Strategies & tools for challenges families face: generational wealth – part two

Successfully transferring family wealth from the first generation to the second employs skills many families already possess. In part two of their generational wealth series, Tom Rogerson, President and CEO of GenLeg Consulting and SVB Private’s Gerald Baker delve deeper into the strategies that have proven to be most effective with clients.


Gerald: Hello and welcome to Boston private Perspectives I'm Gerald Baker, head of trust and fiduciary services and Co Head of the Center for Wealth Planning Excellence at Boston Private. Thank you for joining us today for our second podcast in a series discussing the important considerations, challenges and essential planning required to manage generational wealth.

I am joined once again by Tom Rogerson, President and CEO of GenLeg Consulting, an organization that helps families understand the pitfalls of creating a generational legacy, and then assists with implementing best practices to avoid them.

So Tom, in our last podcast we covered the steps families can take when facing tough times. Today I'd like to dig a little bit deeper into the tools and strategies that are required when a family is first generation wealthy.

Tom: Great well yes thank you, uh Gerald, great to be with you again. Let me do a just a brief recap of, or at least encourage people to think through this notion of first generation transitioning into second generation.

First of all, I'd recommend the people that they go back and listen to the first podcast because we covered a lot of ground in that one, but I would briefly say that when first generations, well, if we're talking about people that if their first generation wealth, they obviously didn't grow up with wealth or they wouldn't be first generation wealth, so they don't have a context of how to talk about or transition children into a higher lifestyle effectively and without feeling a sense of entitlement or some of the potential negatives.

So, what we're finding is that very often first generations will have a mentality of hey, we want our kids to experience the same motivations that we did.

We grew up blue collar and we wanted to create something and build something. We were motivated. We want to have our kids to have the same thing so they often approach it with - we have to give our kids the blessing of poverty. We'll raise them in this nice lifestyle, but then we'll somehow give them this blessing of poverty where we won't give them anything, so they'll learn how to do it themselves.

Um, that's different than the way the first generation grew up, and I think one of the biggest challenges that we'll talk about, hopefully today is this notion of well then how do you enter in where the reality is of where you are and hopefully then give them the motivations and the inspiration they need going forward.

So, that's kind of the context, I think of where we're going today to kind of pick up on, but as I said before, I really encourage people go back and list the first one to get a good sense of some of the underpinning and foundation we said last time.

Digging into best practices employed by successful families

Gerald: That's so true, Tom. And this is meant to be a series, so we would really encourage our listeners to go back to the first podcast so that you see the continuity of subject matter and the breadth and depth of what we are covering. So Tom, in your vast experience in this space. What are some best practices to acclimate and ensure family governance with the wealth that they've acquired as that first generation acquirer of new wealth?

Tom: A great point. I think the first and foremost is really huge and that's the notion of you need to have family meetings. Every family you know, as I said last time, my wife and I have now had a chance to work with over 270 individual families where we've run family meetings that got them started in this process. But we've also interviewed.

And additional 200 families that have done this pretty effectively, multi generationally. And what we're finding is families that are succeeding are having family meetings and families that are failing don't. So there needs to be intentionality.

And as far as family meetings, these are not meetings where you talk about money. These are meetings where you talk about the family really getting to know and to be known to see and to be seen to really feel a sense of connection and understanding about the individuals in the family. So we find that to be kind of a critical thing.

Family meetings are usually are not one per year. That's too few. It's very hard to remember what happened a year ago in the conversation. One a month is too many. Um, we actually find maybe even one a quarter is too many people saying we're busy. We've got too much going on, but we think the sweet spot to show to shoot for is every six to nine months, so minimum every six months. You can do it more frequently if you've got the time and availability, but six to nine months is kind of a minimum guideline to shoot for.

And then the other piece of it I'd say that it's really critical that because that's kind of number one, that family meeting but number two, is that equally really important is elevating roles in the family. It is very common that a family of wealth you know. Oftentimes they have a family business or they start giving the impression that the roles for the next generation that are important have to do with the family business. They have to do with managing the money or investing or help understanding wealth management related issues and all that kind of stuff and that can start to give family members a sense that there are two tiers of important people in our family.

