- No one wants to talk about money with their children, including the uber-wealthy.
- 23% of families worth $50 million or more hide their riches from young heirs, per a JPMorgan survey.
- Bankers to elite families told BI why it's a recipe for disaster and tips on how to break the news.
Rich families across the globe are concerned about how to prepare their children to manage their wealth, but few are doing anything about it.
According to a survey by JPMorgan, 69% of ultra-wealthy families cite succession planning as a top priority. And yet, 29% do not have any plans to get the next generation ready. Worse, nearly a quarter (23%) hide the extent of their wealth from younger family members.
Older generations keeping heirs in the dark is an age-old problem, according to Elisa Shevlin Rizzo, head of family advisory at JPMorgan's private bank unit. That said, she attributed some of the reluctance to many of these family offices being formed within the past 10 or even five years.
"Conversations about wealth can be challenging and, in our experience, families often have found it difficult to get started," she told Business Insider.
The survey, conducted from October through December last year, received responses from 190 single-family offices, with three-quarters based in the US. The respondents supervised at least $50 million in assets, reporting an average of $864.6 million.
This strategy — or lack thereof — is unrealistic when heirs have an abundance of information at their fingertips, the report noted. They can look up their parents' homes on Zillow or find their grandparents on the Forbes Billionaires list. Perhaps this is why richer families are more transparent as the survey found. Only 15% of family offices with at least $1 billion in assets kept heirs unaware compared with 27% for firms with $50 million to $500 million.
While avoidance was the fifth most common strategy for "preparing" the next generation, more popular answers included encouraging philanthropy and involving heirs in the family business.
It is easier to take a multi-step approach rather than disclosing everything to heirs at once, according to Goldman Sachs' Carra Cote-Ackah.
"Some people do try to keep it hidden for a long time, but it's much more preferable to actually work with the kids and to pull the curtain back slowly and say to them, 'This is an educational journey. We're here to support you on it,'" Cote-Ackah told Business Insider in February.
Parents should make sure they are on the same page about the purpose of their wealth, said the head of philanthropy and legacy planning at the bank. This education can start early with teaching kids as young as four and five how to save for a toy or wait for birthday money.
Before they head to college, they should know the broad strokes of their family fortune. While every child is different, she recommended that parents save full disclosure for when their children are 25, the age when their brains are believed to be fully developed.
Goldman Sachs has an online class for high-school-aged children of wealth clients that tackles stocks and investing. But the topic of wealth planning is sticky for many financial executives, as one family office CEO told UBS in a survey last year.
"A few years ago we had discussions with the family where we tried to articulate values. The result was something that we struggled to embed into the family," the CEO said. "It's very difficult, and especially so for the finance professionals who are used to dealing with less emotional topics."
While the rich are not like us, this is a common issue. A recent study conducted by financial advisory Edward Jones found that 35% of Americans don't plan to talk about their inheritance with their family.
