December 7, 2023

Episode 282: Dr. Jim Grubman: The Psychology of Wealth

December 7, 2023

Dr. Jim Grubman is an internationally recognized consultant to families of wealth, family enterprises, and their advisors. Dr. Grubman has been recognized with his long-time collaborator Dr. Dennis Jaffe, with the Outstanding Contribution to Thought Leadership award by the Family Wealth Report. He is the author of the renowned book, Strangers in Paradise: How Families Adapt to Wealth Across Generations, and co-author of Wealth 3.0: The Future of Family Wealth Advising and Cross Cultures: How Global Families Navigate Change Across Generations. He has been quoted exten-sively by The Wall Street Journal, The New York Times, CNBC, and other media. Dr. Grubman is a leader in The UHNW Institute, an industry think tank, and holds Fellow status in the Family Firm Institute and the Purposeful Planning Institute. He is also a member of STEP, an international trusts-and-estates organization. His consulting practice, Family Wealth Consulting, is based in Boston, Massachusetts, USA.

In this episode, we delve deep into the world of wealth management and family advisory services and explore the evolving landscape of financial wealth planning. Dr. Jim Grubman, a renowned expert in family wealth psychology and author of Strangers in Paradise and Wealth 3.0, shares his profound insights and expertise on this critical subject. Dr. Grubman is a distinguished figure in family wealth and well-being and has made a mark with his profound understanding and enduring contributions to the field. In our conversation, we unpack the wealth management landscape through a psychological lens. We discuss the definition of wealth, the complex family dynamics and hurdles faced when adapting to elevated levels of wealth, and the essential role parents play in imparting financial responsibility to their children. We also explore the fundamentals when embracing the cultural norms associated with affluence, the psychological and practical ramifications of avoiding or overcompensating for wealth, the changing landscape of family wealth management, and much more. Listeners will also gain a comprehensive understanding of the evolution of wealth management, from traditional approaches to the transformative Wealth 3.0, along with insights on nurturing strong family relationships in the context of affluence. Dr. Grubman's wealth of knowledge and engaging storytelling make this episode a must-listen for those interested in the future of wealth management. Tune in now!

Key Points From This Episode:

(0:04:06) Dr. Grubman’s definition of wealth and why wealth is relative.

(0:07:12) How common is becoming wealthy compared to being born wealthy

(0:11:01) Family dynamics and challenges when adapting to higher levels of wealth.

(0:16:00) Why modelling healthy personal financial management is vital for children.

(0:20:34) Discover how the origins of wealth influence the ability to psychologically adapt.

(0:23:00) Essential considerations when adopting the culture of wealth.

(0:27:48) Possible reasons why someone may avoid adopting the culture of Wealth 3.0.

(0:30:03) The implications of avoiding and overcompensating for the culture of wealth.

(0:35:23) Explore what contributes to the successful integration into the culture of wealth.

(0:37:10) Common barriers that prevent learning and adapting to higher levels of wealth.

(0:40:30) Aspects parents should consider when preparing their children for wealth.

(0:46:36) His perspective on professional advisors in managing family wealth.

(0:48:37) Unpacking the evolution of the wealth management landscape.

(0:53:48) He explains why the negative psychological implications of wealth have persisted.

(0:55:47) Insights into the definition and concept of Wealth 3.0.

(1:00:20) New skills advisors need to develop to be successful in the Wealth 3.0 generation.

(1:02:22) Advice for finding financial advisors that are Wealth 3.0 savvy.

(1:09:16) What Dr. Grubman is excited about in the emerging Wealth 3.0 era.

(1:12:10) Dr Grubman shares his definition of success.

Read The Transcript:

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We are hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital.

Cameron Passmore: Welcome to Episode 282. Another week, another fantastic guest, which we're incredibly grateful for. This week, we welcomed Dr. James Grubman. The brief backstory on this, I mean, we're both aware of Dr. Grubman's work. However, a client recommended we check out the book Strangers in Paradise, which we did. It's a fantastic book and we've shared it with many colleagues and clients. Reached out to Jim and he agreed to come on and this is one incredible conversation.

Quickly, Dr. Grubman is a well-known internationally recognized consultant to families of wealth, family enterprises and many advisors. He's been recognized for his long-time collaboration with Dr. Dennis Jaffe and was awarded the Outstanding Contribution to Thought Leadership Award by the Family Wealth Report. As I mentioned, he is the author of the renowned book and he told us, it's the 10th anniversary since it was released. Strangers in Paradise: How Families Adapt to Wealth Across Generations. He is also the co-author of a recently released book, which he wrote with Dennis Jaffe and Kristin Keffeler. The book is called Wealth 3.0: The Future of Family Wealth Advising and Cross Cultures: How Global Families Navigate Change Across Generations, which is also an incredible book, Ben.

