A few years ago, Eric Lutz got a call from a distraught client about a talk she'd had with her daughter's kindergarten teacher. It seems the kids had been discussing their February break vacations, and the client's daughter had made fun of those classmates who had stayed home (as opposed to taking the two-week Caribbean cruise her family had enjoyed).

This wasn't the first episode of snobbery from the girl, and the teacher warned the behavior would have a chilling effect on her relationships with her peers if it continued.

What, Lutz's client wanted to know, should she do?

Lutz, senior vice president of Webster Financial Advisors in Stamford, Conn., provided the best counsel he could: Explain to the child that, while her family can pay for such trips, most people can't. Although he admits to having been a bit taken aback by the request, Lutz says it wasn't completely unprecedented. And he was not unprepared: When working with wealthy clients, he and his colleagues at Webster devote a great deal of attention to developing relationships with the whole family — and making it clear that matters pertaining to the children are as important as any other financial issue that comes up.

“They want to know how we can help them show their children that the privilege of money comes with responsibility,” says Lutz. “You wouldn't believe some of the questions that come up.”

Family Affair

Advisors chasing very wealthy clients can't practice business as usual. With a horde of competitors pursuing the same market, and with statistics showing that the highly affluent trust financial advisors less than ever before, winning and retaining wealthy accounts requires delicacy, savvy and, most of all, smart marketing. What better way to win the hearts and money of these clients than to work with them on an issue of a particularly intimate and emotional nature: helping them teach their progeny fiscal responsibility, so they don't turn into brats, or, worse, blow their inheritance in a whirlwind of drugs, clubs, clothes and travel.

For the advisor, taking on such a role can involve a wide range of tasks — everything from offering advice about how many toys to purchase for a preschooler to helping to structure a trust to teaching a teenager how to buy a car. But it also requires finesse. Some families think it inappropriate for their children to know much about the family finances. Others are too dysfunctional for you to do any good. Still others only start opening up about their kid's troubles after Junior has left for college.

It's well worth getting involved, however. For starters, such involvement helps solidify relationships with clients. It also makes it more likely that the children will use you as an advisor once they venture out on their own. “Who are the kids going to turn to?” says John Gallo, an estate-planning and tax attorney in Los Angeles, who works with many advisors serving wealthy clientele. “They're going to think of you.”

For one wealthy family, Liz Miller, managing director of Trevor Stewart Burton & Jacobsen in New York, handles not only the parents' account, but also those of their four children, now in their 20s. Miller helps with everything from budgeting to setting up IRAs and arranging for car leases.

It's fair to ask why a wealthy family would even want an advisor's help in handling its relationship with its money? In this areas, the rich aren't different: Like parents of lesser means, many of them just don't like to talk about the subject.

“There's a toxicity and secrecy around money in many families,” says Charles Collier, senior philanthropic advisor at Harvard University and author of Wealth and Families (Harvard University, 2001). As a result, they fail to provide their kids with any type of financial education — how to invest, say, or how to use a credit card — or to prepare them for the decisions they may have to make about their fortunes. Plus, in many cases, parents are too busy making money and managing their assets to think much about the effect it all will have on the kids.

Take the Lead

Some advisors let their clients broach the subject. More often, than not, however, you need to take the initiative. “I always bring it up with a new client,” says Miller. You might, for example, during early conversations discuss how much money the client is planning to leave their children and use that as a natural segue to the question of whether they've done anything to prepare the kids to handle the money.

And watch for an opening. Susan Bradley, founder of the Sudden Money Institute in Palm Beach Gardens, Fla., and an advisor with Raymond James, recalls a couple who, on several occasions, mentioned that they were displeased with their daughter and son-in-law's money management skills. Finally, she calmly asked what the problem seemed to be, and the clients confided that their daughter would call at the end of every month desperately looking to borrow money to pay the mortgage. Eventually, the couple asked Bradley to step in and speak to their daughter about her habits.

Your work in this area generally falls into two categories. One involves a form of coaching, helping clients understand how to introduce basic money management skills to their kids, rather than talking directly to the child. That's especially useful when the offspring is really young. Gallo suggests having a talk that's equal parts child psychology and fiscal management, discussing key developmental stages and what he calls the key “financial tasks” of each one. (Example: At age three or four, one task is to watch television with the children to help them understand the difference between commercials and programs.)

