Old Money and New Money: Exactly the Same but Different

FEATURE | Old Money and New Money: Exactly the Same but Different

By Susan Bradley, CFP®, CeFT®

n my long career working with both old- might get you to the real answer, which plan to give all of the money away. Many of money and new-money clients, I’ve learned could be that she has a strong negative the hows are the same for old- and new- Ithat they’re exactly the same but different. reaction to the source of the money. Rarely money clients, but there are some striking do clients instantly respond with a well- differences. Let’s look at two examples. What’s the same? thought-out answer that reflects their own inner dialogue and processing around what Old Money: Dianna • Both types of clients might come to you they expect a decision or plan to do for Dianna is a new client of yours who is part as individuals, but their family structures, them (i.e., why they want to do it). It’s most of an old-line family and has just received dynamics, and histories will be featured often up to you to provide a structure and her big inheritance. She received smaller prominently in your work with them. process for them. amounts in the past from family members • Both types of clients will experience life but didn’t do well with the money. events that often dramatically alter their Uncovering genuine intention is necessary Fortunately or not, her family’s extraordi- personal finances. This is the technical if you are going to help your clients with nary wealth and the support of the family side of your work with them. the “how” part of your work together. office softened any potential blow. She • Both types of clients had life experiences Skillful implementation can prevent clients hopes you will help her avoid past mistakes before those events that informed their from making choices that don’t serve them and invest her money wisely. identities and mindsets that (consciously and can set the course for an enriching, or not) influence their spending and inspiring type of client engagement. Dianna is divorced, doesn’t have children, investing habits, their definition of and Although all of this is true for all clients, and is exploring new career options and comfort level with risk, the type of old-money and new-money clients tend to possible new areas to live. She is comfort- advice they seek, and more. Essentially, offer extreme examples and have import- able with the homes and clubs of her fam- it’s the personal side of client experience ant differences, which makes examining ily, but she’s looking for new experiences that drives decision-making and even them and comparing them particularly that feel like a personal fit. Her family affects what clients see as their options. instructive. expects her to keep her money within the family office, but she has never felt com- What’s different about old-money and new- The whys of someone’s behavior tend to fortable being part of the family system. money clients? The nature of their identi- originate in the past and are not under your This is her one-time big financial event, ties and their mindsets—their beliefs and control, but uncovering them is. Fairly typi- and she feels both lost and resolved to their ways that took years to develop and cal whys for old money are very different going it alone. were largely a function of circumstance. As from those for new money, but because a wealth manager, you know that decisions every client is different, starting with the She says she wants to be given an amount can reverberate in ways that influence rela- client’s own unique guiding principles— to live on each month—an allowance. You tionships, finances, and family structures. not your assumptions or biases—is of para- realize she will need to dip into her invest- mount importance. ments now and then as necessary, and she It’s crucial, therefore, to be able to under- says she is okay with that, but she has no stand the powerful “whys” behind import- The hows are where the bulk of your work experience with financial limits. ant decisions. Why does your client say she as a wealth manager lives. The hows are the wants to give away most of her money, for opportunity to improve a client’s life by New Money: Josh example? You may get a surface, present- helping that client thrive and create “inten- After decades of hard work, Josh’s waste- time answer such as: “Because I want to tional wealth”1 that is aligned with purpose disposal business has sold for a surprisingly help people.” But delving into the why and values, even if that means creating a large sum. The sale has been in the local