Ben Felix: Yeah. Both incredible books. Strangers in Paradise, I probably read that six years ago and started sending it to clients that I thought it was relevant to. But like you said earlier, it's just a great book and a really useful resource. It makes an analogy to wealth as a foreign culture and it uses that analogy to describe the challenges of becoming wealthy and adapting to wealth and then it talks to different ways to deal with that and approach it.

As someone who may not have previously been wealthy, and it's important to say briefly wealth, we talked about this at the beginning of the episode, you'll hear Dr. Grubman talk about it momentarily, but wealth is relative. You hear things like, Dr. Grubman is a leader in the Ultra-High Net Worth Institute, which is an industry think tank. That's incredible. But that doesn't mean that these ideas are only relevant to ultra-high-net-worth people. Wealth is relative to where you came from. These ideas, I think, are really powerful for anybody.

Dr. Grubman also holds fellow status in the Family Firm Institute and the Purposeful Planning Institute. He's also a member of STEP, which is an international trust in a state's organization. His consulting practice, Family Wealth Consulting is based in Boston, Massachusetts. Dr. Grubman has a Ph.D. in psychology from the University of Vermont. He really takes the big ideas that he has in his books, Strangers in Paradise and Wealth 3.0 and he delivers them to us in an extremely easy to understand and practical way with the way that he was able to answer our question. I think this is a really powerful episode that's going to be useful to a lot of people.

Cameron Passmore: Perfect setup, Ben. With that, let's go to our conversation with Dr. James Grubman.

***

Cameron Passmore: Dr. James Grubman, welcome to the Rational Reminder Podcast.

Jim Grubman: Well, thank you for having me. I've been really looking forward to this.

Cameron Passmore: Well, us as well. I must say, we are both – our whole team, actually, are huge fans of your books. It’s a real thrill to have you on.

Jim Grubman: Well, I'm very gratified for it and many people have commented on the books. I'm just really glad to have an impact in what's going on.

Cameron Passmore: Before we started, you mentioned that it's almost the 10th anniversary of the release of your book, Strangers in Paradise, which we love. Why don't we start there?

Jim Grubman: Okay.

Cameron Passmore: First question, how do you define what it means to be wealthy?

Jim Grubman: It's funny, because after talking about this for 10 years, what's interesting is almost always, the very first question I get from an audience, or somebody is, well, what do you mean about like, what is wealth? What's the level that you're talking about? If you have read Strangers, you know that ironically, the answer is it doesn't make any difference. That I follow the typical benchmarks in the industry of mass affluent. Maybe it goes up to 5 million, maybe high net worth goes 5 to 25 million range and then above that is ultra-high net worth.

When it comes to perceptions of wealth, it's very individual and consistent with what I talk about. It mostly depends on where you came from. If you grew up in a household of $120,000 income, it probably takes a somewhat different level to start feeling wealthy, several million and above. If you come from a working-class life and you are used to a life of $35,000 in annual income and in your career, or through savings, or whatever, you now have $900,000 in assets, you're wealthy, you feel rich. Compared to most people that you know, and probably most people in your family, you are rich. There's the absolute level, which we can discuss. But a lot of it really is the relative level of at what point have you gone way beyond the socioeconomic culture that you grew up with?

Ben Felix: Yeah. I thought that was such an important place to start, because listeners may hear wealth and think, “I don't have 20 million dollars. This episode is not relevant to me.” But I just love that point about wealth being relative.

Jim Grubman: It really is. There's been actually a lot of research where people are asked, at what level would you consider yourself wealthy? It's amazing, the range that you get. When I look at those data, it's because, well, it all depends on where you're starting from.

Ben Felix: Yeah. I've also seen research that even the wealthiest households say they would need quite a lot more wealth to feel wealthy, which is pretty interesting.

Jim Grubman: Actually, if I can piggyback on that, and that again goes to the idea I discuss in Strangers, which is a lot of it's about identity, that you can have a certain level of money, but your identity is still, well, I just happen to be a middle-class person, I just happen to have a lot of money. The point at which identity catches up to the bottom line is highly variable and much more dependent on psychological factors.

Ben Felix: Hmm, and I want to dig more into that. But I first want to ask, how common is it for people to become wealthy, as opposed to being born wealthy?

Jim Grubman: That actually was the impetus for a lot of the development of what we call the immigrants and natives’ metaphor, or the cultural model of wealth in demographic studies that Dennis Jaffe, my wonderful long-time collaborator, and I would look at in the early 2000s. Consistently, studies show that about 80%, plus or minus maybe 5%, of individuals with wealth developed that, or came to that in their lifetime. They were not born into wealth. That it was, interestingly, the question was always, what is the source of your wealth in various studies? It was like, are you self-made? Did you inherit it? Some combination of self-made and inheritance. You inherited some and then you grew it. It was amazing how over and over again, self-made was 75%, 77%, 82% and then about 10% was inherited and then remainder was a mixture.

