How advisors can help improve financial literacy.

A recent Wall Street Journal article caught my attention about the rise in peer membership groups and multi-day “boot camps” for the children of ultra-high-net-worth families. In small-group settings and retreats, young people are brought together to share the pressures of being wealthy, learn the fundamentals of finance and the dynamics of family-owned businesses, and become stewards of family values and legacy.

The retreats and membership groups cost as much as $150,000 to join and tens of thousands of dollars a year to maintain. In many ways, they’re a pricey insurance policy for UHNW families who don’t want their heirs to blow all the money. Bank of America, Wells Fargo, Merrill Lynch, Morgan Stanley, JPMorgan Chase and other big banks and multi-family offices have similar programs in their family wealth departments. Family wealth psychologists are also moving into this space to help affluent families and their offspring deal with financial issues.

With the proliferation of these programs and services, it’s clear the kids of wealthy families aren’t getting the right guidance from their parents or family advisors, if any at all. UHNW families seem content to send their teen and young adult children away so someone else can play the bad cop for them. To some extent, I see the value of having kids in a peer-group setting rather than being on their own. Kids can share experiences and concerns with peers from similar socioeconomic backgrounds. And when they get advice from independent third parties—who aren’t their parents—the advice is more likely to stick. Even if it’s the same advice.

But any comprehensive advisor who’s helping their clients holistically and not just managing assets for them should be having the same kinds of conversations with their clients’ teenage and adult kids about money and the responsibility that goes along with it. We shouldn’t need so many specialized and expensive retreats and peer membership groups.

For instance, ask your client: “If we gave your 18-year-old $250,000 today, what do you think would happen to the money?” Then ask their 18-year-old the same question. If the child’s response diverges from the parent’s, which is often the case, it’s an opportunity to bring them together and probe deeper.

Here are some other questions to ask:

• What is money for?
• How do you think your family obtained and built its wealth?
• What do you think your role in the family is?
• What will you do if you inherit money?
• What do you think your parents will say about how you’ll handle money?
• Do you think you have a responsibility to the community and not just to yourself?

By facilitating these kinds of conversations, you’re functioning as a mediator and an independent third party. Clients shouldn’t have to go elsewhere. You can remind clients: “Some families are paying hundreds of thousands of dollars for this kind of advice, and I’m giving it to you as part of your AUM fee.”

Overly Generous

While many UHNW families worry about their kids blowing their money on themselves, it can be a bigger problem when they’re overly generous with their friends. They’re always paying for dinner, picking up the bar tab or paying for their friends’ airfare and hotels when they go to resorts together. In a sense, they’re buying their friendships, which isn’t healthy. Or their so-called friends know they’re very wealthy and just expect the kids to pay for everything. These are areas where meeting with the family advisor can be very helpful and more impactful than just hearing it from their parents.

As an advisor, you can set up your own peer advisory group for the teenage and young adult children of your clients. Invite the kids of 10 clients to your office on a Saturday. Order some pizza and just have a low-key discussion about being responsible with money and what that means. No handouts or slide decks. Just talk about stocks and bonds, balancing a checkbook, how a credit card works and what interest payments are. You’d be surprised how little many of these well-educated kids from affluent families know about basic financial literacy. They’re just not learning it anywhere else.

Real World Example

One client family with a $50 million net worth kept their three adult children entirely in the dark about their wealth. Like many UHNW families, the parents told me they didn’t want the kids to know how wealthy they were. I’m not sure who they thought they were fooling. They kept paying all the bills for their unemployed 27 year old. Dad drove an Aston Martin. They flew with a Jet Card and always stayed at luxury resorts. Don’t kid yourself. The kids knew they were wealthy. So why pretend it was a secret? The parents had no experience communicating the responsibilities of wealth to their children, so rather than address the problem, they hid their heads in the sand.

Sound familiar?

With the Great Wealth Transfer underway and many mega-tech companies going public, young millionaires are being minted every day. Many of these bright young people haven’t been given much training or advice on how to handle their windfall from a tax-planning, wealth-protection, or charitable-giving standpoint, or on the responsibilities that go along with it.

There’s a good chance that young people in your client circles are about to come into a windfall due to a large inheritance or stock option exercise. All that money will either go back into the economy through consumption, be paid in taxes or be donated to philanthropy.

You have a unique opportunity to impact the outcome. That’s very important because demographic data suggests young adults are less motivated than previous generations to get married and buy houses. Instead, they’re more likely than previous generations to deploy their assets into starting their own companies with four or five friends. Artificial intelligence is going to force even more young people to become entrepreneurs out of necessity as certain technical and middle-management jobs are disrupted.

We’re at the beginning of an inflection point in which the AI Revolution will have a comparable impact to the Industrial Revolution in the 18th century. I have no idea how it will all shake out, but there’s going to be a massive redeployment of capital. The winders will always need skilled advisors to help them protect, grow and give away their money as efficiently as possible.

Get to know the children and grandchildren of your clients as soon as it’s feasible. Make responsible wealth guidance part of your standard service offering. It will pay huge dividends down the road.