Factors In Family Complexity
The concept of wealth complexity units has emerged as a way to accurately anticipate the service needs of families and to determine a pricing model most likely to assure profitability. Going beyond basics such as account size, wealth complexity units are a function of factors such as the number of trusts, financial entities, family branch members, global and domestic residences and international holdings. These factors are essentially units along the financial dimension of the Two-Axis Model. As the number of wealth complexity units goes up, families are ranked higher in financial complexity.
Two families with $45 million in assets-even with similar wealth complexity units-can have completely different service needs depending on the frequency and emotional intensity of their phone calls, the tenor of their quarterly meetings and the demands for services beyond the account agreement. These family complexity units determine service planning, service delivery, staff resource allocation, pricing and profitability-perhaps even more strongly than wealth complexity units. We suggest that six key factors may contribute strongly to the level of family dynamics complexity:
Level of conflict: Ranking at the top is the degree to which conflict is present in a family. This includes how long the conflict has existed, how deeply it impacts the family and whether it constantly lurks beneath the surface. When a family member is openly hostile or contemptuous of others you should be alert to the issues that lie beneath (note that the issues are often not what family members say they are). Moreover, when there is conflict to a pernicious degree, advisors are never spared.
Conflict by itself is not necessarily dangerous, but a natural and sometimes necessary part of life and family. Advisors, however, need to recognize the nature of the conflict. Conflict that is situational, appropriate to the issues and managed through respectful communication is quite natural. In contrast, some family conflicts constitute a state of war that is endured over generations. The key is whether the parties are able to openly share their differences and make the effort to resolve them.
Communication style: Open, active and reasonably transparent communication within a family bodes well-not only for how they treat each other, but also for how they will treat you. When good communication is present, complexity is lower.
Complexity rises when families attempt to smooth over even reasonable conflict for the sake of "family harmony."
Unfortunately, this communication style leaves issues unresolved. Heavily stifled communication-common in wealthy families-means the family will be vulnerable to even normal stresses. Communication is especially important when there are significant differences across generations, and when the younger generation feels ignored. Lack of openness makes it difficult to resolve issues and leads to the advisor getting caught in the middle. That's why advisors should be wary when dealing with secretive families that punish or suppress those who attempt to be open or act in a disparaging way toward other family members.
Level of fairness: Healthy families have a basic sense of justice in their dealings with each other and advisors. They balance conflicting needs and value fairness over competition. They believe in weighing decisions carefully rather than expeditiously. With this approach, families can avoid rifts or serious jealousies and cultivate an atmosphere of trust and cooperation. This contrasts with families that-possibly because of events in the family history-have differing views on what constitutes fairness. A lack of shared governance and a history of inequitable decisions may teach family members that they are likely to be treated unfairly. They therefore feel they must fight for what they want or defend themselves from others.
Governance and decision-making: Most client families are headed by a first-generation entrepreneur who makes most if not all of the decisions regarding wealth management and other issues. If the decision-maker at least solicits opinions and listens to other family members, particularly those in the next generation, this can work reasonably well. Families with more collaborative and distributed decision-making tend to handle stresses as they occur rather than let things fester or escalate.
These families typically employ effective formalized structures, policies and activities to arrive at decisions, such as family councils, governance policies and regular meetings.