Are Your Clients the Cosbys or the Sopranos?: Assessing Family Complexity in Wealth Management James A. Grubman and Dennis T. Jaffei

Assessing Family Complexity article – draft v9-20-2010

                     Are Your Clients the Cosbys or the Sopranos?:
                  Assessing Family Complexity in Wealth Management

                            James A. Grubman and Dennis T. Jaffei

You get a phone call from the patriarch in a prospective client family. He wants to interview your firm as a
potential wealth manager. When you meet, the discussion about assets is clear, you are entranced by the $45
million account, and the patriarch seems like a strong, dynamic entrepreneur you’d love to work with. You
get a little concerned when he refers offhandedly to some complex dynamics within the family. Something in
his disparaging tone sounds a distant alarm in your head. You ignore that, enticed by the new business. You
focus on the potential revenue as you rebuild assets under management and keep staff busy. In a subsequent
meeting, you propose a fee just profitable enough to get the client on board. The deal is sealed. Now you
have to live with the agreement you just made.
As you get to know the client, you learn the patriarch is disdainful about his entire family, especially his older
son who has not found his way in life and is a serious overspender. The client is on his third wife, and there
are significant tensions between her and all three of his grown children. He has not shared his estate plan with
anyone in the family. At 79, he is adamant he will never give up control over his wealth. You have no idea
what the other members of his family want from the wealth they will eventually inherit. Yet they will be your
clients if something happens to the patriarch.
Are any of these concerns for you? Or do you expect to act purely as a fiduciary for the money, not the
people involved with it? How will these issues impact how you make decisions and how the family views
your service to them?
The Importance of Assessing Family Complexity
Accurate upfront assessment of client families can influence many important factors: allocation of resources,
choice of relationship manager to assign, likely profitability, stresses on your advisors and administrative staff,
and the impact on other accounts due to time spent on high-maintenance clients. Avoiding costly mistakes
can make the difference between successful client relationships and those that end in failure, badmouthing of
your firm by the client or his referral source, or even litigation.
To help you - advisors to high-net-worth (HNW) and ultra-high-net worth (UHNW) clients - we offer a
practical approach to differentiating those families that function well even under crisis (think, the family on
The Cosby Show) to families so dysfunctional they are never out of crisis (think, The Sopranos). This may allow
you to offer client families the best financial advice with the least damage to your firm’s staff and the bottom
line.
The Two Dimensions of Client Complexity
We have described elsewhereii a conceptual model that organizes wealth management services along two
dimensions: one that defines the financial complexity of the services to be performed, and one that defines
the complexity of the client’s personal and family dynamics.
[insert Figure 1 here]
When the complexity of personal or family dynamics is low, advisors can focus primarily on wealth
management services. But when personal and family dynamics increase in complexity, their presence trumps
anything attempted on the technical side. Skilful management of family dynamics reopens and improves the
delivery of legal, tax, trust, and financial services.
This Two-Axis Model naturally leads to a division of labor over who should be primarily responsible for
managing client situations arrayed along the personal/family-dynamics axis. For straightforward client
situations without much intrusion by psychological issues, the front-line relationship manager (RM; also called

