The trouble is, 70 percent of fan-lily firms fail before they get to the second generation and 88 percent do not make it to the third. That's a tremendous waste, especially because so many failures are the result of bad thinking and are thus avoidable. For instance:
- "Everything I own is tied up in my business, which is going great guns. Since I don't have much else, the estate taxes won't be too bad, I guess."
- "I've built a $70 million business and want to turn it over to my children. My middle child is by far the most competent businessperson. But since the other two kids will have a fit if I pass it to her, I'd better leave it to all three of them equally."
As for the 12 percent of the fan-lily businesses that make it into the third generation and beyond-here we're talking of "old money"--they spawn a different set of problems. The inheritors may have so little to do and so much time on their hands that they bicker among themselves, often in court, and take to alcohol and drugs. More often, they simply feel isolated and confused:
- "I've always wondered, Is this person getting to know me because of my money? When is he going to hit me up for a loan?"
- "My son just turned 18 and has come into his trust fund of $15 million. How can I keep him motivated?"
- "I want to start a meaningful philanthropic foundation. How can I best do that?"
Help is available. As so often happens in America when there is the promise of a nice payoff for solving urgent problems, smart, confident people have suddenly appeared. They call themselves a variety of names "wealth transfer specialists," for instance, or "family business consultants" or "wealth management consultants"-but for the sake of simplicity, they can all be lumped together under the rubric of "wealth consultants."
Wealth consultants come from the sorts of disciplines you might expect: insurance, accounting, law, banking, psychology. But they no longer merely invest money, write wills or straighten out misdirected scions. Wealth consultants look beyond the borders of their old disciplines, taking a more holistic view.
"There are now about 1,000 of these consultants in the nation," says Howard Muson, editor of Family Business magazine, which keeps track of such things. "Most advise family firms on broad business problems such as developing and choosing leaders, resolving conflicts, and estate planning. Many of them also help wealthy families pool their resources, raise children who will be capable stewards of wealth, and use their money to further their most cherished values and heritage."
In other words, they are, despite their training, generalists. Consider Francois de Visscher, a consultant in Greenwich, Connecticut, who has a real knack for unraveling the intricate problems that occur in successful family businesses - how a shareholder can best raise money against his stock, for example. He would dearly prefer to serve this niche market but finds himself, he sighs, "dealing with 'soft" non-business issues. They are unavoidable." Or take Judy Barber, a wealth consultant in Napa, California. Trained as a family therapist, she tries to concentrate on the soft issues-how to deal with the black sheep of the family, for example ut is constantly confronted with the "hard" business problems, too. Her solution was to form a team: "I do the family side, the others do the business side."
Wealth consultancy as a distinct profession came into being about twenty years ago. Among the first consultants was John L. Levy of San Francisco, who was called into the field not to deal with a family business problem but one associated with inherited wealth: "I was hired by a man who thought he had ruined his children by giving them too much money," Levy recalls. "I could see it was a real issue. There was room for a consultancy" By the mid1980s, demand soared for wealth consultants with business expertise, as the owners of the thousands of family firms that had been started after World War 11 began to retire. Most of them had not bothered to think out how to pass the businesses down to their heirs but now, suddenly, they had to face a snarl of interconnected succession problems. When the wealth consultants stepped up, eager to lend a hand, one can well imagine the entrepreneurs' suspicion: Were these new guys snake-oil salesmen, or could they deliver?
As it turned out, the majority of them could deliver, each in his or her own way.
Passing The Bucks
It's hard not to notice Roy O. Williams. He stands 6 feet 7 inches tall; his fingers look as big as hot dogs; and if he isn't quite as fit as he was thirty-five years ago, when he was playing tackle in the National Football League, he's still not someone you'd pick a fight with. His eyes are kind, however, and he listens with genuine attentiveness, his face lighting up or falling as he hears of the humor and trouble in the world around him. He talks earnestly of "listening to one's heart" and of following heartfelt values. In the end, Williams' physical size and emotional solidity are reassuring- He seems both big enough and real enough to deal with the scariest person his clients know: Dad.