There are those that are in the upper tier that are involved in roles in the family business and wealth management and things of that nature. And then there are the people that are less than. I know that's not the intent of the parents, but that is absolutely the feeling that next generations have - that we are less than we spouses, perhaps, or we children that are not in the business are less than those other people that are much more important.

Well, then how do you give people a sense of a role in the family? It requires having roles beyond the rules of the business and anything to do with money. Um, roles like who's our Chief Family Relationship Officer? Actually there are families that have roles like that. Who's our family culture officer who's our next family meeting organizer officer so that we've got, and those ideally would be roles given to people or that hopefully people would step into those roles that are not involved in the family business or money management and these would be elevated roles. They are important very often.

Actually, families that have more significant wealth will compensate people for some of their time in these roles. If it's important, why not pay for it a little bit? It doesn't have to be at the same level of the family business, but I think those are some of the best practices. This notion of being intentional, having family meetings and giving people roles that are outside of the money management and business related roles.

Strengthening the level of community throughout the family

Gerald: And would you say that that part of that is to ensure a level of interdependence among family members and make sure that that interdependence and the culture of depending and on each other and relying on each other. These roles are really meant to help facilitate a culture that maintains that connectivity because as we had discussed in our prior podcast, one of the unique components of having wealth is that it affords independence.

And in this case, family independence from each other. So would you say that these roles are meant to help create a construct of governance that facilitates that interdependence and maintains a culture of community amongst the family?

Tom: Yes, absolutely. And it sounds like second nature that of course wealth would, families would use their wealth in to encourage interdependence, but they usually don't. They do just what you said. They allow the wealth to as we talked about last time to allow separation independence - Go to your own private school. Go to live in Colorado instead of Massachusetts, or go wherever you want to be and although that's wonderful, they don't end up using some of their wealth intentionally to get the family together to some of those things I said before, no one to be known to trust and to be trusted.

Nurturing trust through group decision making

As we said last time, the biggest reason that families are failing at preserving wealth and preserving family is due to lack of trust or on group decision making. They don't make group decisions so they don't have a context, and so they often use the wealth to separate these ideas of having family meetings. You know our mission statement for our company Gen leg. As I mentioned last time, was this notion of we're here to introduce and reintroduce a family to itself - repeatedly with metrics and tools, and it sounds like, well, that's awfully simplistic but they really don't know each other and they don't know the strengths that each other brings to the table, and so we are providing opportunities and we think the family needs to do the same thing, providing opportunities to evidence your strengths and abilities, your communication style, your values by the activities we do together.

And so that's why, yes, the interdependence that is often fostered is group decision making around non business related things like family philanthropy, like family vacation planning? That's a valuable thing. Like you know, how do we educate the family about what it means to be? What's our family history are we are archiving that are we telling the stories?

One of the things that I think is really powerful that we help families with is a family interview process. When we get together do we celebrate each other? Do we, let's say, hey Gerald, you know, what are your challenges this year? What are your successes? What are your failures? What did you learn? And can we help you actually present at the family meeting on all those things so we can learn not only about you but from you? These are the kind of intentional things we're seeing that build the knowledge of each other, which allows the interdependence and that allows the preservation of family.

The entrepreneurial spirit can help enrich family relationships

Gerald: That's such an important component right when you talk to wealthy families particularly. First generation, they're thinking about the investments portfolio. They're thinking about tax positioning. They're thinking about estate planning and those are all very finite specific skills and objectives, but really that soft skill of creating a cohesive family entity and sharing with each other and understanding each other is often so often over overlooked. So Tom, entrepreneurs are experts in working collaboratively, building culture in their professional lives.

That that's let's help them as entrepreneurs and help them to create their wealth. But often time applying the same rigor to family goals gets overlooked.

What do you think is a major driver of those entrepreneurs who are so successful in creating that team culture and a unified vision, getting overlooked in their personal lives and their specifically with their families?

