Coaching The Next Generation

Szifra is quoted in this article at Financial Adviser – a blog by Dow Jones.

by Thomas Coyle

December 7, 2011

Once there was a boy who hated his family’s money.

He was a teenager when his blue-collar dad made a fortune almost overnight in the tech boom of the late 1990s. Suddenly it was good-bye middle-class home, public school and old friends, and hello mansion, private school and stuck-up rich kids.

“He was at a very impressionable age,” says Carolyn Decker of Lake Street Advisors, a Boston-based wealth-management firm that advises on about $3.2 billion. “He thought the money uprooted his life.”

Though his parents tried to interest him in the wealth, he resisted. “It’s not mine,” he’d tell them.

Whether the parents knew it or not, the stakes in getting this kid to change his mind were high. The old line about “rags to riches and back again” actually holds true according to “Family Wealth: Keeping it in the Family,” a book by James Hughes. Most family fortunes don’t make it to the fourth generation because the second and third generations are wasteful and uninspired.

Eventually the boy’s parents got him to attend a meeting for the family’s charitable foundation. He just sat there. But he made it to the next meeting, and the next, and so on. For a long time he kept quiet. Then he started asking questions. Then he started expressing opinions — sound ones too — on investment concepts, tax strategies and budgeting.

By the time he was 20, he was out grilling charities on expense ratios and reporting back to the family. He never took the reins of the foundation, but he “definitely shoulders a fair share of the workload,” according to Decker.

More to the point, Decker says the young man feels ready to manage his money when a big chunk comes his way in a few years, and his parents view him as a reliable partner and, with his younger siblings, a good steward for the family’s shared wealth.

An outcome like that points to a family with strong values, says Szifra Birke, a Chelmsford, Mass.-based psychologist and wealth consultant. And the best way to impart wealth values is to air them, she believes.

But many people find that hard. “It’s incredible how reluctant we are to discuss money,” says Birke. “We’ll tell friends about drugs we’ve taken and affairs we’ve had, but how much we make and how much we have is still taboo.”

Birke suggests rich parents start by talking to children about spending decisions, and do it in terms of value derived. So don’t just treat your kids to a luxury vacation, talk to them beforehand about the expense involved as an investment in togetherness and memory making.

Other useful discussions revolve on either-or spending decisions. That’s to let young people know that, for instance, “buying a luxury car can mean they have to live in a smaller apartment,” says Rebecca Meyer, a managing director of Pitcairn, a wealth-management firm based in Jenkintown, Pa., with about $4 billion under management.

Though most kids routinely confront either-or dilemmas, many rich kids don’t — and if they don’t sort it out, they can get into trouble trying to perpetuate the $15-million lifestyles they enjoyed under their parents’ roof on a $2-million trust that’s meant to last them for decades.

For wealth-management firms, helping rich families groom responsible heirs is good for business. Because the process calls for interaction with all family members, not just the check-signers, the firm has a better shot at a renewed mandate when the next generation takes over.

Among families with private investment offices, around 90% bring in new managers or investment professionals when the old guard is gone, according to a 2009 study by the accounting firm Rothstein Kass.

But helping families preserve their fortune through generations isn’t just a business strategy.

“These multi-generational families have long-horizon assets,” says Meyer. “So it’s not about making anyone happy in the short run. It’s about advising with integrity in keeping with our fiduciary duty.”