Williams was born in Minnesota sixty years ago and raised in Washington State, the son of a machinist for the North Pacific Railroad. He joined the Navy at age 18, played football for the base's team, got married to a girl he met at a Tall Club dance (Diana is 5 feet 11) and went to Medical Corps school. After his discharge, he won a football scholarship to the College of the Pacific, enrolling as a premed student. By his junior year, though, he had two children and needed money. So Williams played professional football until, as he puts it, "I mashed my knee' "
Settling in Stockton, outside San Francisco, he joined an insurance company and discovered his forte estate planning. It appealed to his own strong sense of family values. "I was very successful," he recalls. "I was named one of the top three or four life insurance agents in the nation." In 1965,Williams opened his own agency. "We were doing fine, but something was odd" he says. "My clients were asking me for advice that did not involve insurance. And they paid me a fee for it! Then one night I woke up and realized that my clients were all asking me: 'How do I solve the problem of my kids?' I saw that the question was really how to help Mom and Dad prepare their children to be better stewards of their money" With that epiphany, a wealth consultant was born.
Williams asked himself, Why don't these parents-all of them founders of successful businesses-train their children to take over the family firms? He found two underlying causes: inefficient communication and lack of trust. "The kids went to good schools but they told me, 'We are never allowed to take risks. 'They knew this, but their parents didn't. The family just didn't talk of such things.
"Sometimes parents fear that if they tell the kids how rich they are, they will create a disincentive for them to work. Sometimes Dad is too busy to spend time with the kids; he is focused on success. It's not getting rich that motivates him, really-it`s being able to solve a problem that no one else has been able to solve. But the result is the same. The kids feel left out; they feel that their parents are telling them: We don't trust you."
Today, Williams runs The Williams Group, a ten-person office 'in Stockton that specializes in long-term estate planning and in giving families the tools to prepare their kids to manage wealth. Clients come to the firm primarily through word of mouth, says William: "Billionaires talk to billionaires. Millionaires talk to millionaires." He charges on the basis of time. A one-day family meeting, for example, costs $6,000.
"Basically, Roy Williams has you and your spouse go through a series of interviews' " says George McCowan, one of his clients and an investment banker in Palo Alto, California. "He begins by getting you to define the family mission, its philosophy-important things. Then he interviews the kids. And then there's a family session with everyone in attendance, no exceptions permitted."
The key to the family meeting is frank and open discussion. Williams or his partner and right-hand man Gordon Snyder acts as a "facilitator," making sure that every member of the family speaks out. Often the facilitator has to tell Dad to give others a chance to say what is on their minds. "He deals with powerful personalities who are used to other people catering to them," says Michael Allen, a trust and estates lawyer in Tyler, Texas. "Roy doesn't cater. He takes the risk of telling them what they don't want to hear, like, 'Understand what your children are really saying!"' (That's when Williams' size seems most reassuring to the kids.)
If the children need preparation to step in to the family business, Williams helps them decide what activities might be most beneficial to them. This could involve working for another company for awhile, or, if they are still in school, maybe taking a job 'in the Third World, where the contrasts between rich and poor are so stark that they gain a better understanding of the nature of wealth. Or a child might choose to run the family philanthropy and thus be exposed to his parents' values. The actual wealth-transfer plan is prepared with the help of specialists-usually a good estates lawyer and an insurance expert. "The point of estate planning is to take advantage of tax valuations-how the Internal Revenue Service sees things--and then have insurance tailored to fit your needs," says Gordon Snyder. A Canadian client sums up the whole process this way: "Roy not only saves you taxes; he saves your soul."
Couldn't a smart businessman figure A this out without a wealth consultant? Not a chance, says George McCowan: "The issues are much too complex. I have had two marriages and seven kids. I asked Roy if he had ever seen anything as complex as my case. He said, 'Hell, yes.' The thing is, these issues have not been put into words before; they're unspoken issues that Roy uncovers. Pandora's box is going to open sooner or later. And the question is whether you want to deal with it now or let it blow up in everyone's face after you die."
