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An Interview with Dr. James Grubman, Originator of Wealth 3.0 - The Evolution of Counseling Families of Wealth

Family wealth psychologist Dr. James Grubman is an internationally recognized consultant to families of wealth, family enterprises, and the advisors who serve them. Dr. Grubman’s practice is focused on helping integrate life and wealth for the benefit of the family and society. He draws on his deep knowledge of psychology, family dynamics, and family business, with specialty interests in trusts and estates law and family governance.

In this interview, Dr. Grubman takes us through the evolution of family wealth advising from its early development to its current pivotal time in our industry. Reflecting on the past 40 years of research, practice, and development, Dr. Grubman has identified beneficial elements that should be retained in practice while eliminating the underlying pessimism that has infiltrated counseling families of significant wealth.

Will you please explain the notion of “shirtsleeves to shirtsleeves in three generations” as it relates to families of significant wealth and how the landscape has shifted over time from fear-based counseling to a more positive strengths-and-resilience approach?

Dr. Grubman: Let’s first take the oft-quoted wealth proverb, “shirtsleeves to shirtsleeves in three generations,” which increasingly has been shown to be built on quicksand. In what I call the long period of Wealth 1.0, pre the 1980s, there was very little psychological discussion of wealth and families. In the transformative era of Wealth 2.0, from the mid-1980s to the present, a lot of really good things came forward in the field. This was the rise of fresh thinking about the complexities of wealth in families, including the challenges of living and parenting with wealth. However, one of the main tenets was using the cautionary tale of “shirtsleeves to shirtsleeves in three generations” as a warning and a motivator for wealth creators to attend to family issues.

One of the alleged supports of the proverb has been how universal it supposedly is. We are now beginning to realize there is a bias of pessimism about the adage. Most people don’t realize there is something quite powerful that is missing in the proverb. Think for a moment - there is no verb. The proverb is simply a clause or phrase where we fill in the verb mentally. And, depending how you complete the sentence, it gains or loses all its power. If, as is common, we imply “shirtsleeves to shirtsleeves in three generations will happen to your family,” there’s an implication that it’s universal, permanent, absolute and dire. If you leave out the implication that failure of wealth is inevitable by saying it does happen sometimes, for example, or that it can happen to some families, you soften its depressing pessimism and its power to scare. Framing it as certainly possible but not necessarily probable impacts a family’s beliefs about the future positively and what can be done together. This is much different than what has been traditionally stated over the past thirty years by many families and most advisors.

Has a particular catalyst driven this change?

Dr. Grubman: Interestingly, over the past five years people have increasingly begun to question the saying and the two main statistics that have been used as proof that “shirtsleeves” is not just a fear but is true. The first set of statistics is that supposedly only 30% of family businesses survive through the 2nd generation, 13% survive through the 3rd, and a measly 3% survive through the 4th and beyond. This comes from one very limited study done by John Ward, a respected family business consultant, in 19871[1]. The study was of 200 family businesses in only one industry (manufacturing) and in one location (Illinois). All they did was look at businesses that were on record in 1924 and whether or not those same businesses were still family owned and operated in 1984 – that was it. Does that seem very compelling? Ward, to his credit, was clear on the limitations of the study, but it has been blown way out of proportion over the years.

The other statistic commonly cited is that “70% of family wealth transitions fail by the 2nd generation,” promulgated very strongly by Roy Williams, Vic Preisser, and their colleagues in articles and books like Preparing Heirs[2]. I took the time to follow every reference and citation in their materials back to the original sources for their supposedly universal, global and absolute 70% rule. What I discovered is that it was really only built from the Ward 1987 study, nothing more. They had inverted a 30% success rate for family businesses to become a 70% failure rate in family wealth transitions.

These three things – shirtsleeves to shirtsleeves, family businesses don’t survive, and family wealth won’t survive - have been built on smoke and mirrors for thirty years. It’s time we stopped telling families they are true.

What were some of the consequences of this messaging that family businesses or wealth transitions will fail?

Dr. Grubman: One major consequence is the creation of a sense of despair and discouragement, particularly for 1st generation wealth creators. In my book, Strangers in Paradise, I talk about how the vast majority of those who create wealth come out of a middle-class, working-class, or poor environment growing up. They have been told a variety of stereotypes about significant wealth. For many, they develop a negative sense about sustaining wealth, that it won’t last. This creates a sense of pessimism. Why should I do anything to give my family money if they are just going to blow it? This has led many 1st generation wealth creators to decide either to spend it or to tie up the money away from family control. They believe they need to protect their family from the wealth if it will just destroy them.

