Private banks and other advisers are increasingly counseling their affluent clients about matters close to home. They’re not just showing the rich better ways to invest their millions or set up trusts but also advising them on even stickier issues, such as how to navigate the tricky dynamics of unequal inheritances or when to talk to children about their family’s money and their future stake, or even how to support parents who may not be as well off.
Financial advisers believe that effectively addressing these issues can be as important as how they manage clients’ portfolios and as essential to maintaining profitable advisory relationships over the long term. JPMorgan Private Bank, for one, trains its advisers to better counsel families about such options as setting up trusts to discourage foolhardiness while encouraging positive behaviors. “These soft issues particularly rear their heads during big transition points, such as when a family company goes public and suddenly an illiquid business becomes a huge source of liquid wealth,” says Amy Braden, a managing director of JPMorgan Private Bank’s Family Wealth Center. “There are unmistakable human challenges in that.”
JPMorgan has developed a program called “NextGen Leadership” to manage conflicts involving inheritances. Braden says the program includes an investment education “boot camp” that the Private Bank uses in situations where siblings have varying levels of financial literacy. “Disagreements often occur when siblings are in a very different position to actually manage the wealth,” says Braden. One family, she says, divided its highly successful food retailing business equally among five children. One brother, however, was given his share directly and was made president and CEO, while his four siblings received trusts for their benefit. The siblings — some understood finance, while others had little investment knowledge — tussled over whether to boost dividends or invest in the business for the long term. JPMorgan ultimately brought in several advisers from the bank who taught some of the siblings the basics of corporate finance, such as the nature of minority interests, business appraisals and the legal and tax ramifications of paying dividends versus reinvesting capital. “It was really about human issues of self-esteem and control, and we needed to get all the family members on the same page,” Braden notes.
Such soft issues, says Steven Hayworth, chairman and chief executive officer of $1 billion Gibraltar Private Bank & Trust, headquartered in Coral Gables, Florida, have become increasingly important. Hayworth says he frequently deals with successful entrepreneurs who grew up with very little. “These clients want to make sure their children have a strong appreciation for wealth and don’t take it for granted,” he notes. Hayworth adds that many want to provide health care assistance or homes for their not-so-wealthy parents.
Gibraltar customizes mortgage loans for clients buying homes for their parents or their children and has established a program called Wealth & Well Being to help tackle issues that don’t fit within the typical financial planning process. Gibraltar also created a family bank — with an independent board — for another client who wanted to set aside a chunk of money to fund possible businesses for his children. This client was trying to make sure his kids would seek money only for well-thought-out business plans and wouldn’t think of him as an endless source of funds.
Kevin Dorwin, a portfolio manager for Bingham, Osborn & Scarborough in San Francisco, says he has seen a clear increase in families asking for assistance with complex problems that often have little to do with actually managing money. Dorwin recently counseled a 40-year-old client who had cashed in lucrative stock options from his technology company employer. Now rich and retired, the client worried that his kids would lose their own drive. Dorwin advised him to continue working; he ended up launching his own technology company. “He started thinking about what his children would say when the other kids on the playground asked what their dad did for a living. We had him think about his feelings if the kids were to answer that ‘Dad’s at home,’” says Dorwin.
Of course, to the bankers it’s not just about feelings. Dorwin advised a Bingham client against supporting a half brother who was draining his inheritance. That solved a family conflict and ensured his firm would continue to have a portfolio to manage.