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the senior client advisor or family wealth advisor) should carry the ball. We have advocatediii that wealth
management firms should be able to provide a spectrum of services and experts to supplement the RM’s role,
matching family complexity with increasingly specialized expert consultation. Services can be in-house or on
referral. This avoids the common situations where RMs are expected to cope with highly complex family
dynamics far beyond their skill level, or where RMs stick to what they know but leave clients floundering in
family dynamics problems without guidance or assistance.
Factors in Family Complexity
The concept of wealth complexity units has emerged in recent years iv to anticipate the service needs for a given
family more accurately and to determine a pricing model more likely to assure profitability. Going beyond
just the basics of account size, wealth complexity units are a function of factors such as number of trusts,
financial entities, family branch members, global versus domestic residences, and international holdings.
These factors are essentially units along the financial dimension of the Two Axis Model. As the number of
wealth complexity units go up, families are ranked higher in financial complexity.
Yet, two families possessing $45 million in assets – even with similar wealth complexity units - can be
completely different to serve depending on the frequency and emotional intensity of their phone calls, the
tenor of their quarterly meetings, and their constant demands for services beyond the account agreement.
What of the family complexity units that determine service planning, service delivery, staff resource allocation,
pricing, and profitability, perhaps even more than wealth complexity units? We suggest six key factors may
contribute strongly to the level of complexity in the area of family dynamics:
Level of conflict: Ranking at the top is the degree to which conflict is present in a family. This includes how
long the conflict has existed, how widespread and entrenched in the family it may be, and whether it lurks
constantly beneath the surface or prowls family meetings with claws extended to maul as many family
members as it can. When a family member is openly hostile or contemptuous to another you should be alert
to the issues that lie beneath (which are often not what family members may initially say). Moreover, when
there is conflict to a pernicious degree, advisors are never spared. Ask any experienced wealth manager about
client families in constant conflict, and he will show you the wounds on his own back.
Conflict in itself is not a danger sign. Conflict is a natural and sometimes necessary part of life and family.
The key differences are in the quality of the conflict, not its presence or absence. Conflict that is situational,
appropriate to the issues needing resolution, and managed through respectful communication is a time of
crisis to be navigated, not a state of war to be endured over generations. The key is whether the parties are
able to openly share their differences and make the effort to resolve them.
Communication style: Open, active, and reasonably transparent communication within a client family bodes
well, not only for how they treat each other but for how they will treat you. When good communication is
present, complexity is lower. A mid-level of complexity comes from a communication style that avoids or
smoothes over even reasonable conflict in service of “family harmony” that leaves issues unresolved.
Though this is common in wealthy families, heavily stifled communication means the family will be
vulnerable to even normal stresses. This is especially important when there are significant differences across
generations, and when the younger generation does not feel heard. Families that hold one or more significant
secrets, actively punish or suppress anyone who attempts open communication, or interacts in a manner
disparaging of family members should be taken most seriously. Lack of openness makes it difficult to resolve
issues and leads to the advisor getting caught in the middle.
Level of fairness: Healthy families have a basic sense of justice in their dealings with each other and
advisors. Being able to balance conflicting needs, valuing justice over competition, and making careful rather
than expedient decisions are contributors to long-term harmony by avoiding rifts or serious jealousies. Fair
and caring decision-making allows members to trust each other and work out stresses. Sometimes, however,
because of events in the family history, different family members feel very differently about what is fair. A
lack of shared governance and a history of inequitable decisions teaches family members they are likely to be
treated unfairly. They therefore must fight for what they want or defend themselves from others.

