Merrill Lynch's Center for Family Wealth operates in two parts: one quantitative and the other qualitative. The first, Strategic Wealth Advisory Group, is a traditional estate planning arm that works with UHNW families to create estate planning strategies that align with their long-term goals. The other side of the team, the Center for Family Wealth Dynamics and Governance, delves into more ephemeral areas like identifying family values, setting legacy goals and enhancing inter-generational communication that, if ignored when dealing with UHNW clients, often represent the greatest threats to family wealth over time. "When we’re dealing with the kind of outlier wealth that we’re talking about, the wealth is often dissipated over generations. It doesn’t have the desired outcome that the clients wanted,” says Stacy Allred, managing director and head of the Center for Family Wealth. Allred led two sessions on communicating with UHNW client families at IMCA's 2017 Private Wealth Advisor Conference in Chicago earlier this week.
WealthManagement: Your background is in taxes and hard numbers, how did you first get involved in what some would say is the softer side of wealth management?
Stacy Allred: I was working in San Francisco in the height of the dot com boom, and I kept getting all of these qualitative questions about wealth, things like “what impact does my wealth have on the motivations of my 21-year old.” I had a technical background, with a Masters in tax, and was primarily designing analytical financial and estate plans, but the clients’ energy was behind these qualitative questions. So, one day I just said enough is enough; if I want to be helpful in this space, I better do some work to help people figure out these questions. We didn’t create the space, we just followed the wealthiest clients’ energy.
WM: With the increasing automation of the quantitative side of the equation, do you see more wealth managers following a similar pattern?
SA: I’ve seen a tremendous growth in this space in the last 17 years. Seventeen years ago I never could have filled a room with people voluntarily coming to a breakout session to hear about that qualitative side. Most advisors just didn’t see it as part of their roles, but we’ve seen a dramatic change. Advisors are realizing that if we can help clients have a positive outcome across generations it has tremendous impact on them and their families. Now I get emails and calls from family businesses that feel pretty good about their estate plans and investments, but what they really need help with is communicating with their kids so to pass on money skills and capacity to handle the wealth they’re going to receive.
WM: So, it’s a heavy emphasis on the “advisor” aspect of “financial advisor.” Almost a therapist?
SA: Not exactly. I’m really careful not to cross over into that realm. It really is coaching, being a good listener. It’s important to recognize the difference between the two. We do ourselves a disservice if we’re couching what we do in therapy terms. The skills are very different, and we need to stay in our respective lanes. To me, the difference is that coaching is more forward-thinking and looking, while therapy more often deals with problems in the past. To put it in simple terms, if you divide clients into four rough groups (these are, of course, reductive, but generally useful nonetheless): mental illness, languishing, normal, and flourishing, you’ll find that therapists are often attempting to assist the mentally ill and languishing groups to find a semblance of normal, while we’re trying to take normal and push it towards flourishing.
WM: A lot of the scholarship in this area implies that women are more comfortable having these sorts of conversations than men. Is that something that you find plays out in practice?
SA: You see both. But, this is absolutely a role where a matriarch can step up, take a leadership role and drive it. Sometimes it’s the patriarch that gets really passionate about it, but there’s generally a tilt towards matriarchs taking the lead here. It’s important to remember that you need the support and involvement of all parties—but it’s a perfect area for matriarchs who may be less engaged in financial or investment discussions to get involved.
WM: How would you recommend advisors begin to implement some of these qualitative concepts into their own practices?
SA: There are different way to engage, but a good jumping off point is the Jaffe-Grubman model [enumerated in this presentation], which lays out six areas of potential complexity that advisors can use to classify their books of business into: green (low), yellow (medium) and red (high) categories. The red families, you don’t really want to get involved in. Advisors should really bring in outside experts to help with them. The green are good starting points, especially if they’re new business. Then you can work your way up to yellow. There’s a bit of a counterintuitive element here. The interesting thing I’ve seen is that advisors are overachievers. When you first ask advisors to think of a family they’d like to introduce this to, they immediately think of the “toughest” ones, the reds, which is the absolute worst place to get started. Stay realistic in what you can do.
Starting with greens, it can be as simple as recommending a good book for a client—they can get fired up about these ideas too—or as complicated as running family meetings. The important thing to do is introduce concepts and let the clients lead from there. I feel strongly about not pushing. It’s more being pulled. If you set out capabilities and benefits for the family, then they have to be the ones who drive things. Trying to force these concepts on unwilling families could have disastrous results.
