Phil Cubeta, a man I have long admired for his wit and wisdom, wrote on his brilliant blog, Gifthub, a kind endorsement of my occasional musings. I am grateful for his accolades. But Phil, being Phil, also asked Difficult Questions. And I am as grateful for these pricks of perspicuity as I am for the praise that preens pride. I immediately felt his provocative Questions worthy of a considered response. This blog will be an inside baseball sort of thing. If you are in the wealth management industry and you care about its future, or you are concerned about the market forces driving the provision of the services of preparation for wealthy families, my idiosyncratic musings might be useful or at least thought provoking. If not, feel free to skip this one and we will soon return to our regular programming.
The Dark Side of Human Nature
Phil, as a man of the world, is keenly aware of the dismal side of human nature. Of all of those in our profession, he is perhaps the most publically dour. He has the courage to say out loud what others privately think. He thoughtfully warned me against joining him in his Dumpster. I am unwilling to heed that advice for a number of reasons.
One of the first pieces I read by Phil (and one that has had a wonderfully subversive impact on my thinking ever since) had to do with the values cards that many consultants use to help “align” families (as if that was even possible). He asks, “Given, though, that values are most often honored in the breach and that most human behavior is determined by delusion, obsession, bad habits, foibles, eccentricities, temptations, besetting sins, moral cowardice, vanity, and addiction, it seems the values exercises are incomplete. Why not give clients vice cards and ask them to sort by their own besetting sins?” This is the Joker in the deck – the enduring march of the folly of our frail human condition. It speaks to what Jay Hughes has pointed to: that failure is not only normative but overwhelmingly probable. The reasons for this, as Phil points out, are often rooted in the darker realities of human nature. The success rate is dismal. This is something advisors will not speak aloud.
In his response to my recent post on preparation, Phil said: “I would ask [Matt] would the Holy Spirit herself with the wonder-working powers of God Almighty fix [the folly and callowness of wealth]? Would the spirit create a new business model so Matt and others in this work could get paid more? Or, would it move us as advisors to follow the priests and nuns in taking vows of poverty?”
Phil rightfully embeds this smaller question in much broader concerns of the morality of wealth in society, which raises questions of the moral virtues and efficacy of serving the wealthy. “A body politic cannot thrive when any part is sick unto death. What is needed for a healthy society with rich people successful within it, and many non-rich people doing ok too, is for the whole to thrive. That healthy body politic cannot be created or fostered by advisors operating at $500 an hour, or .5 in basis points, or on a project fee or on a retainer to help a very few, very privileged, families flourish. It is not that there is no business model. The problem is that we think a business model is the answer.”
These are Big Questions that few dare ask aloud and fewer still address with compassion, insight and deep wisdom. In recounting Phil’s point of view, I hope that I have done him and the context justice. I will allow Phil to respond as he sees fit as to the adequacy of my summation.
The Broader Sweep of Time
Permit me to begin a dialogical response by stating the obvious: we exist in broad sweeps of time. The concentration of wealth is a rather temporary problem in one sense. It is almost certain that the wealthiest among us will not stay that way for long. Wealth dissipates. The greatest fortunes today are likely to be vapor in a scant 100 years. For example, relatively little inherited wealth shows up in the Fortune 400. Even there it is almost all “new” money and what “old” money is in that vaunted list is almost all less than a century old. Indeed, I have come to suspect that old money distains new money precisely because it knows it won’t last and that new money is uneasy in this distain because it realizes that old money knows key secrets it does not begin to understand. For old money, it is a matter of waiting a few generations to see if the pretenders have the grit to hang onto it. In this rarified world, making money is the easy part. Sustaining it requires an entirely different order of skill undreamed of and opaque to new wealth. This again speaks to Jay’s point – intergenerational success is very rare.