Old Money, New Meaning
After family money has been passed down to two or more generations, the issues change and often "soften." The big question becomes, ultimately, What is the relationship between wealth and happiness? And here, too, help is available.
With his silver hair and steel-rimmed glasses, Peter A. White looks a little like Steve Martin. He dresses in the uniform of big business--dark suit and somber tie-yet radiates the kind of serenity more often associated with gums than executives. His offices in Washington, D.C., make visitors feel at home: chintz curtains, leather-covered wing chairs, family snapshots and a little sign on the mantelpiece that says "No Whining. "Like Roy Williams, Peter White is a good listener. You feel his intensity and compassion. In the end, you trust him enough to sense that he can help you confront the scariest subject you know: your inadequacies.
White was born fifty-two years ago in Toledo, Ohio, the son of a doctor. He grew up in Cleveland, went to Kenyon College and Duke law school, then began his career as an attorney. He burned with ambition: "I wanted to be famous." So he went to Washington, D.C., in 1972, where he worked, in succession, on the Watergate case, a Federal Trade Commission investigation of the biggest oil companies in the U.S. and the "Koreagate" scandal. "I was," he recalls, "riding a real wave. I had a great job, a young family, a nice house. I was escalating" Escalating but also unsatisfied and unhappy--White didn't know why. Psychiatry did not seem to help, and alcohol certainly did not, either. Finally, in 1981, his wife asked him to go to Alcoholics Anonymous. There, he eventually met a mentor, an older man, who one day suggested to him, "Why don't you try telling the truth?" Lightning struck, says White "and that led me to a place where I felt relatively free." He practiced law less and less and, in 1986, opened his own business-consulting firm, naming it International Skye, after the remote, storm-lashed Scottish island.
A breakthrough job came the next year, when the Rockefellers hired him to look into the efficiency of their family office. (Typically, a family office handles a wealthy family's financial affairs-investments, accounting, insurance--and plays an important role in maintaining a sense of clan.
"Let's see what other families are doing in this area " White suggested, and he set up a meeting with representatives from eleven offices. "The first item on the agenda was that everybody around the table would talk about his family office and the challenges he saw. That item alone took one full day. I could see that I was pretty good at engendering this sort of conversation." Presto, another wealth consultant!
Unfortunately for Peter White, others with much greater resources-most notably, the Harris Trust Co. of Chicago--also began to hold conferences for their affluent clients, exposing them to expert speakers like Roy Williams. Rather than compete directly White started consulting on cutting-edge issues: the idea of acceptable risk, private investing, how to start up a family office. Gratifyingly, the big family offices paid heed; most of them signed up for "membership" in International Skye.
Wealth Consultants
Today, each member pays $ 10,000 per year and gets in return whatever he wants of Peter White's time, common sense and questing instinct. What the Pitcairn (Pittsburgh Plate Glass) family wants is news. "The genius of Peter White is that he's created a safe place for family members and professionals of family offices to come together and learn about wealth management," says Dirk Junge, chairman of the Pitcairn family office in Philadelphia. "This is a unique and valuable forum." Another Skye member, a patrician East Coast family, wants to keep communication in the family open. "Until Peter helped us," explains the matriarch, "we had lost the ability to take the time to be together." Yet another client just wants to have Peter around. "We are paying $10,000 to be your friends," he told White. "Right," White shot back. "And it's a bargain."
He will also provide "mentoring" to nonmember family clients. The client usually chooses a specific subject-for example, career, relationships (most often with a spouse) or family (mainly how to bring up children). Mentor and client meet four times a year and talk weekly on the phone. "It sounds like therapy, but Peter is not a therapist," says a client in Boston. "He's more interested in being a teacher or a Ode than a fixer. He shows you what you already know. He has helped me find the resources in my life to fix my own problems."
