Estimate Time8 min

If money talks, so should you

How much capital does your family have? Is there enough to secure a stable and happy future for you and your children, or even your children’s children?

For anyone dealing with wealth transfer concerns, these are likely familiar questions. But what many families often fail to see is the opportunity to build "relationship capital" through engaging conversations—a more intangible but equally important step to incorporate when you are establishing your family’s wealth planning goals, according to Tim Habbershon, Managing Director at Fidelity.

Here, Habbershon discusses 4 guiding principles to help build relationship capital in a family:

Defining relationship capital

I have spent my career working with wealthy families to develop strategies for moving their assets over the course of time. Traditionally, the word “assets” is used to refer to tangible items with monetary value—businesses, possessions, and liquid wealth—that are most commonly the focus of estate planning and wealth transfer conversations. But assets also involve intangible things, such as relationships, legacy values, and plans for the future, and often require a long time (or even a lifetime) to pass down to loved ones.

In my work, I define relationship capital as “the relational reserve of goodwill that allows families to talk about anything.” “Reserve” must be built up over time to be there when needed, and “goodwill” captures the richness and complexity that is required to create an open dialogue. Goodwill also encompasses trust, loyalty, positive beliefs, benefit of the doubt, honesty, transparency, safety, grace, forgiveness, a commitment to communicate, and much more. I believe each of these individual components must be a focus of relationship building within a family.

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Hope is not a method

My passion is to help families conduct conversations and develop relationship skills that allow them to plan their wealth transfer and have healthier, more intimate family relationships as a result of the process. Wow! Exciting, right? Not only can you successfully transition your financial assets, but you can actually use the process to create a stronger family and build relationship capital.

If you want to strengthen your family, you can’t just “hope” it will happen. In fact, the natural tendency in most families is to avoid communicating about wealth and transition of assets, and for senior generation family members to do their planning behind a cloak of secrecy and relationship isolation.

So, is there a way to defy this family tendency? I believe there is if you follow the 4 guiding principles outlined below, each illustrated with a hypothetical example based on real-life scenarios.

Guiding principle No. 1: "Normalize" wealth and planning

When family topics become supercharged, hidden, or fear-based, they can go unaddressed, and thus create emotional distance, resentment, and a lack of individual and family integration. Take the example of a family in which the parents were first-generation entrepreneurial wealth creators. Because growing up wealthy wasn’t normal to them, they did not know how to talk about finances with their children, so they literally masked their total assets by covering all but the signature line on their children's tax documents each year.

Because the parents treated their offspring like immature children well into their 20s, the result was deep resentment. When they finally agreed to disclose their wealth, they had their attorney handle the conversation, instead of using it as an opportunity to create intimacy and build relationship capital with their kids. The subsequent fallout with their children required a family intervention to resolve, and to deal with their history of wealth secrecy.

That is why it’s so important to normalize the discussion of wealth by talking early and often about money. This can be done by holding discussions when your children are young about investing and saving, having a proper work ethic, how to provide for family members in the future, and how to help others in need.

Guiding principle No. 2: Have the right people talking about the right things at the right time in the right way

Conversely, most communication conflict comes when we have the wrong people talking about the wrong things at the wrong time in the wrong way—including no one talking about anything.

This is what happened when a senior generation family member called his wife and 4 children together for dinner in order to make an "announcement." His objective was to inspire the next generation to be active philanthropists, but instead his surprise declaration regarding his plans to distribute his fortune had the opposite effect, causing the family to criticize his decision and gang up on him.

If he had met with each member individually and fostered a 2-way dialogue and feedback before bringing everyone together for a thoughtful discussion, he would likely have achieved his goal. Instead, he got what he most feared: an evening that ended in fractured family relations, and a lost opportunity to inspire his children about his philanthropic vision.

A better approach may be to empower your family. First, let everyone know that they have a role in the wealth discussion and planning process (an age-appropriate role, of course). Second, define the different roles people have, determine what the content of the different conversations should be, decide when and how different people will be involved, and declare what effective family communication looks like. I believe this maxim should be a lifetime principle for families, but it also happens to work well in helping to direct the wealth and planning conversation.

Guiding principle No. 3: Follow the “voice, not vote” rule

When I suggest that all family members have a role in the planning process, it can create fear in older family members, who think I am saying that everyone gets a vote. In fact, I don’t believe families are a democracy. (Sorry, kids.) I think decision control should be defined by the person who owns the assets.

And I believe the general rule should be this: The more impact a decision has on a family member, the more voice you should give them. Even at a young age, giving a voice to children builds self-respect, teaches them how to ask questions and express opinions, and gives them a sense of destiny and influence over their future.

A classic example of a decision made without the "voice, not vote" principle is one pertaining to a senior-generation business owner and father who made asset distribution decisions involving his children based only on assumptions. While living, he chose to give his business to the one son he assumed had a vested interest. He then gave a large amount of cash to a second son he assumed had no interest in the business, and gave other possessions and property to his daughters.

Because this was done with no prior family conversation, his children had no "voice," and therefore their individual wishes were not apparent. Thankfully, a happy ending was achieved after he was encouraged to have an open conversation about his decisions. He then learned that one of the daughters was very interested in working in the family business, and all 4 children preferred to be shareholders and stay connected to the legacy.

In the end, the father’s estate planning was realigned to accommodate the voices of his children, resulting in a unified family vision.

Guiding principle No. 4: Build on wish, not fear

Think about the incredible tension between "wish" and "fear" when it comes to family nurturing. People typically have a strong innate family wish around relationships, dreams, lifetime goals, and the family legacy. And yet, so many of our actions and decisions within our families are driven by fear, which can destroy the wish.

Take parenting, for example. Many of us “wish” for our children to be independent, but our “fears” keep us from letting them spread their wings and make their own decisions. We wish for them to have a strong voice in life, but our fear of losing control keeps us from giving them a voice with us. We wish for them to have financial security from our efforts, but our fear that they may become spoiled and entitled keeps us from engaging them in conversations around wealth and planning for the future.

In order to build relationship capital, families must embrace the wish over the fear. And in my experience, the wish is always under the surface as the inverse of the expressed fear. Often, when I am talking with families and I hear their fears coming through, I stop the conversation and ask, “Where’s the wish?” With some reflective coaching they can reengage with the wish and discuss the behaviors that are associated with the wish versus the fear. In your wealth and transition planning process, I suggest embracing the principle of seeking the wish.

Relationship capital is an outcome

I believe that following the 4 guiding principles above can help to slowly build a reserve of goodwill in a family. And what is the ultimate goal of developing such a robust portfolio of relationship capital? To be able to talk about anything! This might sound idealistic, but when there is relationship capital in play, communication capabilities are much more extensive, allowing the “anything” to include the full range of wealth planning topics and strategies, unfettered by constrained family dynamics.

When your family brings relationship capital to the table in estate planning and asset transfer discussions with a financial advisor, I believe you may have a greater opportunity to leave a legacy of both monetary and emotional wealth to your loved ones.

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The information presented above reflects the opinions of Tim Habbershon. These opinions do not necessarily represent the views of Fidelity or any other person in the Fidelity organization and are subject to change at any time based on market or other conditions. Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.

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