Recently I had the pleasure of hearing Charles A. Lowenhaupt deliver a case study on family wealth. Lowenhaupt is chairman and chief executive of Lowenhaupt Global Advisors, a global family office for select families of substantial wealth, and a renowned thought leader on family wealth management.
The premise of his talk was that advisors don't pay enough attention to or put enough focus on the human issues of wealth. Instead, we focus on the mechanics of wealth preservation, which usually results in a less than optimal plan for our clients.
My takeaway from Lowenhaupt's speech was that helping clients understand and articulate their objectives and what they want to accomplish with their wealth is paramount to the long-term success of any family plan. Thus, the question he asks his clients--"What is the wealth for?"--is a tool that I highly recommend we all adopt.
This question may seem pretty simple to answer, but it is one of the most difficult for our clients to answer--because it requires introspection and self-awareness. It requires clients to know what makes them happy today and to project what they think will make them happy into the future. For some clients, this may be the first time they analyze their feelings about happiness, and they may need a lot of help arriving atconclusions. But don't despair! You don't need a PhD in psychology (although it wouldn't hurt) to help them. What you do need is an above average ability to probe, listen and accurately reflect your clients' answers.
If clients have a hard time answering the question, you may want to try a simple exercise. Ask: "When you hear the word 'money,' which values come to mind?" Don't let them think about their answer; for this exercise, you want their initial reaction. Try to elicit at least three values. If they have trouble doing this, you may want to show them the list of "money values" in the accompanying sidebar.
If you're working with a husband and wife, I suggest you do this exercise separately with each of them. Values are influenced by many factors--including gender, ethnicity and religion--but even couples with similar backgrounds may have different values. If the couple's values are different, they will need to come to a consensus before you move on. If this proves difficult in that meeting, recommend they take the discussion home. You might even suggest that they have a "values date"--so they can set aside time to actually discuss their values. Set up another meeting for a week later, which will hold them accountable for doing the exercise.
Once you have the list, look for any themes: Are their money values positive or negative? The word "money" has no value until your client gives it one. Money is neither positive nor negative; it's the client's interpretation that gives it a positive or negative value. We all have our own personal definitions of money values. One of my money values is freedom, and I can almost guarantee that my definition of freedom is different from yours. So make sure you probe and listen carefully to your clients, and then interpret their answers to help them uncover what their values really mean to them.
You are key to the success of this exercise. I say this because during this type of conversation, we often stop listening too soon. Why? Because we're too busy judging--especially if our clients' values are different from our own. The best way to overcome this is to be aware of your own values and then truly buy into the fact that one set of values is not better or worse than another--just different.
This requires some introspection and real honesty with yourself: When you see people making brand-name purchases, do you consider them shallow? If you see people with plenty of money driving around in an old car, do you think of them as miserly? If you're not honest with yourself and consciously or unconsciously pass judgment on your clients, they will sense this, and the whole exercise (and perhaps your relationship) will become moot. Instead, let clients know that their values are similar to those of other clients in your practice. People want to know that their feelings are normal.
Wealth managers can gain more insight into client behavior by becoming familiar with the concept of buying behaviors. This will shed light on what's important to your clients and also suggest important influences on their decision making. In the simplest terms, the study of "buying behaviors" tells us why people do what they do (or don't do). Buying behaviors are deeply rooted in psychology with a dash of sociology. They go beyond clients' basic needs and are really about what a person desires, which is their underlying motivation for the pursuit of money, objects and experiences. Desire is the primary lens through which a person views life--their principal modus operandi.
Among several articles I've written on the study of buying behaviors is "Listening to Margaret Mead: What Anthropology Can Teach You About the Affluent" (Investment Advisor, June 2006). Based on a JPMorgan Asset Management study, it identifies five basic buying behaviors of wealthy individuals--each with distinct motivations and core values--summed up as follows.
Segment One has core values and passions driven by pleasure, exclusivity and experiences. These clients are steeped in the belief that "money exists to use and enjoy."
Segment Two is motivated by beauty, aesthetics and taste. These clients use their wealth to express their status as people of refinement and sophistication.
Segment Three clients have the emotive values of practicality, value and intelligence. They consider wealth a means to be themselves.
Segment Four centers on the pursuit of 360-degree wellness. Wellness, naturalness and balance motivate these clients.
Segment Five's core values and passions are motivated by tradition, family and giving back. These clients are as interested in passing down ethics, values and life lessons as their material wealth.
The bottom line is this: The more awareness we have about why different people are motivated by different things, the more understanding--or better, acceptance--we have of one another's differences.
Some of us have a natural ability to help our clients go through this process, while others may find it very difficult. If you're in the latter group, you may want to seek the advice of a psychologist--not to deal with your own issues but to help you become better at asking questions and listening for the keys to your clients' value systems. In fact, many firms--both large and small--are developing advisory relationships with these professionals, even bringing them on staff.
I can see some of you shaking your heads or rolling your eyes, thinking: "We've crossed the line." Have we? Not necessarily. The purpose of these specialists is not to "fix" clients' behavior; it is to gain insight into their motivations so we can help align their money management with their value systems.
I mentioned earlier, but can't stress enough: Before you can do this with a client, you have to answer for yourself the question "What is wealth for?" To get to the heart of the matter with your clients, you must have experienced the challenges of this question for yourself. If you don't see the importance of the exercise, why should your clients?
Each of us is motivated to move our lives in certain directions. That motivation is determined by the values to which we subscribe. These values are implicitly related to choice; they guide our decisions. If your clients don't have a clear understanding of who they are, what drives them and what they want, it will be almost impossible for them to be satisfied with their financial plan.
Here are some examples of money values: Which words do you stand behind?
Acceptance, achievement, anger, charity, community, dignity, disappointment, discord, family, freedom, generosity, greed, growth, happiness, harmony, honesty, honor, identity, independence, integrity, joy, leaving a legacy, leisure, power, recognition, respect, responsibility, retirement, security, self-discipline, self-esteem, service, spirituality, strength, stress, struggle, success, time, travel, trouble, unhappiness, using my talents, wisdom and so many more . . .--SLH
Susan L. Hirshman, CFP, CPA, CFA, CLU, (firstname.lastname@example.org), is a managing director and wealth advisor at JPMorgan Private Wealth Management in New York.