Cameron Passmore: Can you expand on that metaphor about how becoming wealthy is similar to immigrating to a new and unfamiliar place?

Jim Grubman: It's funny, because it was those demographic studies that started Dennis and I to wonder. We were working on an article that by itself has become a classic in the field about acquirers and inheritors of wealth. Our motivation was to just do an article that was the first major review on the psychology of wealth. As we read things and thought about it, it dawned on us. If you are born and raised in a particular economic culture, working-class, middle-class poverty, 5% to 12% of those were wealthy actually came out of poverty. Over the course of your lifetime, you changed to a much different socioeconomic level.

You actually have migrated economic cultures. You've gone from one, there's the culture of your birth, to where you now live, the proverbial land of wealth that we talk about. That insight transformed so many things because we thought about what we often had heard from clients that we worked with, where they would say, “I look at my grandkids and I think to myself, they have no idea where I came from.” It's a classic immigrant mentality. “They don't know how hard my life was. They have such an easier life. How do I convey to them the things that were so important of, essentially, my immigrant journey that made me who I am and benefited the family?”

That it led us to much in G2, generation 2, but particularly in generation 3, they're not immigrants to wealth. They're natives of wealth. This is the land of their birth. These immigrants and natives who are in Canada, because natives has a lot of connotations about indigenous peoples and First Nation peoples. I sometimes use natural-born citizens of the land of wealth. The idea that some people are immigrants to wealth, like wealth creators and founders, also those who marry into a family from middle-class life, and then some are natural born citizens of the land of wealth, who were born and raised and their hope is not to get deported.

Ben Felix: What are the challenges that families face when they're adapting to wealth that they didn't previously have?

Jim Grubman: You just used a word, which is the core issue, adaptation. Much of the book, Strangers in Paradise, actually borrowed quite a bit. I did a very deep dive into cross-cultural psychology in researching and expanding to create the book. It was stunning. Absolutely stunning how much applied to what I knew about wealth and families. The issue is when somebody becomes wealthy, when they're an immigrant to wealth, they have to go through an individual adjustment to their new situation.

There's this second level, which is the long-term adaptation of the family across time, across generations, and the adaptation of the family is influenced by the quality of the initial adjustment of the individuals. Much of what I talk about in the book is the interplay. One way to think about it is a lot of people are just really not prepared to be wealthy. They want to have a lot of money and that changes life, but the adjustments and adaptations to a very different economic culture are often, actually, what people are unprepared for, or surprised about and they struggle to make their best guesses about.

Cameron Passmore: Let's dig into that. What added challenges come with raising children in the context of wealth?

Jim Grubman: Well, that's probably the number one. The adaptations in parenting are probably the most important. Maybe I'll go on record saying, the adaptations in parenting maybe are the most important factors, in how the family turns out over time with wealth. Much has been written about what you have to do when you can no longer say, “We can't.” And how you have to shift to saying, “We won't.” For many people, that's a struggle. For many parents who grew up with, well, we can't, setting limits was easy. It’s like, “Well, we don't have the money for that, so we can't. You can't have that toy. We can't go on that vacation. We can't stay in that hotel. We can't buy you that car.”

There's so many things about parenting in, say, general society that are constrained economically. If you grow up under those circumstances, you think in those terms. When those constraints are changed, people are often at a loss. Some people lie. “No, we can't. We don't have the money,” when they actually do, but it's like, that gets them off the hook. Some people hedge and say, “Well, that's not something we're going to do right now,” or whatever, because they dance around it. Some people know to make the transition and say, “No, we're not going to do that. We actually have the money for that, but I don't think it's a good use of our money.” It's really about values. That's often where parents, at first, encounter the idea that their parenting is going to have to be adapted for the new circumstances.

Ben Felix: Is there a should in there? You gave a few different examples of how to communicate that to a child. Which one do you think is best?

Jim Grubman: Oh, I have my opinions. Based on experience and inclination, the one I would recommend is saying, actually, “No, we won't. I'm not going to buy that toy. I think it's cheaply made. That's not something we're going to do. I don't think that that would be helpful. It's not a good use of our money. It's not consistent with our values.” What's important, and this gets to other parts of adapting parenting, it has to be matched with teaching. If you just say to a child, “No, I'm not going to buy you that,” they may get upset or whatever. If, however, you've instituted a really good allowance system, and your kid actually has money in his, or her own hands, and you say, “No, sorry. I'm not going to buy you that. If you want to use your money to do that, you can go ahead and do that. I don't think it's a wise choice, but your money is your money, it's up to you.”

Now you're beginning to do what is long-term planning, which is beginning to teach and transfer decision-making to the child. It is that education and transfer of decision-making that is much more important than just transferring money.