As for Phil’s recognition that sickness often lies close to the heart of wealth, I don’t disagree. In Power: Why Some People Have It and Others Don’t, Stanford business school professor Jeffrey Pfeffer describes why nasty people do well. He tells us what we already knew; great fortunes are not necessarily made by nice people – in fact, it is quite the opposite. Massive fortunes are often built on autistic, monomaniacal and even psychopathic frameworks and personalities. All of the gauzy leadership tropes that comprise the pablum of the management sections in bookstores espousing the kinder and gentler forms of leadership are sadly misaligned with what actually works in the realpolitik of wealth creation and the sharp elbows of markets. Nice guys may not finish last, but they almost never finish first either.
In my experience truly astronomic wealth is often this way – and, in my small sample set, more often it is autistic (that is reflecting a stunning lack of emotional intelligence) than psychopathic (that is built on intentional and immoral ruthlessness)[1]. (Those with psychopathic tendencies rarely reach out to people like me whereas, when it comes to their family, the emotionally clueless often see the need for help.)
That said, most of my clients are neither “autistic” or “psychopathic”. My clients have been highly successful by ordinary standards. They have usually stumbled into substantial, but not stratospheric, wealth. For the most part, and with exceptions, they are in the one percent, but not the .01%. Many of these folks are decent people and what helps to make my work successful is the fact that they can truly imagine that the fruits of their life’s work could realistically evaporate without a trace within a generation or two and do great damage along the way – and they actually care about both of those possibilities. They have enough to create real concern, but not so much as to create complacency.
It seems, for the good of the social order, the corruption that often lies at the heart of great fortunes plants the seeds for its inevitable dissipation. And, I suppose equally fortunate, there is little that I or anyone can do to protect such venal wealth even if we wanted to. The great crimes that can lie at the heart of great fortunes are as wormwood. I cannot fix terminally damaged families and undo the effects of deeply neurotic or psychopathic parenting. The best that can be done, in most cases, is palliative work. (Interestingly, estate plans that are expected to act in loco parentis fare even worse.) When venality is at the heart of wealth, children are most often damaged in the process to the point that their capacity or capability to sustain their good fortune, or even find much real happiness, is out of reach. Again, failure is far more likely than not. This is not to say that the wealthy will not always be with us, but it is to say that, given a time horizon of a few generations, the plutocracy looks like a time-lapsed game of musical chairs. In this sense the great influence of personal wealth – while it can do real damage or palpable good in the short term – is historically fleeting.
Beyond these smaller cycles, the questions of larger historical good hold broader sway. Phil raises the question of the health of the commonwealth. With respect to the grand sweep of history, it seems that when wealth has become overly concentrated, revolutions of various sorts follow. It may be as simple and non-violent as populist uprisings and legislative adjustments to economic and tax policy aimed at correcting income and wealth distribution. It may also come in the form of the violent overthrow of unjust and oppressive regimes. Dramatic imbalance can even portend the downfall of nations and civilizations. The patricians of ancient Rome realized that they existed at the pleasure of the Mob. Just as it ever was, is now and likely will be. As Jay Hughes so rightly points out, no society long tolerates a perpetual leisure class. The Romans understood this and the wealthy funded the state because of it. The British understood it and based their empire on noblesse oblige. The French, ultimately, did not, understand it, and the royals lost their heads. The jury is still out in our brash, unseasoned city on a hill. As our societal focus remains on quantitative aspects of wealth as opposed to the qualitative aspects, the prospects dim.
Turning back to families, what turns out to be the case, at least in my experience, is that without moral imagination – without a view that first, wealth is more than money and, second, that financial wealth must serve something larger than the self by providing some value to society, financial wealth simply vanishes. It seems that the internal dynamics of wealth see to that. Venality slouches toward dissipation. In these cases, baser human nature impoverishes what it touches at all levels – as it has always been.
In the end, great fortunes are, with the greatest of ironies, most often redistributed not by governments or tax policy but by the folly of the wealthy who lack the imagination, the wit and the wisdom to retain it. That the wealthy fixate on taxation is itself a symptom of their misdirected attention and a dry rot at the heart of their thinking about money and wealth. There are much bigger fish to fry than the taxman – namely the forces of renewal in their own house.
