The strategy that’s driving U.S. Bancorp’s ultra-high net worth wealth management practice is based on the idea that to preserve wealth over generations, even the best investment and tax advice is not nearly enough.
What’s required as well is the skill to lead client family members to a shared vision about what the money’s purpose should be. It’s getting parents talking to children and other family members and coming to some agreement on what they really value.
Of course, this approach works equally well for successfully transferring fortunes a fraction of the size of the $50 million or more that U.S. Bank’s Ascent Private Capital Management team is targeting.
It’s curious that affluent people eagerly lap up advice on tax strategies and investment funds and insurance policies when they ought to be paying just as much attention to what their kids are learning about money.
U.S. Bank, like other banks, organizes its business into a tiered approach by how much wealth the target client has. Ascent works the top tier, and for $50 million or more to not last into a third generation, it would almost have to be actively mismanaged.
Of course, that is what happens frequently.
“There’s a 70 percent failure rate in transferring wealth to the next generation and beyond,” said Michael Cole, the president of Ascent. “By failure I mean the wealth is dissipated. It’s just gone.”
Cole — who came to U.S. Bank in 2010 to form the unit, which now has 56 families as clients — is alluding to work by the consultants Roy Williams and Vic Preisser, whose 2003 book, “Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values,” was based upon their study of 3,250 families.
The failures almost always occurred inside a family. About 60 percent of the time it was a breakdown of communication between family members. About 25 percent of the time it was due to poorly prepared heirs. Very few were due to errors made by accounting, legal, tax or investment advisers.
So, Cole said, he and his team wanted to move beyond traditional advisory services in creating Ascent, a new business and brand for a company that has managed family wealth for generations.
He said they were after “an experiential model,” trying to capture a bit of the magic companies like Apple have created for their customers that leads to a higher level of passion and interest.
Ascent’s Minneapolis office actually looks a little like a place where you’d buy an iPad. It’s very bright, with light-colored surfaces and furnishings and lots of glass. There are rows of see-through offices and walls clients can draw on with markers.
Cole said they were trying to look like a combination wealth management office, club and university classroom.
A lot of the teaching revolves around what Ascent calls “wealth impact planning,” trying to lead a family to a common purpose for their wealth and thus avoid some of the issues that caused 70 percent of families to lose control of their money in the big Williams study. One good outcome may be investing some capital in an industry or initiative with a mission that is shared passionately by family members.
Jose Peris, the regional managing director in Minneapolis for Ascent, said entrepreneurs in particular wrestle with the question of purpose, what they get out of a life spent building a business. They worry that their wealthy kids and grandkids will have no animating sense of purpose.
The striking thing, however, is how similar in many ways these concerns are to people who may have a tiny sliver of $50 million at the end of their working lives.
Jerry “JJ” Johnson is a financial adviser with Thrivent Financial for Lutherans who has worked with middle-class families since 1978. While Ascent facilitates a family retreat for clients, Johnson recommends what he calls the “family meeting.”
“It gives me some comfort that the big money has the same problem that the little money people have,” he said, meaning his typical client with $500,000 to $1.5 million in financial assets.
Johnson can’t claim a background in industrial psychology like an Ascent coach, but as he discusses the questions he puts to his clients, it’s clear he is focusing them on similar issues, like purpose or fears that the heirs will just blow all the savings.
“It starts with the question of ‘Where did you get your money values,’ ” he said. “ ‘What do you wish the generation before you had done? How are your kids getting their values? And what do you wished they asked you?’ That becomes the basis of ‘Well, maybe it’s time you ought to talk to your kids about this.’ ”
He said his clients generally don’t want their money to change their kids’ lives, such as letting them stop working. Mostly, he said, they would like to provide a little financial security. By getting them to define what they mean by security, he said, he can put concrete numbers into a plan.
It’s a process, he said, and the sooner clients start, the better. As he put it, “passing money down is a lot easier than passing down values.”