Ben Felix: What do you think about matching the parents' actions with the teachings that they're giving to the child? If they say, “No, we're not going to buy that toy because whatever, it doesn't align with our values,” but then they're buying their third Porsche, or their second Ferrari, or whatever. Is that a problem?

Jim Grubman: Well, it's funny that you mentioned Porsches, because actually, you're talking to a Porsche guy. That actually came up for us in our family. You're right. Modelling your values, modelling healthy personal financial management absolutely must go along with it. That's another area where sometimes people are unprepared. They're not really well adjusted to having all the constraints lifted on themselves financially, but they somehow want to make their kids grow up as if they're middle-class kids. The disconnect is something that children watch and it has an impact. You're right.

What's interesting though, and it's funny, because there was a point early on in our lives where I agonized a little bit over buying a used Porsche, and I wondered what signal I was sending to our kids. I got three kids now, grown and doing fine. One of the elements there is modelling gratitude. Gratitude is the antidote to entitlement. What children need to see is not just what you spend your money on, but children need to see how you made the decision of what to spend your money on.

Again, we went through this ourselves, but in general, the idea of saying, “I am incredibly grateful that through hard work, through actually, hard work of my father and some others that we are in a position where I can do this, I really appreciate it.” They don't take it for granted. It's not just how many Ferraris you have, or Porsches, it's, do you appreciate and do your children understand what goes into a purchase?

When you talk about that, which now I don't know how many we're into on adaptations and parenting, but that is another adaptation, which is you have to be a lot more explicit. You have to talk out loud. Kids need to see your decision-making and hear it in order to learn it and to think about what they would do. To be able to discuss the purchase, I can remember with one family I was working with, I started working with a family and I knew that the network of the parents due to the father's business was north of a 120 million dollars, but they lived upper middle class and his kids who were late teens, early 20s, when I started getting involved with the family, one of the things I heard consistently is they were worried about money in the family. Because not knowing, and you don't have to think numbers or speak numbers specifically, but they did not know whether the family was as wealthy as it really was.

When they saw a dad buying a Corvette, a classic Corvette, or doing something rather, or the parents buying a bigger house, they were nervous. It's like, “Can we afford this?” One of the first things that we did in the first family meeting was, in a sense, talk about the big picture and the idea that the parents were actually being financially very responsible, but the ceiling on the limits on their money was high enough that they didn't need to worry. That alone made a huge difference for the children.

Ben Felix: Such an interesting point. You said something earlier, gratitude is the antidote to entitlement. That's an incredible line.

Jim Grubman: Yes. I often talk with clients and client forums and stuff, everybody's so terrified of entitlement, and, “Oh, my kid being spoiled.” In every generation, we have the epitome of the spoiled brat, rich kid. When we were coming up, it might have been Paris Hilton, or somebody before her, and now there's other people. But the idea of if you model gratitude, if you demonstrate it, if you live it, and if you develop it in your children, in non-financial ways, being grateful for love in the family, good parenting, kids don't wind up being entitled and they become pretty solid.

Ben Felix: How does the source of wealth, like a business founder, versus a lottery winner, versus inheritance, how does that affect how people adapt to it?

Jim Grubman: This is actually something we talked about in the article I mentioned about, acquirers and inheritors of wealth because you can acquire wealth not through business success, but through a windfall, financial settlement for a bad thing, a practice settlement. There's all sorts of ways people can become rich. It makes a difference in a variety of ways. Psychologically, again, it can affect identity. Those who get a windfall, sometimes through some bad event, struggle to adapt and embrace the wealth, because it's contaminated money, and that can slow, or impair the adjustment.

Your own business success slowly over a period of time gives you time to get used to gradually increasing wealth. Very sudden windfall, liquidity events, selling your tech business for millions of dollars, now that's the poster child for a sudden wealth. Sometimes it's really overwhelming, and it can get in the way of making adjustments. There are a lot of different factors. You’re talking about lottery winners. One of the things in Wealth 3.0, the new perspective that I talk about with colleagues, like Dennis Jaffe and Kristin Keffeler, is there's a lot of myths and stories that lottery winners inevitably wind up destitute, or dead, or bankrupt, or whatever. Actually, that is not necessarily true. There's data that shows that actually, a fair number of lottery winners do perfectly fine. I'll hear those stories.

I think the idea is, do you feel the good fortune is earned? Do you feel the circumstances were such that it's okay to feel grateful and fortunate, where some people, again, would feel guilty for feeling fortunate out of a bad circumstance? One of the things that we talk about much less than we should is the family of origin you come from, particularly brothers and sisters. When one person in a family does quite well for whatever reason, and the rest of the family is struggling, how does the family deal with that and how does the individual deal with that? It can complicate things quite a bit.

Cameron Passmore: What do people need to think about when they consider adopting the culture of the land of wealth?