The Other Side of Wealth
Not all wealth, of course, is venal. There is another kind of financial wealth and I most enjoy working with these families. In one such family, four second generation siblings declared in a family meeting that they had more than enough and wondered why they would want to become even wealthier. In their mind, they have more than they or their children could reasonably spend. In this case, the family holds substantial amounts of real estate in a city of moderate size. In our conversations, they realized that they could realistically use their wealth to revitalize entire swaths of their city by viewing real estate investment as a social intervention designed to create thriving neighborhoods. This would not be a charitable endeavor – they would generate healthy business revenue to fund expanded impact and make more big investments – but they were thinking seriously about how to make money for a greater purpose than their own hoarding or consumption. The jury is out as to whether they will do this or it is simply too much for them to take on; but if they do move forward, it will be this act of moral imagination that will move them towards becoming stewards of their wealth for greater social good. In this, they would provide value. That said, they may, in the end, choose a more modest path. The work of choosing to join together with uncertain outcomes is hard work is not easy.
On a less quixotic level, but one at least as meaningful, a family with a manufacturing business has transitioned that business to the next generation. The transition was fraught with complexity, and they did this in part to sustain the family wealth for the benefit of family members — but they are also keenly aware that the company employs and therefore supports many families. They are continually mindful of the impact of their business and how it is woven into the fabric of their community. They are rightly proud of the fact that their enterprise is founded on this contribution. This family provides well-paid jobs which in turn serves up untold opportunities for employees, their spouses and their children to live good, honest lives. They see how these good things ripple out to all of the stakeholders associated with their business. Again, this is hard work, but they have thrown their lots together based on a combination of habit, love, vision and a commitment to children and grandchildren.
These are just two of many stories I could tell.
The Market Forces.
Beyond this social and historic commentary, it is worth talking about markets of service to families for a moment. Phil notes, “That advisors are paid to do legal docs, fund and manage investments, reduce taxes, sell insurance, manage trust structures, and litigate the messes made by their peers. All of which nets out in many cases to human misery, given (what Kant termed) the crooked timber of humanity from which nothing straight can ever be made. The heirs just can’t implement the plans or manage themselves, and all is for naught, for very human reasons. And no business model supports fixing this at scale.” I couldn’t agree more. Indeed, it is this point that serves as the beating heart of my last two posts about the need for shifting family culture through the work of preparation.
My work to shift family culture is not to fix dismal outcomes in every case. Where venality will dissipate, there is little that I or anyone else can do. But where there is sufficient virtue for wealth to create value beyond its own consumption, there is real hope. It doesn’t take much to generate traction– often there are only gestures and impulses – but these are often enough. It is here that I am willing and eager to serve. Fortunately, a few others (both clients and advisors) are seeing the world in the same way.
With all respect to Phil, the business model for this work is, in many ways, irrelevant. As near as I can tell, the industry I am in is riding the upside trajectory of an innovation curve. There were intrepid pioneers who did the heavy lifting. They created scaffolding, pieced together a set of heuristics and explored markets of those willing to test and experiment. Their work has been noticed and is gaining traction at accelerated rates. Early adopters are now creating a version 2.0 on both the supply and demand side of the market. In this mix, there is a nascent profession emerging. I and a few colleagues are part of this second wave. I would imagine it will remain small for a time — for after all venality and its consequent desolation in the lives of offspring is rampant and the number of families with the grit to sustain wealth are rare. But there is a gradual awakening, and I expect that there will be a steady expansion of this trend. The first wave to be served were the uber wealthy. That is trickling down to the wealthy in this second wave. As the dynamics are better understood, scale, of a sort, will be achievable in yet another iteration. If real value is created, a market will support it.
