Beyond the Portfolio: How Families Can Master the Human Side of the Great Wealth Transfer

Over the next two decades, an estimated $84 trillion is expected to pass from one generation to the next in what’s become known as the Great Wealth Transfer. Much of the public conversation has centered on the financial mechanics — estate documents, trusts, and investment portfolios — but according to Mark Murphy, CEO of Northeast Private Client Group, the families who navigate this transition most successfully are the ones who invest just as much in their people as they do in their paperwork.

Murphy discusses why preparing heirs is often overlooked, how families can start having harder conversations about money, and what practical steps parents and grandparents can take today to set the next generation up for long-term success.

CM: What do families most frequently misunderstand about the Great Wealth Transfer?

MM: People misunderstand that it is far easier to make the money than to keep it.

CM: What are the most common interpersonal problems that derail otherwise sound wealth-transfer strategies?

MM: Money is never math. It’s always psychological and people are emotional. I often tell people to take your right hand and put it on the right side of your head and take your left hand and put it on the left side of your head, and then I say, the problem is in your hands.

One of my favorite cases of all time was when I was a young advisor in my mid-20s, and I saw two 70 plus year old brothers literally having a fist fight in the conference room over stuff that went on when they were seven years old. So, until they could get through that, nothing about money was going to work.

I think sometimes when parents leave money to the kids, there can be a lot of heartache. Sometimes the child has parents who are larger than life figures, and they don’t know how to walk in that shadow. There can also be resentment because while they understand their parents made a lot of money, it came at the expense of not spending much time with them as children. There may be hard feelings because they weren’t seen as children while mom and dad were building their wealth.

CM: What’s the advisor’s role in facilitating these family conversations, versus just managing the money?

MM: The advisor’s role in facilitating family conversations is very important. Sometimes families have strained or unique ways of communicating with each other. The advisor can come in and see things from all sides. I refer to it as the 600-pound spoon concept. I can look at a spoon and say, this is just a spoon. I can pick it up, no problem. For many people, that spoon weighs 600 pounds. An advisor can have conversations and say things that will be heard differently by the parties, particularly once you’ve created a high trust relationship.

CM: Can you share an example of a family that got this right — what made the difference?

MM: I have a lot of families that have gotten it right. Far more have gotten it wrong. But I think it starts with the very fact that they don’t get away from their values.

One of our most important clients is four generations deep and one of the things I appreciate about this family is that they’ve instilled a hard work ethic into every generation. When the first generation graduated college, they made their son go to work right away. He graduated on a Saturday, then went to work at 6 AM on Monday morning.

The third generation, when they graduated from college, they said, hey, dad. I’m going to go to Europe for a month after college. He said, no, we’ll see you at 6 AM on Monday morning and you’re going to start at the bottom just like your grandfather and your father did.

It’s important for children to have that experience of starting at the bottom. You are doing a disservice to a child not to allow them to have all of the struggles that every wealth builder has had.

One of my favorite expressions really helps paint this picture. If a bird is born, and the egg falls to the ground, and breaks, the bird’s wings will never be strong enough to fly, and it will be eaten by its predators. For a bird, the exercise of breaking out of their shell helps get their wings strong enough so they can fly. Many times, inadvertently with wealth transfer, we think we’re doing the right thing by our kids, but we prevent them from flying.

CM: Conversely, what’s a common mistake you see families make that undermines an otherwise solid financial plan?

MM: My number one rule is you must pay the children market value. That means you must pay them what the job is worth if you bring them into a family business. Oftentimes, you’ll see people who say, I have to pay my daughter X amount because she needs that to buy a house. But if the job’s only worth $100,000 a year and the family’s paying her $250,000, that’s the beginning of ruination. It’s the beginning of entitlement.

I’ve also found in a lot of companies, once you’re paying people more than they’re worth, that hurts the company. It sometimes makes the company unsaleable and creates resentments.

CM: How often should a multigenerational wealth plan be reviewed and updated?

MM: I think that a multigenerational plan should be reviewed no less than every two years, but ideally, every year.

And that’s assuming that nothing remarkable is going on. I think it’s incumbent upon the advisor to do it at least on an annual basis, but to also insist the attorney and accountant be involved, even if that sometimes costs the client money in fees.

CM: What’s one piece of advice you’d give to someone who’s about to inherit significant wealth?

MM: The best piece of advice I could give somebody ready to inherit significant wealth don’t be wasteful and don’t believe that money or things will make you happier. I always say if you have a lot of money, you’re rich, but you should focus on being wealthy. And being wealthy not only includes having money, but it includes having people to care about you. It includes having a really well thought out purposeful life. It also allows you to think about other people, which doesn’t mean you should give all your money away. But I think it’s something that you should consider. Think about how you can impact other people in a positive way and how you can make a difference in the lives of the people you touch.

CM: What’s one piece of advice you’d give to someone who’s about to pass wealth down?

MM: Don’t control it once you’ve given it and certainly don’t control it from the grave.

More than once, I’ve read wills that have essentially said, “give this money to my child when I die, but they can only invest it in these six stocks.” And in a few cases, all six of those companies no longer existed.

It’s one thing if you have minor children or children that may have some impulsivity issues or things where it’s best not to give them control of the assets, but for the most part, when you give something to somebody and they’re in a position to be responsible with that money, let them have control.

Some people put such a collar on it, that their child never really has access to their money. My advice is to let go of the vine.