From the April 2014 issue of Investment Advisor • Subscribe!

Newcomers and Natives in the Land of Wealth

Understanding HNW clients may be easier once you know whether they’re natives or immigrants to wealth

Jim Grubman, owner of FamilyWealth Consulting, says newly rich clients are Jim Grubman, owner of FamilyWealth Consulting, says newly rich clients are "immigrants" to wealth and have similar experiences to ethnic immigrants.

F. Scott Fitzgerald famously wrote, “The very rich […] are different from you and me.” The author of “The Great Gatsby” (and “The Rich Boy,” where that quote appears) nailed it: Working with high-net-worth clients can be difficult for an advisor who is not to the manor born. But as Dr. Jim Grubman points out, life is no easier for the wealthy who were born middle-class themselves.

Grubman, a psychologist, neuropsychologist and family business consultant, has worked for nearly 20 years helping ultra-high-net-worth families and their advisors understand how to successfully integrate wealth and life. He developed and taught the first graduate-level-only course in the United States on the psychological aspects of financial planning and advising. (Disclosure: “The Advisor's Guide to Money Psychology,” a collection of my Investment Advisor columns, served as a text for this course at Boston's Bentley University.)

Now the owner of FamilyWealth Consulting in Turners Falls, Mass., Grubman has written an outstanding new book, “Strangers in Paradise: How Families Adapt To Wealth Across Generations.” His approach to understanding the inhabitants of what he calls “the Land of Wealth” is so intriguing that I wanted to share it with IA readers.

Olivia Mellan: How did you get into your work with wealthy families?

Jim Grubman: I came at it from two directions. I was always interested in psychology, so I spent the beginning of my career doing family therapy and collaborations with doctors and other medical providers. In my personal life, my father, a successful businessman who had been through the Holocaust, died at the age of 60. That left our family with some unexpected affluence, so we had to learn to live within the borders of the Land of Wealth.

By the late 1990s, I began to integrate my professional and personal lives by shifting from the health care system to the financial services field. I’ve been doing that ever since as a consultant to wealthy families.

OM: In your book, your central metaphor is to view the wealthy as either immigrants in a strange land or natives born into that land. How does that analogy help people cope with the complexities of their wealth?

JG: The metaphor grew out of a Journal of Wealth Management article that Dennis Jaffe, another wealth psychologist, and I wrote in 2007 as the first comprehensive review of the psychology of wealth. It occurred to us that there were many similarities between the family dynamics of the wealthy and the patterns in immigrant families.

There are many different ways to migrate to wealth, but most of these “immigrants” were born and raised in a more modest middle-class or working-class culture, with different attitudes and behaviors.

This metaphor is helpful to wealthy families in a variety of ways. First, it immediately validates and organizes the experience for newcomers to wealth. I always get an immediate “Aha!” reaction from clients and advisors as to how accurate the metaphor feels. It helps them understand their situation in a way they never experienced. Second, it explains one of the central dilemmas faced by “immigrant” parents: How do I raise children in a culture I did not grow up in?

In “Strangers in Paradise,” I point out that people are often unprepared for the complexity of living with wealth. By thinking of it as coming to a land where they don't know the culture, their experience of having a harder time adjusting than they anticipated is validated and normalized.

OM: You note in your book that there are predictable subtypes of how people adjust to wealth. Two have big risks, while one is more successful.

JG: Just like immigrants to any new land, some newcomers are afraid of what they see as the negative aspects of wealth. They want to cling to what they see as better, which is essentially acting and being middle class. I call them Avoiders. At best, they downplay their wealth and are afraid to have their children exposed to the trappings of wealth. At worst, they can be miserly and resist letting anyone know that they are wealthy.

The second high-risk group, which I call Assimilators, takes the opposite approach. They are ecstatic to leave their middle-class life behind. They fulfill the stereotype of how money corrupts and how tacky the nouveaux riches can be. This group fails to prepare their children and grandchildren for a balanced life with wealth just as much as the first group. Their children never develop skills for handling wealth effectively. The “natives” raised in these households fulfill the stereotype of being spoiled, shallow, overindulged and entitled.

[See a slideshow of the top 10 most ridiculous luxury items purchased.]

Finally, the third type, which I call Integrators, tends to have the best outcomes, just as they do in ethnic immigration. They try to balance and blend the best aspects of where they came from and the reality of where they now are. They hold onto the good values and skills of their middle-class or working-class backgrounds, while accommodating reasonably to their new life. They tend to communicate more across the generations, so their kids wind up being better prepared for the family's current and future circumstances.

Integration requires an openness and a capacity to handle the complexities of wealth. Families face a million new decisions, often without clear solutions. For example, they have to learn new skills for making decisions about saving, spending, investing, charitable giving and estate planning, and what to teach their kids and when. Avoiders and Assimilators reduce this complexity by boiling it down to one extreme or the other.

OM: You’ve said that many advisors have as little idea about how to adapt to wealth as their “immigrant” clients do. How can a middle-class advisor overcome this?

JG: Advisors need to look at their own inclinations and beliefs about the stereotypes of wealth. Some advisors see only the downside of becoming wealthy, and agree with their clients that acting middle class is the way to be. Others wish so badly to be rich themselves that they see nothing wrong with overindulgence and flaunting wealth. An advisor who has a balanced approach to wealth is in the best position to help clients do the same.

OM: Some years back, I wrote an article called “Passing the Torch” about the value of sharing family stories and holding family retreats to prepare the next generation for wealth. Does your model incorporate programs like these?

JG: Natives of wealth may need two major sets of skills. One set involves being able to function well as adults, often as beneficiaries of trusts, and managing greater or lesser amounts of money in their own name.

The other set of skills is rarer and more difficult. For families that share assets—maybe a family business, some real estate, a partnership—the family needs to be able to handle shared decision-making. Owning shared assets is a hallmark of wealth, in contrast to middle-class life where most people own things individually.

Families must educate the next generation in both sets of skills. It helps to start as young as possible. For example, encouraging sharing among siblings can take the form of something simple like involving the kids in planning a family vacation. As children grow, their input and involvement in family wealth management can grow too.

Regular family meetings, with or without a facilitator, teach not only communication but collaboration. So when assets are passed on to the next generation, they are prepared to receive them.

OM: Many families want practical help about when to tell the kids about the family wealth. Any advice about this?

JG: I tend to focus much more on the development of skills than on the disclosure of numbers. If you start early, teaching skills with allowances, providing good money messages and modeling responsible spending, kids will be ready to hear the numbers by the time they are in college.

As you know yourself, it's the money personality that makes the difference—not the numbers.

OM: How do you see the advisor's role in helping clients get to what you call “integration” between their old middle-class culture and values and the Land of Wealth? What can an advisor do to help this process?

JG: One important thing is to use active listening to draw out the client's attitudes, fears and reactions to becoming wealthy. The more someone afraid of wealth feels understood, the more open he or she may be to new possibilities. If you listen long and hard and patiently, you may eventually be able to tell stories about people who used their wealth in a balanced and reasonable way.

The same is true for those who jump into wealth and abandon their past. You need to be understanding when you hear what a relief it is for them to be rich, possibly after years of worrying. But their exuberance needs to be tempered by things like a work ethic, careful spending and a focus on values. If the advisor listens empathetically to these clients, he or she may eventually be able to move them toward balance.

Finally, for those clients who are seeking balance but feel lost or unsure, the advisor can offer best practices. These are the most wonderful clients and the most fulfilling.

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