Tom: Yeah, and it's a great observation, you're right. Entrepreneurs, the people that we work with are most of the time first generation leading in a second generation. Not, not always, but most of the time. And they most of the time. Then if their first generation going into second, they built wealth by building a business and when they talk about their management team. They would actually talk quite a bit about how intentional they are. In fact, entrepreneurial organizations will encourage them to. You've got to think through really carefully, who's on the bus? Meaning, who is your management team? Do you have the right person as CEO? The right person as CFO. The right person as the human resource person. The right person you know for marketing.

OK, that makes tremendous sense. We're trying to learn their abilities and fit them into a role where those same people go home and they don't have this vision of the purpose of their family, as if you know like they do it at work at work, they know there's a purpose. We want to grow this thing. We want to preserve and grow this thing so they don't have the same vision and so they don't have a vision of roles for individuals and a place for them to evidence those roles.

So these entrepreneurs will build teams sometimes powerful teams long lasting teams. We'll talk to entrepreneurs that have they'll say, Oh yeah our CFO has been there for 20 years or 15 years and we just and we're transparent with each other. We'll get together as a management team and do an offsite where we bring in a consultant to learn about Myers Briggs and our abilities, we will intentionally get to know and dive deep and we and we can be transferring. We can be honest, I need to tell you what I think he did badly last month.

Well, these same entrepreneurs that have that mentality at work go home and they think, you know, I don't want to get into conflict at home. Uh, and they end up creating an environment at home that is wonderful but it's more social. It's not as consequential, it doesn't have a purpose per say. And so they often allow total independence to the point of not knowing each other anywhere near as well as the management team knows each other.

And when we get together and do family meetings for families, that's one of the biggest a-ha moments for the entrepreneurs and their family where they go, yeah, mom and Dad talk about their management team that they know so incredibly well, they work really well together and yet you're right, we haven't encouraged any of that same activity at home.

Gerald: Such an interesting observation in it, and it's such a telling thing that you know. And it's a natural instinct I suppose, you come home and you want to sort of let go of the structures and confines of what you live in at work all day to enjoy your family. Not recognizing that you're inadvertently potentially causing negative consequences by not helping create an organized and thoughtful structure around how your family interacts with each other. How they communicate and understand their goals and objectives and hopes and dreams.

So Tom, in working with families to create roles like Chief Family Relationship Officer, Chief Culture Officer, some of the soft skills that that go along with some of the substantive skills of planning for business, planning for estate planning et cetera.

Healthy communication fosters empathy

Gerald: How do you try to foster empathy and a team oriented approach with families over time?

Tom: Yeah Gerald, great question that word empathy. How do you get to a place of true empathy with each other that requires getting to a place of understanding? And what we find is parents or partners working together trying to get to the next generation, their intent, their purpose is really powerful and important, but it's really important that they spend time trying to get to an understanding of where the children are. So we find that family a communication or interview process is very helpful.

To give the family and work with the family so that they come up with what they think of the interview questions.

Actions for family members. To get to that place of understanding, to know and to be known beyond just hey how's it going? Or how's your education to really go through? What are the challenges you face? What's keeping you up at night? What successes have you had? What failures? What did you learn by those you know? What are your challenges going forward? How can we help you? That's different. That's much more intentional, and we find that very helpful.

One thing that we find very interesting is how parents think. Oh no, no, no. We're really good at this. We're really good at this when anything comes up, we're really open and we deal with it. Well, that means that they're dealing with when something comes up, they're dealing with the tip of the iceberg. And just like an iceberg. You're only seeing about 10% of it. 90% of it is below the surface. If you're waiting for presenting problems to come up for you to deal with, uh, that's a limit you're missing the opportunity to get at the 90% of the issues that are starting to fester that are below the surface.

This interview process or this process of family meetings to really get to know each other is to be able to get at that.

Below the surface, what do we know each other? This notion of to know and to be known to love and to be loved, to trust them to be trusted, is critical for a group of people that want to work together and stay together.

Multi generationally it doesn't mean they have to be best friends, but you know what we find is oftentimes children of a family or you know of partners going forward. Children and we work with a lot of blended families where there were children from both sides of the family as well. But children, you know parents would often indicate to children they want them to be, as we said before, independent, but they don't encourage them to learn how to work together and we think that this below the surface as opposed to just dealing with the tip of the iceberg issues, allows them to get to know each other at a much deeper level and be able to potentially work together because they know where each other coming from.

