Family friction perceived as biggest wealth management obstacle: report

Family disputes are the largest hurdle for achieving financial goals, but communication can make things easier, according to a new report by SEI Private Wealth Management and Scorpio Partnership.

Working through financial decisions in isolation or failing to communicate effectively can disintegrate a family’s wealth far more quickly than it was accrued. As the luxury market continues to globalize and make the economy more volatile and interdependent than ever before, ultra-high-net-worth individuals will need to be smart and confident with money.

"[Wealth management is] a fundamental skill of survival," said Jeff Ladouceur, director, SEI Private Wealth Management. "There is a secret sauce of academic skills and taught values on how to manage money, how to put it towards a good purpose or to continue to develop it.

"Without those skills, the money can be misused or become detriment, instead of an opportunity or jumping off point for success," he said.

“Breaking The Taboo” looks at 275 individuals averaging $18 million in assets and $616,000 in annual income and their attitudes toward finance management. Among the participants, 42 percent are employees, 23 percent are entrepreneurs and 13 percent are retired.

Alone in the dark
The report identifies three major solutions to problems that impose proper wealth management: engaging more often to end conflict festering beneath the surface, introducing heirs to the decision-making process at a younger age and making decisions together.

When it comes to personal finance, people have confidence in themselves rather than family. Forty-three percent of participants said family interference stops them from achieving financial goals, compared to around one-third percent blaming their investment skills or lack of sufficient time and information.

Family prepares for a road-trip; image courtesy Mercedes

Accordingly, one-third said they must make financial choices alone, with the number increasing along with household net worth and higher for women and employees. However, family friction is often an indication of insufficient communication in the past, meaning more conversation and trust.

This isolationist mode of thinking might be an effect as much as it is a cause.

Only about 40 percent of UHNW parents involve children 19-years-old and under in family wealth issues and 80 percent say their heirs do not know how much they will receive. If this was true of the previous generation as well, the exclusion might have contributed to a reluctance to involve others.

Similarly, only 20 percent have given their children training or education on wealth management – this despite 85 percent believing that with great wealth comes great responsibility.

Affluent family

Fifty-eight percent of respondents are male while only 42 percent are female, a result of the lack of gender parity among UHNW individuals. Within the UHNW community, men and women behave differently: one-third of women lack confidence in their financial plan compared to just a quarter of men, but men are also only half as likely to trust family in financial matters.

By setting goals, teaching children how to understand and manage money and getting family and professional wealth managers involved in important decisions, UHNW families can take better care of both wealth and family.

Breaking taboos
Other studies indicate changes in wealth management are on their way.

Millennial investors have different preferences compared to their baby boomer parents when it comes to wealth management, according to a Luxury Institute report from August.

While baby boomers and older generations prefer to work with full-service brokerage firms, wealthy millennials and members of Generation X are showing an increased preference for working with private advisors. Independent financial advisors can offer a more individual approach that is often appealing to younger investors who are accustomed to personalization (see story).

An SEI report from June suggests the same.

When the world’s emerging wealthy population is looking for financial advice, they are preferential toward relationship managers over product specialists, according to a report by SEI.

In the United States, high-net-worth consumers show an even higher affinity for relationship managers, favoring them over specialists two to one across all areas of investment. As regulations place restrictions on the client-advisor relationship and digital solutions appear poised to replace personal contact, this report shows the continued importance of human interaction in the investment process (see story).

"People are doing more values-based than just budget-based financial education," Mr. Ladouceur said. "People who are doing it right, the education is values-based.

"This means people are learning not only the basics of what they can spend and what they have, but also learning the relation between money and their family's values," he said. "Therefore, educated decision are made not on affordability but on alignment with need and values."

Final Take
Forrest Cardamenis, editorial assistant on Luxury Daily, New York