Discussions about family money are more important than ever — especially given that financial forecasts estimate that tens of trillions of dollars will be passed from baby boomers to their heirs over the next several decades.1 How much to disclose — and when — will depend on each family’s dynamics and wealth situations. These are critical conversations that should take place in stages, over several years, addressing both financial and non-financial factors.
Believe that “family values” have contributed to their success
Have not conducted estate or end-of-life planning
Q: Which, if any, of the following have contributed to your success? Which of the following, if any, have you personally done?
Source: State Street Global Advisors Individual Investors 2019 Study. A global survey on consumer sentiment, purpose and behavior in wealth management. Data shown are US/UK/AU markets.
Being open and honest may seem daunting, but it’s necessary for financial wellness. Without communication, misunderstandings can easily occur. Financial advisors have an instrumental role to play when it comes to helping investors be more comfortable talking about money. After all, managing family dynamics is part of managing money. Clarity equals confidence, and being financially confident empowers family members to own their worth.
The idea is to help clients think more broadly about family wealth planning and put a framework in place to help foster a more collaborative environment. This platform can help families make decisions better aligned with their desired outcomes, from distributions to saving and spending goals.
The way individuals and families perceive their wealth has a profound impact on how money is valued and used. The combination of transferring wealth to the next generation and teaching issues of money management can raise a variety of questions.
An advisor’s experience and leadership can help establish a plan that reflects the family’s intentions for wealth and shared values. Integrating education on the basics of money skills fosters financial independence and helps prepare heirs to receive and prudently manage assets.
To move the money talk forward and to create tangible action, bridge the gap between aspiration and execution by starting with positive, life-affirming themes. For example, it’s clear that family is an important factor when investors think about the objectives for their wealth.
Although each family’s purpose will be unique, the core motivation remains the same: to achieve and sustain an impact on future generations. The balance sheet is important, of course, but empowering others has more to do with the qualitative aspects of wealth.
Talking about money and personal finance can be most productive when the feeling of judgement has been removed from the discussion. Sharing stories of personal experiences, cautionary tales and other anecdotes demonstrate empathy and can break down the communications barrier. For many, the family love letter is a powerful tool to set the stage for a constructive money talk. It can be an intensely reinforcing and heart-warming action when families take time to celebrate successes and take solace in overcoming hardships. In some cases, writing a letter can help family leaders better express themselves, especially when the right words are hard to find in person.
Dear Kate, Collin and Carolyne:
This may be the first letter we’ve written to you since summer camp days. That makes us both chuckle, even though we talk with you on the phone almost every day. And it probably makes you a little suspicious. At least now you don’t have to write back in order to get into the dining hall for lunch!
First, always know how much we love you all and how very proud we are of the smart, dependable and kind people that you have become. You have brought us great joy and we are forever thankful for you.
We hope you will always cherish each other. Even at those times when you don’t see eye to eye on things, you can always depend on each other. As you go through life, be who you are, be happy and remember you have a role to fulfill — to make the world a better place. Take the time to rest and enjoy the life you have, and promise to all come together at the cottage at least once a year. Appreciate each other and the hard work we all have contributed to make this life possible. And, you know your father always likes to add a quote from Gandhi, “Live simply, so that others may simply live.”
Second, we have a request. (See, you were right to be suspicious of our intent.) You know that our motto is to pay it forward and that we try to live up to this every day. Now that we’re at a point in our lives where we’re slowing down a bit, we’ve been thinking a lot about our family values and how we instill those values in our everyday life. What do we want to achieve?
This is where you come in. We want to schedule a family meeting to start talking about the kind of change we want to see in the world and how we can help make it happen. This is really a blue-sky moment, where we start with big ideas; your ideas. We’ll decide on a goal, determine the actions we need to take and then come up with a plan to make it happen.
So, we want you to start thinking about what’s really important to our family. We know that you are all passionate about the environment and we’re proud of how that is big part of your lives, so environmental stewardship might be a focus. Start writing down your ideas, and bring them with you when you come home for the holidays. That’s when we’ll have our first meeting. Perfect timing, as we’re all thinking ahead to the New Year and what we want to accomplish. We’ll set up our own shop at the dining room table and discuss our ideas. Collin, you bring the white board.
With all of our love,
Mom and Dad
There is no single correct way to take on this task. The family love letter does not look or feel like a will or a legal document with instructions or designations. The family love letter could take on many different forms:
And depending on the nature of the letter, family heads may choose to share it right away and start an open dialogue, or they may choose not to share it immediately and instead set it aside with other estate documents.
Helping clients improve their money communication skills strengthens relationships within the family. It also builds and deepens relationships the advisor has across the family. Help families strike a balance between staying true to their original principles while always planning for the future by mapping out their journey with a focus on goals, not money:
Encourage clients to think about the long-term goals they have for themselves and their family. Ask to bring family members into the discussion; identify roles and responsibilities across the family to facilitate engagement and sustain commitment over time. When a family works together as a team, they are better positioned for success. Opening a dialogue about financial and social responsibility is a crucial first step.
Financial Communication Maturity
Start early, begin with general topics and ease into the money conversation. For example, what has your client learned from talking about money growing up? What’s the most difficult financial conversation for them? What’s the easiest? A discovery-led process uncovers strengths to build upon and challenges to address. Coach clients to be open-minded and learn more about individual money mindsets, including any predispositions and beliefs about money and the purpose of wealth.
Set Aside Time to Talk Money
Use checklists and introduce shorter-term goals with targeted completion dates to help clients feel organized and in-the-know. Help the family build a foundation of wealth stewardship with an incremental approach. This allows for time to process options and improves outcomes. Structured communication also helps widen frames of perception, which can lead to new and collaborative alternatives.
Strong financial communication doesn’t end with the initial money talk. It relies on ongoing conversations as both the individual and the family grow and evolve. With practice, money talks can lead to healthier relationships and support for overall financial health.
In the role of coach and facilitator, advisors have the opportunity to transform client attitudes about family wealth planning, clarify and satisfy their objectives, and help to prepare their heirs for the transfer of wealth — all while fostering a loyal clientele across current and future generations.
1Cerulli Associates, U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2018: Shifting Demographics of Private Wealth.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
State Street Corporation’s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index. The returns on a portfolio of securities which exclude companies that do not meet the portfolio’s specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio’s ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.