When decision-making is highly rigid, completely centralized or highly splintered, and actively resistant to input from other family members, family complexity units go way up. Poor governance and decision-making provoke conflict, create a sense of injustice, shut down communication and destroy trust. When dealing with issues such as succession planning, the family is likely to experience significant stress, increased conflict and increased demands for service.
Presence of addictions: Alcoholism, drug abuse, over-spending and other types of addictive behavior add to family complexity. Unfortunately, it's not unusual for affluent families to have these issues. This is especially serious when the family avoids facing the addiction problem, even when some discussion is necessary for good planning or implementation of services. It is also more difficult for advisors when multiple members of a family have addiction problems.
Families with addictions often share a variety of characteristics that are problematic. They are often highly rigid, harbor multiple secrets, deal poorly with conflict, exhibit black-and-white/all-or-nothing thinking and communicate poorly about even the normal stresses of life. They care more about keeping their addictions a secret than solving the problem. Addictions, therefore, can serve as a marker indicating the family may have other negative characteristics that drive up family complexity.
Situational Factors: The factors listed so far represent family characteristics that can deeply and broadly impact complexity. Superimposed on these are the many stresses of life that can worsen family functioning on a situational basis, but which you as an advisor may have to contend with. Resilient families tend to weather stressful situations relatively well, whereas dysfunctional families may splinter and deteriorate. Stresses include when people enter or leave a family. New in-laws, for example, can force a family to make decisions about how it will handle outside people coming into the family. Other examples include medical crises such as cancer or mental disorders such as dementia or bipolar disorder. If the leader of a family suffers a death, or is physically or mentally incapacitated, it can destabilize a family, increasing family complexity.
Green For Go, Yellow For Caution, Red For...?
Using a traffic signal analogy (Figure 2), first suggested by colleagues Keith Whitaker and Susan Massenzio of Larkmeadow LLC, the levels of family complexity can be separated into three categories, corresponding to green, yellow and red lights. At the beginning of a client engagement and at annual reviews, you may want to place checkmarks in each column about where you see the client. A quick glance will alert you to clients well into the higher levels of personal or family complexity, compared to those clients you evaluate as less complex or difficult.
The characteristics and recommendations about each zone are as follows:
Green zone clients are those wonderful, easy-to-work-with clients who benefit from advice, collaborate with advisors, communicate reasonably as a family and work toward their individual and common goals. These client families are most likely to benefit from your work and are often considered "low-maintenance" clients who manage stress and are resilient. Enjoy them and be glad you have them. You can also use them for training new advisors in preparation for working with more difficult clients requiring greater skill.
Yellow zone clients are those who struggle with their wealth and families, but who you can work with under most circumstances. It's important to learn about their family dynamics, to be aware of their strengths and weaknesses, their methods of communication and governance, and their vulnerabilities. Make sure to assign advisors who have the skill to serve these types of clients. Be careful of your pricing for yellow zone clients since their demands for service can escalate without warning.
Red zone clients are in the small but high-maintenance group that is most difficult to work with and who take the largest toll on your firm. You know you have a red zone client when the source of the referral apologizes to you for introducing you to the client. These clients have many of the markers of severe family complexity: high conflict, poor communication, a history of rifts or major fights within or outside the family, overly rigid or splintered decision-making, addictions and chronic crises. As one family-office executive put it, "When it's client X on the caller ID, I just want to let it go to voicemail. Otherwise, I have to gear myself up to take the call."
What can you do if you have a red zone client? First, protect yourself and your staff from burnout. If possible, assign them to an advisor who works well with problem clients. Even then, keep expectations low. Provide emotional and logistical support to that advisor to maximize the chances of success and to reduce stress rippling through the advisory team. Second, try to price the engagement realistically for the likely service demands. Few things are more aggravating than providing lots of service to a difficult, demanding, unappreciative client, knowing you priced the engagement too low to get them in the door. Prepare to have ongoing fee discussions that match fees to service demands as best you can, or accept that the client may take his business elsewhere (with apologies to the next wealth manager in line). Set limits with red zone clients either on service demands or fees, or you will live to regret your "flexibility" on the account.