants information, voice and a role that the elders resist. How do RMs act when faced with this classic generational difference? How do they avoid taking sides with one generation or the other, thereby limiting their ability to act as a mediator or advisor to all parts of the family?

While there are skills that an RM can use to navigate these waters, the "warning label" that should be attached to family relationship services is that the RM may open a door to potential family conflict that he may not expect or be prepared for.

Even by setting up a family meeting or financial seminar for the next generation, an RM can trigger unexpected repercussions if, by learning about the family's wealth, family members begin to ask questions, demand a voice or ask for control of their share of the family wealth. We fully support the entry of wealth advisors into this territory, but RMs need to be ready for the unexpected and unanticipated consequences.   

Dennis T. Jaffe, Ph.D., is professor of organizational systems and psychology at Saybrook University in San Francisco. He can be reached at [email protected].