Let's say a family patriarch calls your wealth management firm one day, interested in having you manage his $45 million account. When you meet, he seems like a strong, dynamic entrepreneur who you'd love to work with. Distant alarm bells go off in your head when he casually mentions his family has some complex issues, but you ignore them. You're more focused on the account and the revenues it will create. After agreeing to a fee schedule, you happily seal the deal.
As you get to know the client, however, you discover he disdains his entire family, especially his older son, who has not found his way in life and is a serious over-spender. The client is on his third wife and there are significant tensions between her and all three of his grown children. He has not shared his estate plan with anyone in the family. At 79, he is adamant about never giving up control over his wealth. You have no idea what the other members of his family want from their inheritances. Yet they will be your clients if something happens to the patriarch.
Are any of these concerns for you? Or do you expect to act purely as a fiduciary for the money, not the people involved with it? How will these issues impact how you make decisions and how the family views your service to them?
The bottom line is that this wealthy patriarch-who appeared to be a prize when he first walked through the door-is likely a high-maintenance client whose family will place a lot of demands on you and your staff. This family's issues may be so complex, in fact, that you may not have even taken them as clients if you had known about them from the start.
The lesson here for advisors is that situations like this are indeed avoidable. By assessing a family's dynamics early in the recruitment process, and measuring a family's complexity level, advisors may be able to surmise whether they're entering into a relationship with Cliff Huxtable of The Cosby Show or the incorrigible Tony Soprano.
The Importance Of Assessing Family Complexity
By making an accurate upfront assessment of client families, advisors can avoid mistakes when it comes to allocating resources, assigning a relationship manager and keeping client relationships profitable. It makes for a relationship that is more likely to lead to success than failure or, at worst, litigation.
What follows is a practical approach that advisors to high-net-worth and ultra-high-net worth clients can use to differentiate between families that function well even in crisis (i.e., The Cosby Show) and families so dysfunctional they are never out of crisis (i.e., The Sopranos).
In Figure 1, we offer a conceptual model that organizes wealth management services along two dimensions: one that defines the financial complexity of wealth management services and another that defines the complexity of the client's personal and family dynamics.
When the complexity of the dynamics is low, advisors can focus primarily on services. But when personal and family dynamics increase in complexity, it trumps anything on the services side. Thus, skillful management of family dynamics improves the delivery of legal, tax, trust and financial services.
The "Two-Axis Model" naturally leads to a division of labor. A key question is who should be primarily responsible for managing client situations arrayed along the personal/family dynamics axis. For straightforward client situations without many psychological issues, the front-line relationship manager (also called the senior client advisor or family wealth advisor) should carry the ball. Wealth management firms should be able to provide a spectrum of services and experts to supplement the relationship manager's role, matching family complexity with increasingly specialized expert consultation. Services can be in-house or on referral. This avoids situations where relationship managers are expected to cope with highly complex family dynamics far beyond their skill level or where they stick to what they know but leave clients floundering when it comes to family dynamics issues.