In working with some of the country’s wealthiest families, we hear about the incredible opportunities that wealth provides, and how it can make a lasting impact for the next generation, their communities, or other important causes families support. It can also result in problems that weigh heavily on a family, whether intended or not. Seemingly rational choices—often with the best of intentions—can lead to disappointment, damaged relationships, lack of fulfillment or any number of negative outcomes that leave family members with aching hearts.
My colleague Jim Coutré recently opined on what he called the “Top Ways to Ensure Heartache” in a family, based on his experience overseeing Fidelity Family Office Services’ Insights & Connections program where he provides perspective and helps families solve problems, drawing upon peers and third-party experts when needed. Here are a few of Jim’s takeaways—consider it a list of “what not to do.”
1. Pretend you’re not rich. Many families, especially those who are new to extreme wealth, believe that they will avoid the potential pitfalls engendered by wealth by denying they are wealthy or by hiding from their wealth. This assumption seems logical on the surface—and, for those who take pride in their working- or middle-class upbringing, even admirable. But this attitude can lead to missed opportunities or harm important relationships.
Imagine a daughter walking away from her dream of being a teacher because she cannot make the finances work—not knowing her parents will be leaving her a very significant inheritance. How might she respond when she eventually learns that she walked away from a meaningful career when she actually had more money than she could ever spend? And how will that affect her relationship with her parents moving forward?
The urge to hide wealth and the subsequent fear that others are out to discover and exploit that wealth can lead to distrust, isolation, and the inability to form healthy relationships. Perhaps more significantly, when wealth is not acknowledged by the parents, conversations to help children emotionally and technically prepare for wealth will not happen.
The reality here is that just as extreme wealth isn’t the solution to every problem, it’s also not the cause of every problem. The research of James Grubman, PhD, shows that families with the best outcomes reject the binary perspective of wealth being “only good” or “only bad” and appreciate the complexity of the situation. Rather than relying on a preconceived notion of wealth to make decisions, these families reflect on their values and aspirations, and then use this as a guide for their decisions.
2. Confuse stewardship and purpose. When wealth holders are asked, “What is the purpose of your wealth?” a long, awkward silence usually ensues, followed eventually by a tentative “stewardship—it’s my job to be a good steward of this wealth.” Unfortunately, stewardship is not a purpose; rather, it’s a defensive strategy that keeps wealth in play while doing nothing to clarify why that wealth should be kept in play.
To figure out the purpose of a family’s wealth, family members need to identify and clearly articulate their life aspirations. Do they want to continue to innovate and create financial wealth? Do they want to raise family members who are the best versions of themselves? Do they want the freedom to pursue dreams and passions? Do they want to ease the suffering of others?
After one of our client families articulated that the most important use of its wealth was to help each family member realize his or her full potential, the family completely reprioritized the role of their family office—realigning efforts to support the family in new ways, such as by providing education, coaching and seed capital to develop entrepreneurial spirit within the rising generation.
For another family, wealth creation was a byproduct of the father’s decision to follow his passion; it was never his end goal. To the father, the purpose of this wealth was to now give his son the freedom to do what he himself had done many years before: pursue a direction that was deeply meaningful to him. Because this purpose was articulated, the son no longer felt trapped within the family business and amicably left to pursue a role he found much more meaningful: a sixth-grade math teacher.
3. Legislate to lock-in family cohesion through the generations. Many wealth holders love to daydream about idyllic, future family reunions. It’s a great image—and achievable. Forcing cohesion, however, through trusts, restrictive financial vehicles, or stringent foundation governance usually leads to a backlash in the long run, even if the moves are well intentioned.
Regardless of the structures you put in place, if family members don’t find value in staying together as a family, they’ll at best find ways to separate themselves. Families need to opt into remaining a family and believe that there is value in staying together. This value could be emotional support, access to knowledge and experience, understanding the financial benefits of amassed wealth and sustaining an important legacy, giving back to the community, or the privilege of bettering the world through philanthropy, to name a few.
As an example, a spouse’s fear that her kids would all move away caused a serial entrepreneur to split ownership of his 30 companies across all four of their children. After the entrepreneur’s passing, the siblings lack of experience working together quickly turned to heated conflict. In a bold move, they put all 30 businesses up for sale, with each sibling deciding if, where and with whom they wanted to buy back in. When the dust settled, the entrepreneur’s empire was disassembled, but Mom’s dinner table was full again each Sunday.
Despite our best efforts, heartache is sometimes unavoidable. However, if families knew where to look to recognize some of these hazards, they could alter their approach to avoid heartache in the first place. Our hope is that families use these lessons as a roadmap to successfully avoid common pitfalls while driving toward their highest goals, be it making a lasting social impact, setting up the next generation of leadership within the enterprise—or simply being happy.
Andrew Fay is head of Fidelity Family Office Services.
