One of the least broadcast realities about serving affluent investors – but one that studies have confirmed for years – is that for 90% of wealthy families, their fortunes are gone by the end of the third generation. Even worse than the loss of riches by heirs who squander them, the family itself implodes.
In an interview with ThinkAdvisor, coach Courtney Pullen, president of The Pullen Consulting Group, and a former counseling psychologist, explains how he helps ultra-affluent families nationwide keep both their wealth and a strong family system through the generations.
Researching his book, "Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health" (Pullen Consulting 2013), the Denver-based coach, 59, discovered that the 10% of families who made it past the third generation did so by deliberately investing as much time and energy in the family as in creating wealth.
Facilitating unique family meetings, Pullen typically works with two or three generations at once. Instead of focusing on flaws, he builds on family strengths.
"Shirtsleeves to shirtsleeves in three generations" is an age-old, culturally wide phenomenon whose concept is referenced in the Bible. It occurs because the older generation is so busy accumulating money that it overlooks ensuring that successive generations know its vison for maintaining the wealth long term.
Pullen starts his process with a "values retreat" for each generation, who meet separately to determine family values, the purpose of their wealth and how they'll carry it forward. They then craft mission and vision statements.
Subsequent meetings are usually held in hotels or at retreat and convention centers, unfamiliar surroundings that discourage folks from falling into old family roles.
As a management consultant, Pullen works with family businesses, concentrating on such areas as strategic planning and leadership development.
ThinkAdvisor recently spoke by phone with the versatile coach and consultant, who, as an FA trainer, is a faculty member of The Legacy Companies. For ultra-affluent family clients, he is using the approach of best practices to keep wealth in the family far beyond Generation Three. Here are excerpts from our conversation:
THINKADVISOR: Money is power, but it's also powerful and can bring negative consequences to families. Why does that happen?
Wealth can be like an emotional tsunami running through the family, especially if there's a big change. Wealth exacerbates pre-existing family fault lines and disrupts the family's homeostasis [equilibrium]. This occurs both with new, or sudden, wealth and old wealth. With new money, people may go through an extraordinarily large amount of it in just a few years, as you see with lottery winners.
What about families with old wealth?
If the money has been in the family for two or more generations, the difficulty, typically, is that they deal with a lot of isolation: They have their own little tribe and tend to be non-trusting of outsiders. And for good reason – people are always trying to exploit them, like bringing them new investments. Or they live in fear that the only reason someone likes them is because they're wealthy. What most troubles individuals who grew up in wealth?
There's the classic psychological struggle around developing a sense of identity separate from the family, which is a challenge for emerging adults. If you grow up in a family that has a lot of money and your only identity is that you're a wealthy person in the Smith family, it's very hard to separate from that family and be your own person.
What's the environment within the family for children reared in old money?
The family tends to do a lot of enabling, unconsciously, as does the system around them. For example, when Mom and Dad drive new Portias and fly private planes, if their child says, "Dad, can I have a new car for my 16th birthday?" it's harder to say, "You can have it if you go out and get a summer job and are willing to pay half." Those conversations are more challenging in affluent families.
How can external factors upset a rich family?
I've had a number of clients who grew up lower-middle class and held onto those values even as they worked hard to become "the millionaires next door" [i.e., no one is aware they're so wealthy]. But when they took their companies public, all of a sudden everyone knows how much money they're worth. Boy, does that significantly disrupt the family system because their whole identity is turned upside-down.
In training advisors of family offices and financial planning firms, what do you focus on?
I'm teaching them relationship skills to hold onto clients and families long term. Advisors bring a very analytical bias to the engagement – they think about asset protection and how to save on taxes and so on. But, quite frankly, that isn't as important to the family as the legacy of the family – how they're doing, what their dreams are, what their purpose is.
A specific example of what you teach advisors?
How to build in [systems] early, such as a robust discovery process where they really listen and communicate, and understand their clients.
How do you work with affluent families so that they retain their wealth generation after generation?
I help them invest time and energy into building and defining what it means to them to be a legacy family. I have them define their values, and develop mission and vision statements. It's helping them come up with their own best practices and focusing on governance and how they're preparing the next generations for their wealth. And it's about communication.
Do less-wealthy families have fewer money issues than wealthier ones?