Jim Grubman: That's a great question. There's several things. One of the things I mentioned before, there's a lot of guideposts to this from cross-cultural psychology. There's a lot that's known about how people either choose, or fall into the strategy, or approach that they use in adapting to a new culture. It basically is a combination of two dimensions. The degree to which somebody holds onto, or lets go of the culture that they came from and the degree matched to that, to which somebody takes on, or pushes away getting used to the culture they are now in. It is the combination of, how much do you hold onto and how much do you take on that determines quite a bit of adjustment.

The things that help somebody adapt and adopt good strategies with wealth have a lot to do with a willingness to be flexible and an openness to adapting to a new culture. Those who struggle, who I mentioned before about, hey, once for always, we are middle class, no matter how much money we have. Sometimes they don't do as well, as those who recognize that being wealthy has its benefits and its new attitudes and behaviours. It's okay to take some of those on and to learn those. You have to strike a balance, sort of a blend of cultures. Hold onto the values and the beliefs and the good skills that you learned in where you came from. But recognize, you may need to take on new skills, and new behaviours, and understand how it fits together in the land of wealth.

On the other end of the spectrum, those who jump in with both feet and leave behind their roots quickly are glad to be free of the constraints of general society, middle, or working-class life, and want to become richer than the rich from what they've seen in movies and TV and whatever, they often don't do quite as well. They've lost their grounding and values and skills. That's a long answer to saying, it's not just values. I mean, some of it is. Do you have the skills for handling larger amounts of money? Do you know how it works? Can you choose good advisors, say, nudge, nudge, wink, wink, who are going to help you and assist with helping you get used to the land of wealth? Those are some of the important things that make a difference.

Cameron Passmore: I have a comment, not a question. But in reading the book Strangers, I found that I was pausing just to think about what you're proposing, is how to think through these decisions. These are big and not easy decisions. Do you let go of the past? Do you embrace the future? Does your past become part of your identity? These are such fascinating questions, and it doesn't mean you're compromising your values necessarily.

Jim Grubman: I mentioned about blending, or integrating things. What you just said is really important. Ironically, to take a thoughtful, integrated approach where you evaluate each situation on its merits and decide, what do I keep? What do I need to learn? Does this apply? Does this not apply? That's a lot of work. Those who often don't do as well, don't do well, because they make the same decision every single time, which is easier.

In my book, I talk about avoiders, those who avoid making any adjustment to becoming wealthy. They hide it from their children, they don't show it, they don't use all their resources. They feel if you are going to act like you're rich, you got a target on your back, don't show it. It's easier in that mentality because you make the same decision from those situations. Nope, not going to go there. For those who jump in with both feet and love to spend and are more materialistic, they too make the same decision again and again. Say, “Yeah, going to buy that. Yup, we'll do that.”

It's the middle ground where you evaluate things carefully and you don't always make the same decision every time. Sometimes you experiment or change. That takes more work. But in the end, it pays off more.

Ben Felix: I mean, we've seen both honestly in practice. Can you talk about what would cause someone to be an avoider? What would cause them to avoid adopting the culture of wealth?

Jim Grubman: That's a really important question because it is the mentality and the mindset. Very often, growing up, we have to recognize and you have seen this a lot. General society didn't think too well of rich people. There's a lot of stereotypes and biases and pejorative labels and trust fund babies and the filthy rich and all this other stuff. When somebody comes out of an environment where rich people were either denigrated, or I talk in the book about hostile envy, the resentment and the anger, but I wouldn't mind being one of those. In fact, if I were rich, I'd handle it a lot better than everybody else that I see who's doing that.

There's so many attitudes, which actually, when somebody becomes wealthy is a cognitive dissonance. Rich people are terrible. I am now a rich person. How do you reconcile that? What some people do is they basically push that away and they resolve the cognitive dissonance by saying, “I'm not changing. I'm not going to be a rich person. I'm going to stay myself and I don't want the toxic elements of wealth to touch me, or my family. We're just not going to go there.” In the short run, many movie stars and some other people who are often quoted saying, “Oh yeah. No matter how much money we have, we're still middle class. We're not going to give any money to our kids. That'll ruin them. We're going to give it all away. They need to make it on their own.” We admire those people. “Oh, yeah. They must have the right idea.”

In reality, it's short-term thinking, and it leads to a lot of problems in the long run. We do admire those people in the short run and say, “Oh, they're staying true to their roots. They're solid people.”

Ben Felix: You talked earlier about how the integration approach tends to be more successful, but can you talk about the implications of avoidance and maybe with a particular focus on with kids?