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news, and friends and neighbors now see The issues that most frequently arise with quest is likely “individuation”—to achieve a Josh and his family as rich. Over the both old-money clients and new-money sense of individuality separate from the one decades of building his business, Josh went clients are particularly instructive because she inhabited within her family before through many tough times and developed they highlight the differences between the receiving her money. Her identity question smart financial habits. He knows how to two groups. Below are descriptions of these is: “Who am I separate from my family?” generate income from his business, and he issues and recommendations for how to needs to know his financial advisor can give the work back. Identity: Giving the Work Back generate income from investments. Josh What does an advisor do with this informa- has a long-standing relationship with his Identity tion? Begin by not judging the client. accountant and his insurance advisor, and Like other transitions such as retirement, the Identity issues can be at the heart of prob- he has come to you because he is looking death of a spouse, or the signing of a profes- lematic spending and other regrettable for a financial advisor. sional sports contract, the “sudden money”2 decisions and behavior. By being aware of events that Dianna and Josh experienced your client’s challenge, you can see the Josh comes from solid middle-class stock— thrust them into positions where their iden- behavior as normal considering the transi- people who worked, saved, educated their tities are beginning to shift along with their tion, which should make it easier to pro- children, and paid their bills. He is the first circumstances. vide guidance. entrepreneur in his family and the first to have a large amount of wealth. He wants his When a struggle with identity arises, prob- Josh and Dianna each need some time— lifetime of hard work to last for genera- lems with spending and investing are usually and a “safe space”3—to think and feel tions. He has lived modestly with his wife, not far behind. People who aren’t clear about their way through to the people they are Karen, and their two teenagers. Karen is who they are or who they want to become becoming. For new-money clients, you overwhelmed by their new wealth; she are unable to identify why they behave the can expect to see some big-ticket spending never expected it and she wonders what it way they do. They will act from the place of in the beginning to celebrate the event. might mean to them as a family. The teen- frustration and struggle, and the results are This is what Grubman calls “rampart agers are already asking what they can do likely to be disappointing at best. spending,” where newly wealthy individu- and have now that they are rich. als spend on what they have long been William Bridges, the father of life transition denied. For those who had healthy rela- As the business sale started to become real, theory, would call Josh’s experience “disiden- tionships with money, their spending deci- Josh began to imagine owning a specific car, tification,” an experience between “loosening sions will revert back toward their previous taking the family on a luxury vacation, and the bonds” of the previous identity and tran- patterns, but for newcomers who never buying a waterfront home with a dock and a sitioning to the new identity (Bridges 2004, learned how to exercise good judgment, large boat. Meanwhile, Karen has read about 94). Josh is no longer a business owner with trouble lies ahead.4 families breaking up when they become all the patterns, norms, and people who had wealthy and she is worried about what will shaped his sense of who he was. With more Spending happen. She would rather remain in their wealth than any of his family members, Like many old-money individuals, Dianna current home and not show their wealth. friends, or neighbors, he wonders, “Who am is accustomed to living with means and free I now, without my business and with this from the financial grind. She has no illu- Commentary much money?” Disidentification is a fre- sion that she could replace the money if it Dianna’s story and Josh’s story have a lot in quent theme for new-money clients as they were lost or that she could earn the money common. Both clients are coming to you must navigate a new world. Family-wealth needed to maintain the lifestyle she enjoys. for help as they experience life transitions. consultant and author James Grubman calls That lifestyle has its origins in a family Transitions are challenging times full of this “immigration to the land of wealth” with unspoken guidelines of propriety and opportunity. At their core, they are really (Grubman et al. 2009). This is a struggle necessity in spending. Her definition of about change and adaptation. Linsky and with uncertainty that is about creating val- wants and needs has been created by Heifetz (2002) write about adaptive leader- ues and identity that are aligned. decades within a large family structure that ship and what people need to do during assumed a level of luxury she has come to times of change to successfully adapt. They Meanwhile, Dianna yearns to separate her- view as essential. She simply assumes she don’t need someone to fix whatever goes self from her family, but obviously not too will/can fund a certain level and quality wrong and tell them exactly what they need much. This is her opportunity to distin- of lifestyle. to do. They need to do their own work and guish herself from her family through her find their own way, with the patient guid- choice of advisors and through the deci- You can probably see Dianna’s potential ance of someone who understands where sions she makes. She needs to deconstruct problem from far away: She doesn’t know they are and what they need. Linsky and her family’s values and decide what to keep what it means to have limits on her spend- Heifetz call this “giving the work back.” and what’s no longer useful to her. Dianna’s ing. She understands the idea theoretically

