(In this post, I’ll use “family governance services” to include family wealth dynamics, family financial education, and related services.)
These practitioners generally have educations, training, and backgrounds in psychology or the social sciences, the law, financial planning, or some combination of these disciplines. Most of them take a truly holistic view of their client families, and work hard to help those families to preserve and build their wealth.
That work complements, rather than competes with, investment, financial, tax, and estate planning. It entails defining the family’s values, fostering financial literacy, addressing family dynamics, setting up and using family governance structures, and making collaborative decisions, among other tasks.
The biggest problems in family governance stem from the widely accepted approach that most financial institutions, and some practitioners, take to this still-nascent discipline. That’s too bad, because these problems limit both the availability and effectiveness of family governance services.
Here are the five biggest problems that I’ve found in my interviews, conversations, and research among practitioners.
- Services are generally expensive. Hourly fees start at around $200, and can rise significantly, particularly when the practitioner is an attorney. Extended engagements can cost tens of thousands. Fees for a weekend family retreat commonly top $25,000. Clients pay these fees directly to the practitioner unless they do business with a trust company or multifamily office with one or more practitioners on staff. In that case, the fee is either paid out of pocket or covered by the annual fees charged as a percentage of AUM.
- Many approaches are overly “psychological.” Family governance combines elements of finance, business, and psychology, yet often psychology dominates, particularly if the practitioner has a background in counseling or mental health. This often leads people who dislike psychology or “touchy feely” approaches to resist family governance. One wealth manager told me his clients often resist these services because, “Few patriarchs or matriarchs want to hear that the family may need a shrink!” This is a deeply flawed view of these services, but one created by some practitioners and many wealth managers.
- Services are often seen as conflict resolution. Family governance provides mechanisms for avoiding and resolving conflicts. But it is not conflict resolution in the sense that arbitration and mediation are. When families or advisors see family governance as conflict resolution, they believe that only families “in trouble” need it. In fact, family governance is neither an intervention nor a legal solution. It is a best practice for managing a family business or other jointly owned assets and for preserving long-term wealth.
- Practitioners focus heavily on the family meeting. Early in the client relationship, most practitioners aim to facilitate an in-person family meeting. They interview family members beforehand to learn about the family and its goals. Then, at the meeting, they lead exercises to help family members understand their personality types and define their values, and facilitate discussion. All of this can deliver a lot of value. But it also tends to create the impression that family governance is an event—the family meeting—rather than a process, particularly given the next problem.
- There’s widespread lack of follow up. This may be the most common problem and it is surely among the worst. An informal survey I did a few years ago found that among eight major trust companies and multifamily offices with in-house practitioners, none had a formal means of sustaining family governance after or between family meetings. All admitted that they did very little, if anything, to help clients sustain the practices discussed at the family meeting. In addition, most of them lacked the human resources to facilitate an annual family meeting for every client who would benefit, let alone follow-up with each family.
The human resources problem is widespread. The president of an independent practice focused on family business governance and succession told me he would like to open two new offices, but he cannot find qualified practitioners.
Most trust companies and multifamily offices with practitioners on staff have only one or two to cover hundreds of clients. A practitioner who holds 50 family meetings a year would be considered extremely productive. That means, as a practical matter, that hundreds of families who could benefit in that institution alone are not even offered these services.
Other problems abound
Perhaps an even larger problem rests with clients who fail to understand the threat that family issues and lack of good governance pose to their wealth. These clients, together with wealth advisors who also fail to understand that threat, may be the hardest problem to solve.
In this post I am leaving aside issues that originate with specific practitioners—those who make the family meeting “about them” and their charismatic personalities, those who lack the cross-disciplinary skills needed for the work, and those who only work to their strong suit—facilitating meetings, structuring legal agreements, or assisting with financial planning—to the exclusion of other urgent and important needs.
The truth is that wealth management, particularly long-term family wealth management, consists of far more than investment, financial, tax, and estate planning.
Of course, every discipline has its problems, and I don’t intend this post as blanket indictment of family governance practitioners. If there is any indictment, I would deliver it to trust companies, private banks, multifamily offices, and wealth management firms that cultivate HNW and UHNW clients without advising them of the need for family financial education and family wealth governance.
What can you do?
If you are a financial or legal advisor to parents or family members interested in family governance services you should be able to discuss those services, at least at an introductory level.
Start by reading up on issues that families of wealth commonly face and on family financial education, family wealth dynamics, and family governance. To rapidly move up the learning curve, order your copy of Family-Proof Your Wealth [link to landing page for book] right now.
Also, ask your clients about how they feel about the preparedness of their beneficiaries for financial and business responsibilities. Ask open-ended questions about how they talk about wealth in their families, how they are preparing their heirs, and how they have considered family issues in their estate plans.
To find practitioners in family wealth disciplines, search among the memberships of organizations such as the Purposeful Planning Institute or the Family Firm Institute.
If you are a practitioner be aware of problems around family wealth services, particularly if you operate within an organization that is perpetuating those problems. Work to build awareness of these problems within your organization. Draw them to senior management’s attention, present potential solutions, and lobby for change.
From the marketing perspective, the ways in which these services are presented to clients—typically a mix of ego-stroking messages and eat-your-spinach appeals—are generally suboptimal.
Yet the business case for these services is strong [link to post The Case for Family Governance Services in Wealth Management], particularly for institutions trying to build durable relationships and nurture next-generation clients.
As noted, this is still a relatively young discipline. That translates to high potential for any trust company, private bank, multifamily office, or wealth management firm interested in increasing its relevance, relationships, and revenue.