ALL IN THE FAMILY
Speaking with Concord Asset Management’s Henry Feldman

An excerpt from a June 2004 interview of Henry Feldman, conducted by Larry Tabak of Madison Investment Advisors, Inc. (Madison, Wisconsin) on family financial planning issues.

Madison Investment Advisors (the adviser to the Mosaic Funds) recently added a new member to its family: Chicago-based Concord Asset Management. Concord provides customized portfolio management services to Chicago-area institutions, individuals and families, combining Madison’s investment expertise with the firm’s deserved reputation for personalized service. Over the last 35 years, founder Henry Feldman has observed that family dynamics are often as important as financial savvy. We talked to Feldman about some of the specifics.

Q. In your experience, can you generalize how well families communicate internally on financial issues?

I hate to be blunt, but in general such communication between members of a family is often almost non-existent. In fact, the parent in charge of financial matters is often secretive and hesitant about letting the kids and spouse know very much about assets and investments. You might think that this kind of situation is more or less common at one end of the economic spectrum, but I don’t believe this is so. This lack of communication can exist whether a family’s assets reside primarily in the family home, or when there are substantial investment assets. One of our missions at Concord is to break down these barriers and create a more open and frank discussion of financial matters.

Q. Can you think of a case in which a family was particularly good at this skill?

Thankfully, there are exceptions, but such a family is rare. I can think of one wealthy family we work with that established a family investment partnership, pooled their assets, and met periodically to discuss the family’s financial goals and condition. This allowed full disclosure and an interchange of ideas that all could hear and render their opinions. By the way, this was a tightly knit family with a few children having advanced degrees in finance.

Q. What are some of the potential consequences of poor financial communication within an extended family?

Parents who don’t include their mature children in their financial planning may be sending out damaging messages. These might include: “We are embarrassed by the little we have,” or “We don’t trust you with this knowledge for fear you may become spendthrifts,” or “What we do with our money is none of your business.” Money issues have frequently been cited as primary causes of family disharmony. Compounding this problem is the fact that intra-family financial matters are often conducted in ways that would never occur in the business world. Siblings start businesses with only informal ideas of ownership; intra-family loans are provided with vague arrangements for repayment; parents make off-the-cuff promises to one child without considering the consequences to their other children. This brings up one of the most common issues that aging parents face: how to distribute their assets and possessions to their children. Should they divide things evenly, even if the needs of the children differ? These questions concern physical possessions as well as monetary assets. There are as many answers as there are families. The only wrong answer to these issues is ignoring or neglecting them.

Q. For good reasons, parents of younger children are hesitant to lay out their family’s financial picture in great detail. But this position can easily continue into the children’s early adulthood. Should mom and dad “open the books” to the kids, and if so, when?

First of all, teaching children about financial matters should be started as early as possible. This doesn’t mean that children should be able to chat with their friends about how much dad is pulling down a year. But it does mean learning something about the value of money and the responsibilities of budgeting. More open discussions should begin once the children have reached maturity. Each parent must make that decision based on their own observations. Without going into excessive detail, we suggest that incremental disclosure about the family's wealth management program should start once the next generation has shown maturity in managing their own financial affairs.

Q. If you were going to create a family financial checklist, starting with the elderly family members and continuing down to the children, what would be the key topics?

The three key topics would be: a) Asset management, specifically how mom and dad will be financially supported during their retirement; b) Insurance, specifically how the family’s wealth can be protected, and c) How will the assets be distributed upon the death of each parent. These are the basic topics that depending on the complexity of the family’s situation can be done with or without outside professional counsel. If the family has substantial assets, they might establish some form of a family office that can implement their wealth management program. The first step can be interviewing financial advisers in their area who provide the kind of services we do for families in metropolitan Chicago.

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