The other major consequence is that wealthy families fearful of the future become very receptive to strategies by wealth managers, attorneys, and others to separate the family from the wealth. This is done by tying everything up in trusts and other vehicles of control. This can then lead to lack of preparation for inheritors to handle money well, resulting in conflict and occasionally litigation in the future.

I’m not saying that wealth is not difficult or that there is no risk across generations, there is. What I’m emphasizing is that we know much less about the real long-term patterns of success than we’ve been told. The story is likely better than the myths and stereotypes would have us believe.

Given this background, what are your thoughts on the future of this work and what Wealth 3.0 will look like?

Dr. Grubman: Dennis Jaffe, my long-time collaborator, and I have written a lot about how the journey of families to becoming wealthy is very similar to other cultural transitions and adaptations, shifting from one socioeconomic culture to a more abundant, secure economic culture. It is, in essence, immigrating to the proverbial “land of wealth.” Cross-cultural psychology teaches us that successful long-term adaptation to a new culture involves three key questions families need to ask themselves:

    •  What do we keep from our heritage that still serves us well?
    • What do we let go of from our heritage that no longer serves us?
    • What do we learn and take on from our new circumstances that will serve us well into the future?

In a sense, we as an industry need to turn that same lens on ourselves. A lot of what we can keep from Wealth 2.0 is still transformative and excellent, like the core values of understanding family dynamics and the importance of human capital, not just financial capital. What it is time to let go of is the negativity, pessimism, inadequate research, and over-focus on the challenges of wealth.

But Wealth 3.0 is much more than just letting go of, say, repeating the old Williams and Preisser “facts.” Family wealth advising needs multiple, positive, additive elements where we take on new learning and rigor to serve us better into the future. These include improvements in how advisors practice, better education and training, more solid research on the long-term patterns of success with wealth, and even more robust organization as a professional field, probably with formalized training and certification.
Let’s look, for example, at how we as advisors can get rid of the fear bias that has crept into what we do with families. How often are family dynamics conversations started by asking “tell me what keeps you up at night” or a sober discussion of the challenges your children will face as inheritors? Positive psychology has taught us that what we pay attention to, like our fears, will lead to what we ultimately focus on. We need to lead with talking about what families may already be doing to teach good values and responsibility to their children. If I ask my clients to focus on what they’ve done or want to do to build strengths in the family, we’re going to have a very different discussion. And it leaves people feeling empowered, not discouraged.

What I’m hearing from you is that we need to shift from leading with a fear or worry to focus more on wishes, hopes, and strengths, correct?

Dr. Grubman: Yes, and to also have a plan and a purpose. You can do something because you’re motivated by fear or motivated by purpose, but they feel very different. In the parenting literature, there’s research about parents who are prevention-focused versus promotion-focused. Essentially, some parents are focused on keeping catastrophes from happening as opposed to other parents who are focused on helping growing strengths in their kids to have good outcomes.

Wealth 2.0 was largely prevention focused. Wealth 3.0 is more promotion focused. We should be helping families with financial education, communication, and governance not because they are afraid of what will happen if they don’t, but because they know it’s the right thing to do and want to do it.

In my experience, some wealthy families can be incredibly private or don’t want to expose themselves to vulnerable conversations. Are there pitfalls in practice that families can avoid? Should families view this process as a slow transition over time?

Dr. Grubman: I find many wealthy families are quiet about their wealth, prudent, and just think of themselves as “middle class people who happen to have a lot of money.” They are hesitant to talk within the family about money because they believe, or have been told it may demotivate their kids, another fear-based example. Some advisors make the mistake of trying to go too far too fast, pushing transparency and communication when the parents aren’t ready for it. With many families, it’s a gradual process of small actions, taking advantage of teachable moments.

Here's an example: I recently got some hearing aids, not unusual for a Baby Boomer who is a grandpa. My nine-year-old grandson saw them and asked me what my hearing aids cost, a natural question from a child curious about the world. Often our reaction is to say, that’s not a polite question or it’s not good to talk about money, because we are embarrassed or don’t want kids to realize the amount of money we have. The idea though is, how are kids going to start understanding what things cost in the world, or what a particular family can afford, if we don’t start communicating with them? I told him a number and, sure enough, his eyes opened wider in surprise. But after putting it in context like what glasses and smartphones and other things cost, he understood.

So, it’s baby steps, being a little more transparent here and there about money, building money skills as the foundation for wealth skills, eventually leading to talking about wealth itself. Even if it takes a few years to go from where you are now to having your first family meeting, that time will pass no matter what. The question is, how much progress have you made over those years?

What are your thoughts on the appropriate ages to begin these conversations? Is there an age at which it’s too late?