And then they have empathy towards each other. They know their motivations and they can hopefully work towards a common cause and a common goal, and usually their desire for a common goal is we like the idea of our children knowing each other down the road as well. We like the idea of our children knowing their cousins. And, well, that takes intentionality because very few families know third cousins and families of wealth have the ability to use some of their resources to invest in 2nd, 3rd, 4th cousins knowing each other. And that actually can become part of the plan.

And this is why I love working with Boston Private because if we can help a family identify some of these goals as a family, you all can then help them better put together a plan that encompasses that desire and implement that plan and then help them multi generationally as a fiduciary going forward. So that's why we think what we do is really very synergistic with what you're doing at Boston Private and Silicon Valley Bank. So anyway, hope that helps.

The role advisors play in your success

Gerald: So Tom, could you give us an example of how you see the work that you do blending with the work that we do.

Tom: Yeah, it's a very important point that I'll give you a good example that we found that families that establish a family meeting process that, if they're doing a really good job and everyone is loving it and they get together every year, maybe a couple of times a year, and it's all going well. The parents assume that. When mom and Dad are gone or the part partners are gone, whether they're you know, separates second marriages, whatever it would be or, or you know, it's significant others as they're thinking about what the future would look like. They're assuming that, well, the next generation is going to keep doing this because they had such a good time doing it so far, and that wasn't happening because we went from one couple organizing the family meeting and paying for it to now three. If we have three kids or whatever. And it wasn't happening because, inevitably, one of the kids was saying every year. Hey, I'm busy. I've got other things going and you want me to pay for it.

I mean, I'm building a kitchen - I got other things to do, so we're finding that in the parents endow the process as part of their plan. And then, but that means they have to plan for it and they have to have it set aside. Then it's endowed and so if they have three kids and one of the kids can't go this year, the other two in saying, well, we'll miss you. But we're going to spend your share in this year's meeting, and guess who wants to be there the next year? If they have fun and they're doing so?

We're finding actually designed this concept of a trust for this with an attorney named Marvin Blum and we call it a FAST, a family advancement sustainability trust. But it's the kind of thing that you and the planning work that you do At Boston. Private can encourage people to include as part of their plan and doing it.

We can help them get the plan, the process in place but that then becomes part of the plan and part of the ongoing management and continuity that you're then helping them with as a fiduciary into the next generation. So to me that's a great example that the family governance process leads to the plan which leads to the continuity of the family.

Gerald: That's such an interesting point, Tom. You know oftentimes with families that are looking to change their estate plans or established new ones, we encourage them when they're looking to focus on family governance to set up a requirement that trustees engage with families at periodic intervals throughout the year and that the trustees are directed to pay the expenses of the family members to gather together whether they're traveling from near or far to facilitate that sort of endowment of family engagement. It's a really, really important point and I appreciate you bringing it up here today.

Tom, you've really hit the nail on the head. At Boston Private we really strive to foster an objective that focuses on family legacy planning and that that means we absolutely need to help foster intergenerational communication and cohesion. Because legacy planning encompasses many factors including creating, protecting and passing down a generational legacy. Boston Private’s team approach ensures that the outcome is a transition from the diversity of individuals and preferences to unity of vision. Which leads to continuity of the family's total wealth, both tangible and intangible

I'd like to thank our listeners today. We hope that you found this perspective helpful. I want to encourage all of our clients to reach out to your Boston private wealth advisor to discuss your needs or elements of today's conversation. Providing guidance and support as your trusted advisor is our mission.

By visiting Bostonprivate.com you can find more information on the important topic we discussed today. And while you’re there, you’re welcome to subscribe to our newsletters if you want all of this information delivered right to your inbox. You can follow BostonPrivate on Facebook, LinkedIn and Twitter for our timely thought leadership and be sure to please subscribe to the Boston Private Perspectives podcast wherever you prefer to listen. Thank you for tuning in and thanks for joining me today, Tom.

Tom: Well, thank you Gerald. It’s a pleasure always and I look forward to working with you going forward

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