There are many reasons for this modest optimism of which a few are most salient. On the supply side, financial and legal firms simply cannot meaningfully differentiate and so must find new value propositions if they are to remain relevant. Otherwise, they risk becoming mere peddlers of low-cost commodities where price wins every time. There is a downward pressure on fees and old models of assets under management are rapidly dying. Those who cannot figure out how to add substantial value beyond mere portfolio management and financial planning will fade away in favor of robo-trading.
A few firms that can read this graffiti are beginning to scramble to differentiate. Some are doing so by claiming to work with families. Most of these are just slapping on a website with nothing of substance behind it. They believe they can fake it or fake it until they make it. This vacuous carnival barking is driven in part by industry studies that show clients are increasingly asking for help with family governance. These firms have no credible way to deliver on the complexity of their newly minted brand promises. Beyond that, their advisors are totally unequipped and terrified of even broaching the subject with their clients. Breakpoints are legion. From where I sit, putting lipstick on pigs seems a dangerous marketing strategy. But then again, what do I know?
Other firms are muddling through with fuzzy ideas what they are doing – throwing stuff against the wall to see if it sticks. Some are sincere and learning on the job. These few firms have the commitment of C-suite leadership or have dedicated budgets to support the work the brand promises. A select few are experimenting well and most, while well-meaning, are spending lots of money and failing miserably both in the development of business models and the work they do with families. This experimentation creates a robust market for people like me as these firms come to realize the difficulty of what they have promised to deliver and find they cannot do so at the depth their families need and expect. (This all gets to the problem of business models — not in my industry –but in the services of financial management, law and accounting. In my experience, managing money at a profit and engaging in protracted deep culture change in families cannot live comfortably under the same roof beyond a certain critical but relatively modest point.)
I make half of my decent living helping these sincere but baffled firms out of this branding quagmire by consulting to help them build offerings and go-to-market strategies they can develop, describe and deliver with strategic credibility. I make the other half helping client families when the firms and other advisors have reached the end of their rather short tether. I need no sophisticated business model to pick this low hanging fruit. I simply need to understand the dynamics in play and have something of value to offer that helps. Interestingly, it is only a select few in my industry who have truly figured out the codes to effectiveness on either side of the equation.
To add fuel to this supply side force for acceleration of the innovation curve, there is the demand side, the great glut of Baby Boomers (of which I am an ambivalent member) will change the process of succession in the same way they have changed everything else. It is already happening. In their perpetual adolescent rebellion against the ways of their parents, the Boomers will demand more collaborative engagement with their Millennial children in the process of planning (and their Millennial children will expect it as well). These Boomer families will find that working together is easier said than done. This will drive them from mere planning to the more profound work of preparation – at least for some. Despite the talk of philanthropic disinheritance, there is very little of it going on. If inheritances will be a positive force in the lives of the rising generation, they will need to be prepared. While still an estate planning attorney in the early stages of doing intergenerational work, I remember asking a client couple a question that has continued to be core to the work I do today. Tim and Susan had about $80 million and they wondered how much they should leave their children, who at the time were 8, 10 and 13. When Tim asked the question, I looked at him, and in a moment of boldness and I like to think clarity, asked, “Why wouldn’t you want to raise children who could [wisely] handle all of it?” They began a journey with their children of doing just that. This still seems like a half-way decent question. In the right hands, with a family that is well prepared, the financial wealth will drive family businesses that enrich communities, and can provide nimble and progressive ways to make the world a better place through investment in non-profits, establishing social impact enterprises and deploying capital in socially responsible investments. And there are as yet undreamed of opportunities for good.