For adolescent kids, the main teaching tool is a time-honored one: allowance. The consensus among experts is that, even for wealthy families, it's the most useful way to introduce money management skills at an early age. The idea is to give a certain amount of money every week, first setting rules about what the allowance is supposed to be used for, without tying it to doing any chores. Then, if the child wants to earn extra, he or she can do extra tasks.

As they get a little older, the next step is for clients to start a checking account for the child or get a debit card, so they can look at the statements at the end of the month and see where the money is going. Better yet, they can open a small mutual fund account for their child and help him or her invest the money. That tack is especially useful, because you can piggyback off it, by holding regular meetings with the child to discuss investing basics.

Direct interaction probably is where your bigger opportunity lies. Ideally, it should start no later than when the kids enter their teens. That's when they're old enough to start understanding more sophisticated financial concepts. Perhaps more importantly, at an age when communication between parent and child is dicey and often tempestuous, you can provide the impartiality of a third party. “Parents can talk till they're blue in the face, but if you give the children the same advice, they'll listen,” says Lutz.

He recalls the teenage son of a wealthy family who had his heart set on buying a vintage Mustang. His parents disapproved, but couldn't talk him out of out. So, they sent him off to talk to Lutz. Out of the glare of his parents' eye, the boy was willing to discuss delaying the purchase and the specifics of how to pay for it. In the end, they mapped out a savings plan, and his parents agreed to let him buy the car.

Ultimately, such direct discussions with the child can lead to all sorts of fiscal lessons that parents often neglect to impart. Collier recalls a 17-year old who had started charging up a storm on his new credit cards. At his parents' request, he sat down with the young man and had a little chat, pointing to things like the 18 percent interest rate the company was charging. They worked out ways for the young man to start paring down the debt: a summer job to pay it off over a period of three to four months.

Formal is Better

Your best move is to institutionalize these get-togethers. Bradley points to one client who started bringing his 10-year old to their meetings as a matter of course. Usually, the child would attend the beginning and end of each conference, and spend the rest of the time doing homework in the next room. “But that way, he started to see financial people as not scary,” she says. “He's growing up around them.”

Or, you can start by taking the child out to dinner or lunch, just the two of you, without even talking much about money matters. “The best thing is to start early and give them a sense that no question is too silly,” says Miller.

In some ways, your most promising opening comes when kids are about to inherit. That's when parents may be most likely to feel they need your help. One family turned to Lutz after their son graduated from college and reneged on his plan to go to graduate school or get a job. It was clear the child was biding his time, waiting for his inheritance to kick in. When they warned him that he wouldn't receive any of the money if he didn't get his act together, the young man just ignored them. Finally, at a family meeting with Lutz, the mother asked if he would talk to the son. So, Lutz took a deep breath, took the young man aside and explained that he wouldn't inherit if he didn't turn himself around. “It was a difficult conversation,” he says. Eventually, the young man went to graduate school.

Of course, there are also opportunities for you to create trusts. In that case you not only offer advice about designing investment vehicles that guard against irresponsible behavior, but you also help to discuss them with the kids. Lutz points to the children of one client, all of whom were to inherit $2 million on their 30th birthdays — but only if they could prove they were up to it. As part of the program, Lutz and the parents agreed that he, not Mom and Dad, would meet with each one after college graduation, explain the rules of the road, and come up with an action plan. What happened? One decided to start his own business, another to work with a favorite charity, and they're all well on their way towards earning the OK. Another possibility is to include in the trust the stipulation that the child, at age 18, must start meeting with an investment advisor (hopefully, you) and a trustee, to start learning about how to manage money.

In teaching the kids to behave responsibly, it's hard to go wrong getting them involved in philanthropy. Focusing on a cause they believe in is an easy way to start imparting lessons about money management. It also “serves as an antidote to a sense of entitlement,” says Gallo — and, there are plenty of ways for you to play an active role in the process. For example, Gallo points to a financial advisor who met with one family every quarter to discuss how money in their family foundation was being invested. In other cases, advisors work with client's children to help them raise money for a specific charity they pinpoint together.

If you feel like you need some practice before taking on this role, there's a host of workshops out there to choose from. SEI Investments as part of its platform, provides classroom and in-the-field training, teaching advisors how to coach clients on family issues. Gallo runs workshops on kids and money for financial professionals.

Just remember: That adorable second-grader sitting on your client's knee today, could very well be your biggest client 10 years from now. So get cracking.