How a UBS Exec Gets Families to Open Up About Wealth Transfer

Coming into a substantial inheritance often hits wealthy parents’ kids “like a meteorite, knocking them over” and kicking off the sad phenomenon of “shirtsleeves to shirtsleeves in three generations.” To prevent that damage and destruction, ultra-high net worth clients need to prepare offspring for their momentous wealth transfer.

So argues Judy Spalthoff, a UBS executive director, in an interview with ThinkAdvisor. She and her team facilitate family meetings aimed at averting the family fractures that inheritance can bring.

“We’re doing preventive medicine to make sure potential diseases of the family don’t happen,” says Spalthoff, head of the firm’s family advisory and philanthropy services.

For a variety of reasons, most wealthy parents fear having inheritance conversations with their children and avoid such discussions. The family meetings that Spalthoff recommends gradually ease into balance-sheet talk, focusing first on family mission, values and legacy.

The meetings also benefit an advisor’s practice in a number of ways, which Spalthoff discusses in the interview along with a specific technique UBS uses to encourage parents and children to open up and better communicate their thoughts and feelings.

She recommends convening families at least once a year to discuss inheritance, with a neutral third party running the meetings. At UBS, that’s Spalthoff, a member of her team, or the financial advisor. Often it’s the advisor together with Spalthoff or another from her group. The firm offers FAs how-to training workshops.

ThinkAdvisor recently interviewed Spalthoff, speaking by phone from her New York City office. She considers inheritance-preparedness meetings “a value-added service that clients probably didn’t ask for or know they needed” but which play an important role in the wealth transition process. This she differentiates from “wealth transfer.” The latter is an “event.” Wealth transition is an “evolution.”

Here are excerpts from our interview:

THINKADVISOR: Why do wealthy parents avoid bringing up the subject of inheritance with their children?

JUDY SPALTHOFF: They’re afraid to talk about it because they’re not prepared to share the financial information — and the wealth inheritors aren’t prepared to receive it.

What do parents think will happen if they talk about it?

They’re afraid that [the children] will feel entitled or that they’ll become unproductive members of society, unmotivated because they won’t necessarily have to work. They sometimes think [knowing what they’ll inherit] will strip their children of purpose.

Why is it important for wealthy parents to have an open dialogue about inheritance and not make a mystery of the money they’ll be transferring?

If you haven’t communicated your intentions, you create opportunities for fracture within the family as well as for the children to be ill-prepared for the wealth itself — like a meteorite hitting and knocking [them] over. It all gets back to preparedness and making sure people understand the responsibility that comes with having great wealth and [to avoid] the animosity and breakup of family dynamics that [money] can create.

Is there a big difference between wealth transfer and wealth transition?

A massive difference. Wealth transfer is an event. Wealth transition is an evolution — preparing for that event with estate planning and making sure everything is nice and tidy so that you can transfer the wealth in the most effective and tax-efficient way.

Why is preparation so critical?

Research [“Preparing Heirs: Five Steps to the Successful Transition of Family Wealth and Values” by Williams and Preisser] shows that 60% of unsuccessful wealth transitions [stem from] lack of communication within the family, and 25% are caused by lack of heir preparedness. That’s why there’s [the unfortunate phenomenon of] shirtsleeves to shirtsleeves in three generations.

At what point in the meeting does UBS bring up the amount of money that will be inherited?

We’re not going to roll out the financial balance sheet or start talking about the trust [right away]. We think of this [process] as a dimmer switch: Before we get to the money, we’re going to turn on the light just a little bit and talk about all the other things that [families] pass on.

But it’s quite possible the children already know the extent of their parents’ wealth. How does that jibe with the dimmer-switch approach?

Yes, in this day and age, it’s really hard to suppress [such information] because of the “Google machine.” Children can just Google Dad’s or Mom’s name and see their [family’s financial heritage]. Or if, say, there’s been a major liquidity event, it’s probably in the news. There’s really no hiding [the amount of money]. So we don’t suggest they hide it. We do eventually get there. When, depends largely on the children’s ages and their maturity.

Why is it key to talk about family legacy?

The word legacy can sometimes signify death. So we reframe it and say it’s about the impact you want to make in the community with philanthropy and the impact it has on members of your family.

What’s the chief benefit for financial advisors to setting up these meetings?

Suppose the advisor shares the [client] relationship with a second advisor at a competing firm. There’s “first-mover advantage” to the advisor that convenes the meeting because then the other advisor will have missed their chance: There are only [a limited number] of issues to talk about. So a meeting with the second advisor would be [redundant].

What’s another benefit for FAs to hold a meeting of this type?

Cerulli recently said that, in the next 25 years, $68 trillion will be passed to charities and the next generation. That’s the opportunity and the threat to all our businesses. These meetings are an opportunity to connect with the next generation and keep the families with whom advisors now work. It’s also an opportunity to [move] assets from other firms where advisors aren’t having these meetings.

Anything else that’s helpful to FAs?

The opportunity to sustain their practices and build deeper long-standing relationships so they don’t have to worry that, when Dad or Mom passes away, the adult children will leave.

How do the meetings come about?

Advisors can sometimes get context clues from families, like [when parents say], “I don’t want my kids to feel entitled.” Or there are more subtle ones, like, “My wife and I are fighting about how much to leave in the trust.” So they tend to [come from] issues they’re dancing around.

In a meeting, if one sibling says they deserve to inherit more than the parents say they’re leaving them, won’t that create a potential argument?

Absolutely. But what we’re trying to do is [practice] preventive medicine — to get to a place where we’re at least ticking all the boxes with immunizations to make sure the potential diseases of the family don’t happen. But emotions can run high. A third party being present can help soften some of those fair vs. equal considerations.

What are some of the facilitating techniques UBS advisors use at the meetings?

We have a tool-shelf of things they can pull from to make the conversations seem less intimidating for the family. Instead of asking, “What are your values?”, we give every person a deck of 30 cards, each with a values word on it and ask them to pick three cards [words] that speak to their guiding principles, such as reliability or community. Then we prompt them to talk about those, and we probe a little more.

Any other exercises?

The flip side of the cards have pictures that [cue] the family to talk about what they’re looking for in life now and in the future.

What makes the cards idea effective?

We’re taking huge existential [concepts] and breaking them down. From there, we can help the family write a white paper [for their] mission statement.

I imagine the cards are psychologically helpful, too. True?

I’m often so surprised at the breakthroughs that happen — that a simple set of cards can create moments of connection between family members. It’s a way for them to check in with one another — and to also check in with themselves on what their values are.

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