Every advisor wants to be viewed by clients as a trusted advisor, the resource to whom they turn for counsel – not just on their financial matters, but on their overall wellbeing. To do that, you have to be a resource for all the things that concern clients, not just what makes you money.
Affluent clients want to talk about what worries them and financial issues such as portfolio risk, minimizing taxes and retirement readiness, with frequent mentions of work stress and health concerns. Dig deeper, though, and another concern emerges –having their children and grandchildren grow up to be happy, productive and successful adults (always recognizing that success has to be defined on our kids' terms, not ours or our clients). To be able to engage clients in helpful conversations on this issue, arm yourself with informed perspectives from experts in the field.
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This issue of overindulged children hit the headlines two weeks ago with the arrest in Mexico of Ethan Anthony Couch and his mother. Couch is the 18-year old Texan who two years ago was convicted of four counts of manslaughter after a fatal accident while impaired and illegally driving on a restricted licence. In the sentencing process, Couch’s attorneys successfully argued that as a result of being overindulged by his parents he suffered from “affluenza” and needed treatment in a rehab facility and therapy rather than a prison sentence. After Couch violated the terms of his probation in early December and his probation officer was unable to reach him, a warrant was issued for his arrest, leading to the detention of him and his mother in Puerto Vallarta at the end of December.
While this is clearly an extreme case, many advisors have clients who are disappointed by how their adult children have worked out. A few years ago, I had the chance to spend an hour with Lee Hausner, who is based in Los Angeles and spent many years as a senior psychologist with the Beverley Hills School District; she has summarized her experiences on successful parenting for prosperous families in the book Children of Paradise. While some of her strategies are specific to only the most affluent, many of the principles can be applied more broadly and will be useful as you talk to clients.
Rules and consequences
There are two common diseases, Dr. Hausner said, that you find among children in wealthy families – “entitle-itus” and “affluenza”. (Her reference to affluenza was made before the “affluenza defence” became famous in the Ethan Couch case.) To prevent them, she urges parents to teach kids from an early age the concepts of consequences and accountability.
In her view, too many kids are given too much too early and as a result end up taking things for granted, without placing value on them. Lee Hausner believes strongly in setting realistic rules for children from a very early stage and for there to be real consequences if they don't obey those rules. For example, children get an iPod or a video game for their birthday. A week later they lose it at the mall. Their natural response is to go to their parents and say they need another one. If the parents say yes, there are no consequences and no accountability.
Realistic expectations
Hausner also discussed realistic expectations on the part of parents. Many successful parents push their children to achieve – as a result, some kids feel that no matter how hard they work, they'll never meet their parents' expectations.
For example, if a child is in a top school and they're told that they have to excel, for many that's going to be an impossible challenge, no matter how hard they work. They're set up to fail – and ultimately most will just throw up their hands and give up as a result. To avoid this, Hausner urges parents to focus on effort and activity rather than outcomes. Along similar lines, this three minute video shows Stanford’s Carol Dweck on the research demonstrating that it's far better for parents to praise effort rather than just the outcomes of that effort.
Family communication
Communication is always going to be an issue, Hausner said. With successful and busy parents, kids can feel overwhelmed and not heard. To prevent this, structure time for regular communication. She is a believer in regular family meetings, in which all have a voice and everyone has a chance to contribute items to the agenda. As a result, on decisions like vacations or sports activities, kids feel that they have real input.
She also talked about using charitable giving to get kids engaged and suggests assigning each child responsibility for a charitable gift of $50 or $100. They have to do some research on a charity, make a recommendation – and then she suggests that a year later they follow up to see how that charity is doing. As well, Hausner is a big believer in allowances at an early age – with the suggestion that every allowance be divided into three component parts: some to spend, some that has to be saved and some that has to be given to charity.
And as kids get older, she advocates giving teens budgets for things like clothes spending – and once the money is gone, it's gone. A typical problem for kids in wealthy families is separating needs and wants and learning to defer gratification, the idea that you have to wait and save for something you want. And having to live within a budget helps teach both of these.
Tough love for adult children
Finally, Hausner discussed dealing with children in their twenties or early thirties who are unmotivated, drifting through life and still living at home. In these cases, she's a believer in tough love – essentially telling kids that they're on their own and cutting them off from support. She might give kids a few weeks or a couple of months, but ultimately she recommends telling kids that, "We still love you, we'll still invite you for dinner and to join us on holidays, but you have to move on with your life and you have 30 days to figure it out" – and then having said this, she says parents have to stick to this, hard as it might be.
For more on being a resource to clients in helping the next generation achieve financial success, these two recent articles will be helpful:
How to Get the Attention of Wealthy Prospects talks about the research on the failure of prosperous families to transition wealth to the next generation and discusses how advisors can help clients plan for a successful wealth transition.
How Just-In-Time Advice Deepens Relationships outlines how advisors can deepen bonds by helping clients’ teenaged and college age children and those in their 20s make informed financial decisions.
And in this TED Talk video, Carol Dweck discusses the importance of helping children develop a “growth mindset” in which they are taught that they can overcome setbacks – and shares some strategies on how to help foster that mindset.
Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written commentaries, go to www.danrichards.com.
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