Jim Grubman: Some of the major drawbacks to an avoidance strategy are, number one, you can't communicate about it in the family. How can you discuss, or prepare your kids to have wealth if you're going to give them that wealth at some point, if you can't talk about it, if you can't work on it? For many avoiders, there's a very consistent mentality, which is, actually, I will raise them middle class. Middle class is the best way to be. When they get the money, which will be a surprise, they're not going to know it's coming, because it will demotivate them, they'll be so happy and they'll turn out great because they didn't have all the terrible stuff that rich people do and they'll have great skills and it'll work out. There's a few flaws in that argument.

We have ample evidence that a lot of middle-class people don't have good financial skills and don't handle money well themselves. Just simply being raised middle class is no guarantee. Another thing is, I've seen many situations, sad situations. I can think of one family in particular, where with great encouragement and discussion, they sat down with their now mid-40s adult children to explain how many millions of dollars they had in the family, which you never would have thought of.

They thought the kids are going to be ecstatic saying, “Oh, it's so great. Thank you for sparing us the terrible things of growing up rich,” and there would be tremendous gratitude, whatever. What they found was that their adult children were really upset, almost horrified, and they said things which I've seen in many situations, things like, “Why could you not trust us to tell us the truth? If you had that much money, why did we have to suffer and struggle in some important ways that made a difference in our lives and our kids' lives to this point, when that could have reasonably been helped.” The void or mentality of, “I want you to struggle because you'll learn that way.” It's like, well, sometimes you learn and sometimes it's just struggling and bad things happen.

The parents were themselves really upset, horrified. At first, they said, “You kids are just greedy. You don't understand why we did this for you and whatever.” It really caused a big rift in the family. Until gradually, we were able to get to the point of the idea that the kids essentially felt betrayed, that the parents created a false family life. They had good intention, but it was a secret, and secrets are toxic. That's even if the parents are there to do the big reveal. We haven't even talked about what happens when the parents die and the kids, the grown adult children sit in a lawyer's office, or usually a trust company office someplace and it's revealed either in general, or specific how much money was there, and the same thing happens.

The adult children are like, “Oh, my God. This is a huge secret.” Instead of being proud and happy of their parents, they wonder, “Why could we not talk about this?” The problem is now the parents are not there anymore, and you cannot have that conversation.

Cameron Passmore: Instead of avoiding, what happens if people try too hard to adapt to being wealthy?

Jim Grubman: Can you talk a little more about, what do you mean by try too hard to adapt to being wealthy? You're talking about the assimilators who –

Cameron Passmore: Exactly. Yeah.

Jim Grubman: The downside of that, actually, and ironically, is not unlike the downsides of the avoider mentality. The downside is the next generation doesn't learn skills. If you are heavily spending a lot of materialism, little grounding in gratitude, the motivation for somebody who wants to assimilate as much as possible into the land of wealth is they're only focused on how happy they are to be free of the constraints of not having money, the independence of wealth, and they just revel in that.

Again, in the short run, I can understand it. In the long run, you're teaching your kids no restraints, no constraints. They don't teach good skills for personal financial management. They don't teach good values. They don't model good values. What happens in the next generation is a lot of bad stuff can happen, including the money can be lost. Basically, lives are damaged, because there's no solid grounding in good values and skills.

Ben Felix: What do you think contributes to successful integration into the culture of wealth?

Jim Grubman: Well, in some ways, I think, again, an openness and a thoughtful mentality that takes decisions one by one, rather than knee-jerk reactions one way or the other, as we talked about, I think the experimentation, ironically. When people become wealthy, they often go through some period of time, where you do a little bit of avoidance and then maybe you spend more and then you cut back, and not unlike moving to a new country. You have to try things out. Maybe you try spending more, or spending less, or spending differently or whatever, and then you see, how does it feel? How does it work? At least you're open to watching the consequences of your choices and learning from them.

I think, maybe if we boil it down, it's the idea of learning. People who integrate into the culture of wealth have a learning mindset. They're curious. They want to know, and my guess is you see it in your firm, where you can tell those people who are open and curious, who ask you questions, how does this work? What do you think we should do? They try something and then they sheepishly say, “Well, that didn't work out so well. It was really nice, but that Ferrari, it broke a lot. I got tired of being owned by the car.” They learn from it, and they change their behaviour. I think those people who are interested in learning and adapting are the ones who do well.

Ben Felix: What do you think tends to get in the way of people being open to learning and adapting to wealth?

Jim Grubman: Well, now you're talking to a psychologist. Sorry. Because interestingly, in studies of personality, and actually some of the most prominent personality assessment tests and things, there actually is equality of openness is one of the major dimensions of personality. We talk about people who are close-minded. They were close to this, or close to that rigid thinking, versus people who are so open that they flip from one thing to another. There's no stability. There's this optimal level of openness in which you balance something that's really important, which is you balance stability and continuity with flexibility. That moderate quality of being open, but also having a solid anchor, that's part of personality.