A Word about Business Models
As for the business model of those of us in this space of working with families untainted by the provision of other legal or financial services, I am touched that Phil wants to see me well-paid. He needn’t worry (though everything is always fragile, and I do not take my good fortune for granted). I will say that I paid dues and for a time sojourned with the nuns and priests in their vows of poverty (or at least scant income) for a few years. I have seen this pattern of famine before plenty repeated with others; it seems the market often tests the mettle of those who would serve in this capacity – as, ideally, it should. I have come to see this tempering as a necessary crucible of learning and character. Phil speaks of “the frauds, humbugs, bunko artists, or panders and charlatans” in this profession. I don’t disagree. If these people are not serving two masters (in the form of dual careers where one pays the bills and the other is an avocation), these pretenders are not paid well and eventually many of them leave for greener pastures. Dare I say good riddance?
More troubling is when incompetence is subsidized by firms seeking a marketing edge. It boggles my mind to see families cavalierly trust their bankers and investment advisors to do work they are wholly unqualified to do by years of study and training, or even capacity or capability. These advisors are seeking entrée into the most intimate aspects of the lives of their clients (with possible mixed motives of seeking to gain more assets under management) and, in some cases, clients open their emotional kimonos. Stunning. And a mistake of new money that will take any ship in the storm. Beyond that, the potential for doing damage is great. Of these advisors who go where angels fear to tread, some are well meaning but naïve, and some are rank opportunists. Those who are well-meaning are ill-equipped. I hold degrees in ministry and law and have apprentied to this work for at least 35 years as a minister, lawyer and consultant. I read voraciously in fields as diverse as biology, peacemaking, group dynamics, design thinking, family therapy, linguistics, organizational development and so on. I have read north or south of a thousand books related and unrelated to this field and seek to deeply integrate what I am learning at every turn. I think about this constantly. And I put what I learn into my work with families in very practical ways that seem to make a real difference. In the end, I can relate to Pablo Casals who, at 93, when asked why he still practiced daily after his profoundly successful career replied “I am beginning to see some progress.” This work is not for the faint of heart.
This is not to castigate all who are doing this work from within firms. I have dear friends who do so and I am forever grateful and respectful of those individuals and firms that know their limits and do their homework with rigor and a keen strategic eye. I laud their work and cheer them. But there are many who are doing real damage and only a select few who have humbled themselves, making the personal and institutional commitment to spend the time and money required to gain competence.
To work with a family ought to be held as a sacred trust. The power to do serious damage is real. Families are right to be cautious in who they retain. Hiring a consultant will be inevitably disruptive. That reality should be taken seriously. A few are paid well by professional standards – but there are not many of us. Most don’t make it and many struggle. That will change a bit as the market shifts. In response to Phil, what concerns me more than business models that support a livelihood in the work of preparation is the sorting out of who is qualified and who is not. The market will do some of this as it has been doing and it will certainly sort it out over time, but this is a slow and uncertain process. Beyond that testing by ordeal, mere training is insufficient. Knowledge can be certified, art cannot. The skills and intelligence required to deliver value at the requisite level is far more art than science. It requires what Dean Fowler has called interdisciplinary fluency. This fluency is rare and hard won by study and a long apprenticeship. Other required capacities are rarer still.
As we close, vice, as Phil suggests, is always present and human nature is more than a little rough around the edges – after all we live with neurosis and selfishness at every turn. For those families who don’t prepare, their vices will eventually ensure their deportation from the land of wealth and almost certainly that deportation will bring greater misery on the outbound journey than necessary. For those families who do prepare, I find that there is often enough virtue to make my work with them worthwhile. In these families, suffering does wane and they begin to flourish. And as they flourish, the world is made an ever so slightly better place by small measures. In the end, it is a game of inches, and ultimate winners of that game are truly known only on the scale of generations. The health of any society is a close run thing, and it always teeters. All we can do is what we can do and hope that the efforts of others for good will come to congeal for the common improvement of all.
So Phil, thank you for your Wise Questions. My answers are partial and perhaps not terribly satisfying, but they are honest. In the end, it seems, Grace is at work in all of this as is Mystery.
[1] I am using neither of these terms in the clinical sense. I speak her of personality tendencies, not diagnoses.
— September 23, 2015