Dr. Grubman: There’s not really a time when it’s too late but there are ages when it is more difficult. I’ve worked with families whose next generation is in their 20s, 30s and even 40s where the kind of course correction needed at that point is much larger than the small nudges you can make along the way with younger children. It’s never too early to begin in age-appropriate ways. As I said, the key is to first build money skills before wealth skills. One of the most important activities a family can do is institute an allowance system, which is a great vehicle for learning. Putting manageable amounts of money in children’s hands for them to learn with cultivates good decision making.

Good decision-making is the ultimate goal of all preparation for wealth. Rising generations are going to have a lot of roles and responsibilities as adults. They need to have the foundational skill of being good decision makers.

What are your thoughts on the general notion of preparing rising generations to be good stewards of wealth?

Dr. Grubman: That’s a great question. Notice that what I described was to prepare children to be good decision-makers, not necessarily good stewards of wealth. It may seem like hair splitting, but in a sense being a good steward is only one set of decisions about wealth. In fact, there are many others. People have to know how to create a good trust, be good beneficiaries, make good family governance decisions, be philanthropic, perhaps be entrepreneurial, and work effectively with outside advisors. Choosing to steward the wealth for future generations may certainly wind up being their goal, but they may also decide to do other good things with the wealth and the family, depending on their values in the world.

What should be top of mind for families as they make decisions, select advisors or build out a family office?

Dr. Grubman: That goes to the heart of the important role family office professionals have in helping families with the decisions to be made. At the Ultra High Net Worth Institute, ( a nonprofit think tank I am associated with, I spearheaded a project where we looked at the fundamental needs of a family of wealth, independent of the service provider handling those needs. We determined what we coined the Ten Domains of Family Wealth. There are nine content domains and one major process domain that infuses all the others:

uhnh ten domains visualReprinted with permission. Copyright 2022, The UHNW Institute. All rights reserved.

The content domains arrayed around the model are the various technical or family activities needed to manage wealth effectively across generations. At the center is the most important element, in my opinion, which cuts across everything. That domain comprises the quality of the many relationships between the family and their advisors, no matter what technical domain they work in. Can an advisor speak in natural language terms, avoiding overuse of jargon? Does an advisor actually listen? Can an advisor establish relationships with the entire family, not just the wealth creator who traditionally has been the primary client?

Families need to evaluate the degree to which they are being helped, or doing well, in all ten of the domains. In essence, this can be a checklist. Traditionally, wealth managers have said “our business is managing the money,” which is a focus on the financial and investment domain. Others have said, our business is insurance, the risk management domain, and so on. Firms put two or three domains together and offer what they tout as integrated wealth management, but in the Ten Domains model that still isn’t everything. Relatively few firms do the top-level integration, which is providing or making available services in all of the Ten Domains.

What comes to mind is the balancing act of advisors not only having the professional knowledge in their respective domain, but also the capability to communicate, build rapport and collaborate with other specialists. How should families think about this?

Dr. Grubman: What’s interesting is that there’s been an increased focus on the many benefits of truly integrated services. Skillful integration tends to avoid gaps in service or coverage, unnecessary services or overlaps, and problems with planning where the right hand doesn’t know what the left hand is doing. However, not every advisor is well-suited. You have to have good collaboration skills. Many advisors prefer to be independent providers working away in silos due to either ego or natural inclination; they may not play well with others. Good collaboration skills are critical to work not only as a group but as a team, with leadership and a focus on clients’ needs above all.

Looking towards the future, where do you see this segment of the market shifting? You mentioned training or certifications?

Dr. Grubman: I think that goes to the other three areas I mentioned in Wealth 3.0 besides better practice – the need for stronger education and training, research and professional organization.

A reality is that we remain a cottage industry that could be much further along as a professional field. Right now, if a family comes to a consultant or firm with a particular problem, there are no consistent standards as to what that family is going to get for solutions. There should be evidence-based research and practice of what tends to work most effectively, possibly in a shorter period of time and more cost-effectively for particular problems. There should be solid longitudinal studies looking at the patterns of what happens to a family of wealth over time. It’s probably not some simplistic, binary measure of success or failure; that’s way too simple for the complexity of wealth. Finally, in terms of professional organization, we could use better credentialing as to who is qualified in this field, perhaps with at least one widely recognized credential at the ultra-high-net-worth level. We need some ethical standards that provide basic unified ethics guidelines. We need more professional conferences where people present research, exchange ideas, and have good, solid discourse that moves the field forward.

Wealth 2.0 created the foundation for the wealth industry, but it has had its flaws. Wealth 3.0 looks ahead to a future where the field grows up and really begins to have more rigor in what we say and do for clients. It’s an incredibly exciting and dynamic time, with great possibility for the families we serve.



[1] John L Ward, Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership

[2] Roy O. Williams and Vic Preisser, Preparing Heirs: Five steps to a successful transition of family wealth and values

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