Another of International Skye's activities is the Summer Institute for Young Adults, which grew out of White's idea that rich people might learn from meeting together "to talk about growing up in the presence of wealth." The first Summer Institute was held in 1989. Attendees ranged in age from 20 to 45, and the agenda included what one might expect--serninars on succession, financial planning and communication. Soon, however, the participants were talking about more basic issues, things that were virtual taboos at home: sex, money, death, alcohol.
White was so impressed by the energy--and the consequent synergy-that he made the Summer Institute an annual event. It lasts four days and is held at a modest dude ranch in Wyoming. Although there are still classes on such things as estate planning and asset management, the emphasis has shifted to human issues like leadership and fear. "The students grow," says Kathryn McCarthy, the head of a family office, who also teaches financial planning at the Institute. "They share common experiences. They talk about always being the richest kid in the room and whether they should lend money to fiends. There are a lot of questions about trusts and how to handle foundations. They take charge of their lives. It's remarkable to see people come in as fledglings, make friends, talk and leave empowered."Every year, Peter White takes a group of International Skye members to work on projects to benefit the poor--always an eye opening experience. A few months ago, for instance, a group went to Guatemala to help the American CARE agency build a pure water system for a rural town.
Other groups .have helped build houses for Habitat for Humanity, the organization former President Jimmy Carter has done much to publicize. "You are giving back. You can help move someone up from baseline poverty," exults Edward Fortino of Chicago, who worked on a Habitat house in Portland, Maine. As White sees it, "The community environment creates intimacy and sincere conversation. The idea is to create greater energy for people to move on to whatever goals they set for themselves' "White's own goal is to help others achieve what he calls "a life *in process. "That comes with commitment "There is a line in the film Chariots of Fire in which the Scottish runner is asked why he runs. He says, 'l run because I think God likes it when I run. 'We all have to find our equivalent of running."
If all this seems a far cry from the hard issues that launched White as a wealth consultant, he sees his evolution as a function of understanding what he calls "the experience of wealth." Ultimately the key question for the aware person is meaning. "The more we try to find meaning in things Eke money, the less we are likely to find it," he says. "A life that is short on meaning is not likely to be affected by wealth." White stands ready to help clients do better.
Though it is easy to scoff at White's work-too "touchy-feely" for some, too platitudinous for others-there is definitely a market for it. The Private Bank at Bankers Trust Co., which administers about $20 billion in assets for its personal clients, has contracted White to serve as a consultant. The reason is simple, says Peter K. Scaturro, the Private Bank's senior managing director: "When we looked at our relationships with our clients, we saw they fell into two areas: die area of financial engineering--things like investment management, asset allocation, setting up offshore trusts-and an unnamed area that was concerned with family values, family issues, philanthropy. And while the bulk of the work was in the first area, the bulk of the conversation was in the second."
Knowing the breadth of his clients' interests, in fact, Scaturro signed up not only White but also H. Peter Karoff, who runs The Philanthropic Initiative in Boston, and Peggy Dulany, a member of the Rockefeller family, whose nonprofit company, the Synergos Institute, works on poverty issues in developing nations. White deals with ethics, Karoff with philanthropic problems-how to start a foundation or leave a legacy-while Dulany provides information on a variety of well-researched projects that need funding. Together, they form a bridge, linking Bankers Trust with its wealthy clients, who have an ever-increasing desire to do good with their money. In Scaturro's eyes, this bridge has given Bankers Trust a competitive advantage--at least temporarily in the fierce scramble by private banks for rich clients. That's hardly touchy-feely.
Clearly, family businesses and their owners represent not only a lot of money but a lot of need as well. Wealth consultants, with their outsiders' perspectives, have already been the agents of tremendous change. In the past, the typical family firm was autocratic, secretive and wary-an institution with a fortress mentality Now it is more relaxed, more ready to talk to-and learn from-others. Similarly some of America's stiff old families are beginning to accept a new, more relaxed view of family values. So far, so good, say the wealth consultants. But they hunger to do more.