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Governance and decision-making: Most client families have the first-generation entrepreneur being at the
head of the family, making most if not all of the decisions regarding wealth management and other issues. If
the decision-maker at least solicits opinions and listens to other family members, particularly in the next
generation, this can work reasonably well. Families with more collaborative and distributed decision-making
tend to handle stresses as they occur rather than let things fester or escalate. These families typically employ
effective formalized structures, policies, and activities (e.g., family councils, governance policies, and regular
meetings).
When decision-making is highly rigid, completely centralized or highly splintered, and actively resistant to
input from other family members, family complexity units go way up. Poor governance and decision-making
provoke conflict, create a sense of injustice, shut down communication, and destroy trust. At points of
transition such as succession planning, the family is likely to experience significant stress, increased conflict,
and increased demands for service.
Presence of addictions: Though it’s not at all unusual for affluent families to have alcoholism, drug abuse, or
some degree of over-spending, the presence of addiction in its various forms does elevate family complexity.
This is especially serious when the family avoids talking about or facing the addiction directly as an issue, even
when some discussion is necessary for good planning or implementation of services. When there are multiple
family members with addictions (including severe overspending), particularly at a severe level, client families
are much more difficult to work with.
Understand that families with addictions share a variety of characteristics that are problematic in the very
ways we have listed above. These families are often highly rigid, harbor multiple secrets, deal poorly with
conflict, have black-and-white/all-or-none thinking, and communicate poorly around even the normal
stresses of life. They can act like it’s more important to protect the secret of their addictions then to get help
in resolving it. The presence of addictions is therefore a marker the family may have other negative
characteristics that drive up family complexity.
Situational Factors: The factors listed so far are characteristic of the family itself which can elevate
complexity on a broad and deep basis. Superimposed on these are the many stresses of life that can worsen
family functioning on a situational basis, but which you as an advisor may have to contend with. Resilient
families tend to weather these situational stresses relatively well, whereas dysfunctional families may splinter
and deteriorate. Such stresses include when people enter or leave a family system or suffer major impairment.
New in-laws can, for example, precipitate a family’s having to make decisions about how it is going to handle
outside people coming into family relationships. Other examples include medical crises such as cancer or
dementia, particularly in a leader in the family, or the diagnosis of severe mental illness such as bipolar
disorder. The departure of an important person due to death, disability, or relocation can destabilize a family,
upping family complexity.
Green for Go, Yellow for Caution, Red for…?
Figure 2 shows the six factors arrayed in columns alongside the axis of personal and family dynamics. Using a
simple stoplight analogyv, we envision three levels along this dimension: Green-zone, Yellow-zone, and Red-
zone clients. At the beginning of a client engagement and at annual reviews, you may want to place
checkmarks in each column about where you see the client. A quick glance will alert you to clients well into
the higher levels of personal or family complexity, compared to those clients you evaluate as less complex or
difficult.
[Insert Figure 2 here]
The characteristics and recommendations about each zone are listed below:
Green zone clients are those wonderful, easy-to-work-with clients who benefit from advice, collaborate with
advisors well, communicate reasonably as a family, and work toward their individual and common goals.
These client families are most likely to benefit from your work and are often considered “low-maintenance”
clients who manage stress and are resilient. Our major recommendation is to enjoy them and be glad you

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have them. You can also use them for training new client advisors in preparation for working with more
difficult clients requiring greater skill.
Yellow zone clients are that group who struggle to a greater or lesser degree with their wealth, families, and,
occasionally, you but who are workable under most circumstances. It’s important you take the time to learn
about their family dynamics in order to be aware of their strengths and weaknesses, their methods of
communication and governance, and their vulnerabilities. Choose front-line advisors for these clients
carefully to match the level of family-dynamics skill to what these clients may need. Be careful of your pricing
for Yellow-zone clients since they can escalate in demands for service if crises occur or you mismanage them,
leading to an escalation in their level of family complexity and conflict.
Red-zone clients are that small but high-maintenance cohort who are the most difficult to work with and
who take the largest toll on you and your firm. A reliable advance warning of the Red-zone client is the
referral source who, when making the referral, apologizes to you for introducing you to the client. These
clients have many of the markers of severe family complexity: high conflict, poor communication, a history of
rifts or major fights within or outside the family, overly rigid or splintered decision-making, addictions, and
chronic crises. As one family-office executive put it, “I know when it’s Client X on the Caller ID, I just want
to let it go to voicemail. Otherwise, I have to gear myself up to take the call.”
What can you do if you have a Red-zone client? First, protect yourself and your staff from burnout. If
possible, choose a front-line advisor with the skills for handling a difficult client engagement. Even then,
keep expectations low. Provide much emotional and logistical support to that advisor to maximize the
chances of success and to reduce stress rippling through the advisory team. Second, try to price the
engagement realistically for the service demands likely to occur. Few things are more aggravating than
providing lots of service to a difficult, demanding, unappreciative client, knowing you priced the engagement
low to get them in the door. Prepare to have ongoing fee discussions that match fees to service demands as
best you can, or accept that the client may take his business elsewhere (with apologies to the next wealth
manager in line). Be able to set limits with Red-zone clients either on service demands or fees, or you will
live to regret your “flexibility” on the account.
Matching Services and Professionals to the Right Level of Complexity
Many missteps in wealth management are the result of mismatches between the needs of the family and the
approach taken by the wealth management firm or professional. Make sure your services and skills are
consistent with the level your clients are rated as needing due to their family complexity. Figure 3 shows a
method of allocating resources to Green, Yellow, and Red zone clients:
[Insert Figure 3 here]
For your part, monitor Yellow-zone clients closely in order to offer supplemental resources or expert
consultation if the situation demands more expertise than you or your advisors have. With these at-risk
clients, an important skill is knowing how to make referrals to family-dynamics experts or mental-health
professionals in a diplomatic manner that hopefully includes good collaboration with the outside expert. Be
ready to access the growing number of financially-trained therapists, family business consultants, and family
wealth counselors who can either advise you or take on the client in conjunction with your services. Yellow-
zone clients can escalate into Red-zone clients if you are not careful or if you underestimate their complexity.
This is even more imperative with Red zone clients. Be careful of getting too drawn in to try to fix the family
issues you see unless you have solid training in family dynamics. Red-zone clients need highly expert
consultation by both advisors and outside professionals. However, don’t assume the entrenched Red-zone
client will respond to even highly-skilled family dynamics consultants. Clients deep in the Red zone can be
impervious to the best efforts of experienced professionals, leaving in their wake a series of fired consultants
and failed referrals. Finally, know the point where you will simply end the engagement due to the unsatisfying
nature of the client relationship and the many costs to you and the firm.
Summary

