Preventing conflict II: Building bridges, balancing finance and family

Families are complicated. We spend our whole lives navigating close personal relationships yet improving them is often beyond difficult. Add in the task of successfully managing family wealth and keeping our loved ones happy, healthy and fulfilled… it’s even more daunting.

How then do ultra-high net worth families balance the demands of finance and family successfully?

Evidence suggests creating the right conditions for successful family decision-making is crucial to preserving and growing family wealth for future generations. Reducing factors that contribute to tension and conflict – especially when it comes to money – helps parents, children, siblings and others focus on building the values, goals and memories that allow families to thrive. Even the most close-knit families can benefit from having systems in place to guide such decision-making.

Creating the right conditions for successful family decision-making is crucial to preserving and growing family wealth for future generations.

If family decision-making is a catalyst for improved relations, then the trusted family advisor is at the core of facilitating that process. A 2016 Campden Wealth and Morgan Stanley Private Wealth Management study picked advisors as having the greatest influence on family wealth decision-making, with 50% of respondents describing them as exerting a ‘strong’ influence. Another 39% characterized their influence as ‘some.’

“We typically meet families and start with the portfolio. In order to do our job, we ask ‘How did you make this money?’ ‘What are you trying to accomplish?’ ‘What would success look like in terms of this portfolio?” says Richter Family Office Partner Danny Ritter. “As soon as clients start talking about those issues, they realize that managing wealth and keeping family members happy might be guided more astutely by a trusted, professional advisor.”

DELIBERATE AND INCLUSIVE FAMILY STRUCTURES

The process of optimizing decision-making looks different for every family, but communication is crucial. In a family office setting, these kinds of privileged conversations often occur through a family council – a regular gathering that commits to thoughtful and active stewardship of a family’s assets. The same principals can apply to smaller, less formalized family structures. Regardless of how families choose to organize their dealings, it’s important to have a deliberate and inclusive approach that encourages honest discussion.

A family council – a regular gathering that commits to thoughtful and active stewardship of a family’s assets.

“The more transparency and communication, the more likely this process will enable dialog and education,” says Mindy Mayman, a partner at Richter Family Office with special expertise in estate planning and family account management. “You can have discussions where people disagree, but if they do so respectfully; parties feel heard and then hopefully get on the same page.”

Conflict can commonly arise from differences related to wealth and values: who the money is for and how is it spent? Most people believe families transmit their values by osmosis – simply by being around one another – but ensuring you’ve imparted your values around money usually requires deliberate conversations, which can start as early as childhood and get more sophisticated as children grow.

“There’s a lot of value in telling the family history,” adds Mayman. “In most cases this wealth was created recently. By describing the journey of how the business started, grew and encountered difficulties, the patriarch and matriarch can explain how they managed both the company and the family. There’s a lot of good learning for the next generation.”

Beyond communicating issues and setting common goals, children still need the knowledge and skills to steward this wealth; something that can be hard to learn directly from family. That’s why initiatives like Richter’s Financial Literacy Program encourage knowledge transfer, education and the understanding of best practices at early ages.

BRIDGING DIFFERENCES WHEN CONFLICTS DO ARISE

But even for those with the best intentions, misunderstandings can take place, conflicts can arise, and relationships can fail. In those instances, a Richter advisor can help struggling parties find solutions.

Richter Family Office Partner, Danny Ritter, has been resolving those kinds of complex situations for more than three decades. The relationships he has fostered place him in a unique position to help families help themselves. Ritter relates one occasion where siblings were unable to discuss a lingering financial problem that required an immediate resolution.

“One reached out and said, ‘Look, I can’t talk to him in the same way you can.” Ritter recalls.

Ritter met separately with each sibling to discuss the situation and then the three of them gathered in a neutral setting. “I went through and shared with them where they had common objectives and priorities; where they saw things the same as opposed to differently,” says Ritter. “It was done in a way that allowed for a little bit more openness, some compassion, and a degree of neutrality. It was a steppingstone for the resolutions that came next.”

Ritter’s role as a trusted outsider responsible for overseeing the continuation and success of the overall family enterprise was unique from other advisors and facilitated a solution which the siblings could not have arrived at alone. “Sometimes, [a family] needs someone to help bridge a situation that would otherwise be too fraught with emotion,” explains Ritter. “They need the trusted advisor to establish a safe.”

Ultimately, Richter’s role is to connect family members in a manner that’s healthy and less fraught. “You could call that conflict resolution, but some people don’t perceive they’re in conflict because they’re not even communicating,” says Ritter.“It’s really about bridge building.”

BUILDING FAMILY RELATIONSHIPS THROUGH BETTER DECISION-MAKING

In 2016, Campden Wealth and Morgan Stanley Wealth management released a study asking ultra-high net worth individuals to answer questions about family decision-making. They summarized their conclusions by writing: “Encouragingly, and contrary to some thinking, our study finds that decision-making is proving to be a catalyst for better family relationships.” The authors noted that the outcome was “most certainly due” to the presence of governance and decision-making structures which eased smooth decision-making and minimized conflict.

Impact of wealth decision-making on family relationships:

Strongly positive • 22%

Somewhat positive • 22%

Little • 30%

Somewhat negative • 16%

Strongly negative • 3%

Prefer not to answer • 8%

Source: Family Decision Making, Campden Wealth & Morgan Stanley (2016)

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