Again, here we're back to the immigrant. Those immigrants to wealth, who simply start off with some good personality traits, which often come from good parenting, when they become wealthy, they carry forward aspects of their personality development, which may predispose them to adopt some of the better strategies of adapting to any culture, versus those who were really unprepared to handle the disruption.

Ben Felix: Oh, that's really interesting. There's an element there of either on self-reflection or maybe from external input, recognizing what your personality traits are and making sure that you're extra careful depending on what that says.

Jim Grubman: It is, and we don't have time to go into it, but you may remember, depending upon your age and how much grey hair you may have and going on. Back in the late 90s and early 2000s, there was a period of time when client profiling and looking at the subsets of who is wealthy, or actually in general, money personality. Some of those studies were actually pretty good. Some studies looked at general society. What are the money patterns and personalities among general society? Some were better and some were not so good. Again, some were insecure and avoiders, when they didn't have money. Some were highly materialistic when they didn't have money, and some were thoughtful and solid decision-makers when they didn't have money.

Remember, the demographics, the wealthy population is drawn from the general population. Those who become wealthy, depending upon how it occurs, are a subset of general society. You have some of the same money personalities that migrate to the land of wealth. Some of them do better and some of them do not.

Cameron Passmore: What should parents be thinking about as they prepare their children to receive wealth?

Jim Grubman: That's a big question.

Cameron Passmore: And often asked. I know many listeners have that question.

Jim Grubman: Well, here, we could probably spend 2,000 or 3,000 hours talking about age-appropriate education and skills training and other stuff. That's the long answer for that. The short answer is actually, and it's funny, because again, it goes back to adapting parenting. Parenting of a seven-year-old, or a nine-year-old needs to be very specific, when the family has wealth, compared to when you're talking about parenting a 17-year-old, or a 27-year-old. One of the things that I often talk about is the idea that when you become wealthy, when the family becomes wealthy, money disappears, especially in the modern world.

It becomes in the background when a middle-class family uses a credit card and then the credit card bill comes in the mail and you have to pay bills at the end of the month, or periodically and stuff. The child watches their parents having to, well, what used to be write a check now, maybe it's online, or whatever. Money is present. People more often now have cash, although it is again, transitioning to more electronic. Kids see money.

In wealthy families, a debit card that's linked to a brokerage account that gets automatically paid from a money market account that you manage using plastic for a purchase, the kid never ever sees the money get changed hands. You have to explicitly reinsert cash transactions, money transactions, into life, so the kids, remember what I said before? So, the kids can see decision-making.

One of the things, I often tell a story about how I took one of my wonderful grandchildren to the Lego store. If you've ever been to a Lego store, you’ll know what a monumental amount of wonderfulness is in that story. You also know what the prices are on Legos. I did something that I've written about and others talked about. We went in and basically, I was going to do a treasure hunt first. I said, you have a budget of around a $100. I'm going to go around and why don't we talk about what you might want to select. I'll buy you the gift. It's not your money. I will pay for it. But we're going to first look around and you're going to decide how you want to –

That basically gave her a budget. She said, “Okay.” We went around and she tried this. She looked at that. Sometimes she said, “Well, this and this add up to a 100, don't they?” I would say, “Yeah, you can have both if you want.” Then she might do some other stuff. Well, no, that's over the limit. First of all, I was trying to teach her how to evaluate and make decisions of what's a good value for the money that we have, that we're going to spend.

Eventually, she picked out something. Then I did something different, because we could have gone up, could have given the credit card transaction. She would have taken her hand, given me a kiss on the cheek for Grandpa, and that would be it. But we didn't do that. I was prepared. I had a bunch of $20 bills. Before we went up to the counter, I gave her, I asked her, there's going to be tax. It's going to be a little bit more. I gave her $120 in 20s. Put it in her hand. We go to the counter. The person behind the counter takes the toy and says it's $112.50, or whatever it was. She says, “Okay.” She takes the 20s in her hands, and she counts out 20, 40, 60, 80, a 100, and the next one. They take the money in, give her the change back, and they give her the thing.

She turns to me and she said the thing that was the biggest payoff for the entire exercise. She looked at me with big eyes and she said, “Grandpa, that was a lot of money.” I said, “Yes, it was. But it's okay. You're worth it.” I kissed her and everything was fine. She never would have said, “That's a lot of money if I had paid for it with plastic.”

Ben Felix: That's really interesting.

Jim Grubman: Kids need to touch it. It's concrete. It's tangible. They need to contact with money as a transaction in order to learn some of those skills.

Ben Felix: Yeah. That's something that you see in other consumer research too, right? The pain of paying with plastic is much lower than it is with cash. But that makes so much sense that you can use that as a tool to teach kids about the pain of paying.

Jim Grubman: Exactly. It's like, remember what I said is we had gone around beforehand and I had set her up with the idea is when she pays the money, she will feel this is worth it. Did she make it a choice? If she had just picked up something she didn't care about, she might have put it back and say, “Ooh.” But it's that idea of decision-making. You have to transfer decision-making to children so that they grow up to be great decision-makers in all the roles and responsibilities they're going to have in life.

