YOUR PRACTICE: Tap shrinks, coaches to avoid estate battles
*50 percent of advisers fail to keep wealth, study says
*Some firms hiring psychologists to address problems
By Jessica Toonkel
Oct 31 (Reuters)-- A few years ago, wealth adviser Chris Walters found himself in an impossible situation. After a client died, he had to divide the estate between two ex-wives, one widow and four children, each of whom felt they hadn't received a fair share.
"It was highly contentious and was one of those situations that could have been avoided had there been some legwork earlier on," Walters said.
The psychological aspects of wealth management aren't exactly taught in Adviser 101 and wealth managers too often tiptoe around topics that could be controversial.
But frank discussions about who gets what, how family businesses will to be run and other financial decisions are key if the family wants to keep its wealth, and advisers are increasingly making these discussions a vital part of their practice.
U.S. Bank's Ascent Private Capital Management, for one, has hired a psychologist to address "family dynamics issues."
The new private wealth business, which is targeting clients with at least $25 million in assets, expects will bring on more counselors as it expands, said Mark Jordahl, president of U.S. Bancorp Wealth Management Group.
"We really think having a psychologist on staff will differentiate us," he said.
DAUNTING ODDS
Whenever multiple generations are dealing with significant assets, advisers have to navigate complicated relationships. The complexities are often compounded by blended families and family-owned businesses.
"Estate planning is always a potentially contentious situation, that's why trust companies exist," said Walters, president of CitizensTrust, the private banking arm of Pasadena, California-based Citizens Business Bank, which has $1.7 billion in assets under management.
Avoiding controversial topics exacerbates future problems, he said.
"They are so focused on the math, that they miss some of the issues," he said. "You can have the best investment management plan in the world, but it can all be for naught if the family can't agree on a plan."
The odds of a wealthy family being able to make their money last from generation to generation are daunting.
Seventy percent of wealthy families fail to sustain their level of assets for two to three generations, according to the Institute for Preparing Heirs, which trains advisers on how to deal with wealth transfer issues.
This is often because the family does not agree or have a plan on how it will manage its wealth, advisers said.
And for advisers, the mere existence of generational wealth can be a business killer. Fifty percent of client assets leave a financial adviser when there is a transfer of wealth from one generation to the next, according to a PricewaterhouseCoopers' 2011 Global Private Banking and Wealth Management Survey.
MISSION STATEMENT
Broaching the topic of what clients are going to do with their money when they pass is delicate. And it isn't exactly easy to suggest that a family go see a counselor.
For his part, Walters doesn't tell a family that he thinks they may need a family psychologist outright. Instead, he tries to illustrate how such resources have helped other families in similar situations.
For example, if Walters has a family that can't agree about how the family business will be run after the first generation passes, he will often say something like, "we had another family in this situation and they met with a family coach to figure things out, and that really helped."
GenSpring Family Offices, which services families with at least $25 million in investable assets, has clients take a survey to assess each member's goals and relationships to money. Then the family together creates a "mission statement" on to handle the wealth, said Daisy Medici, director of governance at GenSpring.
"That way if somewhere down the line a family member decides he or she wants to do something else with the money, the family can say 'that's not in the mission statement," she said.
Even for families who don't get along, having these kinds of clear strategies can be helpful, she said.
"We had one family who had a lot of problems and we said to them, 'look you have to just do these meetings, come up with a plan and stick to it. But you don't have to go out and have dinner after,'" she said. "And that worked."
GETTING HELP
For financial advisers who don't have the time or expertise to handle complicated family issues, there are places to turn.
In addition to a two-day training course for financial advisers on how to handle family issues, The Institute for Preparing Heirs is putting together a family coach registry advisers can use to tap experts on matters like dealing with blended families, said Diane Doolin, founding director of the Institute for Preparing Heirs.
The registry will be up by year-end and will start with 50 family coaches. The coaches are not psychologists but have experience with these issues, she said.
At least one bank believes having psychologists on staff will help it win ultra high-net-worth clients.
U.S. Bank's Ascent has hired Amy Zehnder as its "wealth dynamics consultant." Zehnder, who works with a variety of clients -- including high-net-worth families in private practice, said that the main challenge is just getting people to talk about money.
When an adviser refers a family to Zehnder she will generally work with them once a month for 12 to 18 months. She tries to get families to understand each member's differences and she helps them design a plan on which they can agree.
As part of the process, Zehnder, along with the adviser, will meet with each family member for four to six hours individually.
The price tag depends on the level of assets the client has with the bank. For investors who don't work with the bank such a financial-psychological program can cost between $200,000 and $250,000, she said.
Of course, not all advisers believe a staff psychologist is necessary, as long as you have professionals that you can refer a family to when needed.
"I have worked with over 200 families since I came to GenSpring and there have been only three times I have had to refer them to a counselor," Medici said. (Reporting by Jessica Toonkel; Editing by Chelsea Emery)