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and firmly believes she is capable, but she Josh, it’s not about affordability. He could energy than staying put. But Josh isn’t in has no experience with budgets or allow- easily afford the kind of boat he has in the habit of taking the simplest course. He ances and hasn’t developed sound financial mind, for example, but buying it might not got to where he is by doing what he believes habits. She wants her new identity to match work well for his family—and that matters is best regardless of the time and energy the old one in lifestyle, but that might not to him. The goal of scenario testing for him involved. If he believes you are his best be realistic. Her challenge is to get comfort- is to find a way for his wife to ease into a choice, you will get his business. able with the idea of monthly limits and to more luxurious lifestyle. An alternative make lifestyle choices accordingly. regarding the boat is to join a luxury boat Advice and Advisor Teams: club to have access to a range of boats and Giving the Work Back Josh, on the other hand, wants a new life- meet other boaters in similar situations. For Dianna will need to find her own style of style as part of his new identity. He will be the waterfront home, an alternative is to managing a team of advisors, and she purchasing things for the first time and rent for a season or for the year to test it out might need help navigating that space. getting comfortable with his financial and see what that brings. Does she want you to find the other profes- freedom. He likely will do some rampart sionals and also manage the team? Does spending over the next year or two and Finally, all significant spending decisions she want to find her own professionals and then return to his reasonable habits. benefit from confirming intention and does she expect them to coordinate with Making certain Karen is on board with his motivation by articulating the why that each other? Is she hoping for a collaborative choices is important to Josh, because she drives the desire for the house, the boat, or team with a team leader? For Dianna, it sees their new wealth as a potential threat to make large gifts. When a client is facing may take time and a few mistakes for her to to their family. The primary challenge here competing goals or questionable choices, discover what works best. is getting Karen comfortable with the idea it’s critical to establish a habit of asking why of their wealth and blending their concerns the choice is important. What difference New-money clients like Josh have a chance and styles so that their family unit doesn’t will it make if they take that action? What to think about how to organize themselves. become unrecognizable to her. difference will it make if they do not? Who They don’t have an established structure to will benefit and who might be harmed? follow and they require time to discover Spending: Giving the Work Back what they need and to create it. With Sometimes the primary question with Advice and Advisor Teams liquidity events that create first-time regard to spending really is, “Can I afford Perhaps the most dramatic difference wealth, even successful business owners this?” Traditional scenario testing addresses between old-money and new-money clients like Josh are in a whole new arena regard- that question and will include, for instance, is in their history of advice, governance, ing investing and will need guidance that is alternative scenarios to Dianna’s impulse to and structure. Both need a team of advisors different from anything they have experi- take on an expensive home. For both old- with various specialties that the average enced. Josh is a novice in a world where and new-money clients, it’s again helpful to investor wouldn’t need. This will not be a sophisticated, complex options are com- normalize their experiences by explaining new idea to Dianna, but that’s not necessar- monplace. He needs an expert to educate that exploring and trying out new possibili- ily an advantage in that she will have family him but not to tell him what to do. It’s vital ties is an important part of transitions. This members wanting to know what kind of that the expert be a skillful listener and exploration takes time, by nature, because advice she is getting and how she is invested. communicator in order to anticipate or the goal is to comfortably organize and Old-money families usually have a long respond to what Josh needs to know with- slow down big decisions that may be diffi- history of managing money their own way, out being condescending. This is not a cult to reverse if they don’t fit. so a new advisor or advisors will have to teacher-pupil relationship, it’s one of become comfortable with the family team collaboration. The regular running of “what if?” scenarios having some presence, even if from the can help. Use the client’s ideas and expecta- sidelines. Dianna’s family and its advisors Furthermore, Josh is used to working on tions around interest rates, cash-flow needs, will be watchful and may be distrustful of his own without his wife’s input, but she’s and other variables. Establishing this prac- her advisors. now a big part of the decision-making pro- tice makes it easier when the difficulties cess. Advisors Josh chooses must know arise, because then they are just another Josh, on the other hand, might always be how to work with a person who appears to time you run alternative scenarios, such as pitched on deals and urged to meet with be the decision-maker but might not be. renting versus owning, small gifts versus other wealth advisors; there will be compe- They must know that gaining Karen’s trust large gifts, or waiting a few years rather tition for all or parts of his business. It is and providing a process for her to work than acting now. likely his investment bankers will want the through her own adaptation is key. money to stay in-house, which would be Josh’s story reminds us that not all scenario the simplest course for Josh, because mak- testing will be focused on numbers. For ing a move always takes more time and Continued on page 30 ➧

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© 2016 Investment Management Consultants Association Inc. Reprinted with permission. All rights reserved. OLD MONEY AND NEW MONEY approach the two types of clients in appro- Endnotes 1. See Pullen (2013). Continued from page 18 priate ways. We need to have suitable tools 2. See Bradley (2000). and processes for their distinctive perspec- 3. See Linsky and Heifitz (2002). Summary 4. Correspondence by e-mail with James Grubman tives. We need to allow them the time and (June 15, 2016). Money has two sides—the technical and the space to discover who they are and what personal. They are equally important and they value. Only then can we co-create their References Bradley, Susan. 2000. Sudden Money: Managing a equally complex. But it’s the personal side highest outcomes. Financial Windfall. New York: Wiley. that drives financial decision-making. My Bridges, William. 2004. Transitions: Making Sense of Life’s Transitions. Boston: Da Capo. ® ® experience with and study of old-money Susan Bradley, CFP , CeFT , is founder of Grubman, James, Dennis Jaffe, and Keith Whitaker. 2009. and new-money clients provides abundant The Sudden Money Institute, a resource cen- Immigration to the Land of Wealth. Private Wealth Magazine (March/April). http://www.fa-mag.com/news/ confirmation of this reality, which is finally ter for the newly wealthy and their advisors. immigration-to-the-land-of-wealth-4610.html?issue=125. getting recognized in our industry. The She is the author of Sudden Money: Linsky, Marty, and Ronald Heifetz. 2002. Leadership on the Line: Staying Alive through the Dangers of internal work old-money clients need to do Managing a Financial Windfall, and she has Leading. Boston: Harvard Business Review Press. is distinct from the work that new-money spent 16 years developing the Certified Pullen, Courtney. 2013. Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health. ® clients need to do. We need to do more than Financial Transitionist designation. Contact Wheatridge, CO: Pullen Consulting Group. be cognizant of the distinctions; we need to her at [email protected].

To take the CE uiz online, visit www.IMCA.org/IWMuiz

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