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These guidelines may help you predict which client family is as enjoyable as The Cosbys or as deadly as The
Sopranos. The more you understand, take seriously, and respond appropriately to the family complexities of
your clients, the more you will be able to allocate resources profitably and save yourself time, trouble, and
burnout.

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Figure 1. Examples of client situations using the Two-Axis Model of Financial Advising (from
Grubman and Jaffe [2010])

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Figure 2. A graphical method of rating clients along the six factors of family complexity.

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Figure 3. Green, yellow and red zones of client types, with recommendations about resource
allocation at each level. (adapted from Grubman and Jaffe [2010])

ENDNOTES

i Short bio information: James Grubman PhD is a psychologist and consultant to families of wealth, their advisors, and
other resources in the financial services industry. His practice, FamilyWealth Consulting, is based in western
Massachusetts. Email: jim@jamesgrubman.com. Website:www.jamesgrubman.com. Dennis Jaffe PhD is a professor
of organizational systems and psychology at Saybrook University in San Francisco, and an advisor to families about
family business, governance, succession, wealth and philanthropy. He is author of several books including Stewardship in
your Family Enterprise: Developing Responsible Family Leadership Across Generations. Email: djaffe@saybrook.edu. Website:
dennisjaffe.com
ii Grubman, James (2006). A Two-Axis Model of Financial Advising, website article, www.JamesGrubman.com;

Grubman, James and Keith Whitaker (2008). A Two-Axis Model of Financial Advising, FFI Practitioner, November;
Grubman, James and Dennis Jaffe, (2010). Client Relationships and Family Dynamics: Core Competencies and Services
for Truly Integrated Wealth Management. Journal of Wealth Management, Summer, pp. 16-31.

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  Grubman and Jaffe (2010).
iii
ivGluck, A. (2008) Fixing AUM Fees. Financial Advisor Magazine, October.; Family Office Exchange (2008). Pricing for
Profitability study; IMCA (2006). An Interview with Charlotte Beyer. The Monitor, September.
v We gratefully acknowledge the thoughtful contributions of Keith Whitaker and Susan Massenzio of Wise Counsel

Research who had first suggested a stoplight metaphor during early discussions of the Two-Axis Model.