Ben Felix: Incredible. That was a great story. Those questions were based on Strangers in Paradise, which is an incredible book that I hope our listeners will read. We're going to move on now to questions based on your newer book, Wealth 3.0, which is, I think, a different perspective on the whole topic. What role do you see for professional advisors in managing family wealth?

Jim Grubman: Well, that's a big question. In a way, if we go back to the immigrants and natives metaphor, which really is pretty robust, advisors are sometimes like the mountain guides who help usher people along in an unfamiliar foreign land, so that they get to where they need to get to. You know this territory. You're not guessing about quite as much as some of your clients are, and they look to you to help educate and teach them. I think advisors also can propose questions and suggestions that will get a family to think.

Remember all those dilemmas and choice points that your clients have and your clients' children, grown or young? You're incredibly important. Being alongside people as they get used to and do that adjustment, and then that adaptation as a family, and having good advisors who know the territory are solid, understand some of those decisions, can teach some of those skills, sometimes give a nudge, or a little advice. Listen, I think one of the things that is under-discussed is your role in just being a listening partner and that gets us to Wealth 3.0, which is advisors have not always been the best partners and they have sometimes stoked some of the fears and things of the clients moving into an era where we look at strengths and possibilities, more than fears and anxieties, is a role I think that the advisory community is more ready to play.

Cameron Passmore: The book is called Wealth 3.0. In the context of managing wealth, what is Wealth 1.0?

Jim Grubman: Okay, let's talk a little bit about the history of our field. All of this came out of a talk that I was asked to give several years ago, and I just had to come up with a methodology, or an image of how to think about the progression of our field. What I turned wealth 1.0 was the era around 1980, ’85, in which essentially, it was all about the money. In many parts of financial services, it's still all about the money. Some people actually say, your business is only about the money. We should stay away from other things. But certainly, traditionally, the financial services was largely about taking care of the money, taking care of the money for the family.

The choices were much simpler; stocks, bonds, a few other things. There were private bankers for the very wealthy. But not only was it a simpler era, but we have to remember the demographics of that era. Who was wealthy was much more older, white, male, heterosexual, traditionalist, silent generation, not going to talk about stuff, don't even tell the spouse, certainly don't tell the children about what's going on. That's Wealth 1.0. It lives still in many parts of the field.

What was really core was realizing wealth 2.0. Most of what we know and experience and do in wealth management has only been around for about 40 years. Many people are very surprised to hear that. That starting in the 1980s as a result of some legislative changes and regulatory changes and things, the financial landscape changed tremendously and opened up the beginning of things that we now take for granted, the advent of financial planning. Much of the field of trust in the states got changed around. In law, the multitude of different financial vehicles.

But during Wealth 2.0, particularly in the late 80s through the early 2000s, what came up in Wealth 2.0 were the voices of the wealthy. Writings and descriptions and discussions, where inheritors, in particular, began to talk about the experience of inherited wealth, and the voices of those who became wealthy, the whole dot-com era in the mid-late 90s, sudden wealth syndrome. There’s a huge explosion of transformation. And so, the breadth of discussion about different aspects of wealth just really exploded, which was a wonderful thing, and something that we should keep.

The problem was in Wealth 2.0, that it was framed in ways that really built on the fears and anxieties, particularly of immigrants to wealth. Shirt sleeves the shirt sleeves in three generations. Some terrible mangling of research findings from the early 80s that had been repeated again and again and again about how wealth fails and families, 70% of wealth transfers fail is the statistic that's often thrown about by the end of the second generation.

The idea was in Wealth 2.0, that number one, G1 they're the best. If you're a wealth creator, you earned it, you deserve it. But also, it's likely that your children and your grandchildren will fritter it away and they will get deported from the land of wealth. All your hard work will go to naught. What grew up around Wealth 2.0 were all these sayings and the repetition of bad statistics, which turned out not to be accurate, and the idea that fears somehow are outcomes. Yes, we see evidence, your kids will blow it.

Therefore, I as an advisor should take care of your family's money for you. We should protect the family from the money. I can do that. Let's tie it up in trusts. Let's do this or that. There was a whole set of strategies that got built in Wealth 2.0 with the application that wealth actually is toxic, is fragile, let's keep it from your family so that they're okay and that's how it should go. That's how Wealth 1.0 got expanded in good ways during Wealth 2.0, more psychological. But then, a little bit contaminated by the fear-based pessimism that also grew up in Wealth 2.0.

Ben Felix: Why do you think the negative aspects of Wealth 2.0 that you just described have been so persistent?

Jim Grubman: Oh, that's an easy one. It's a great story. It's just such a wonderful story and everybody believes it. We talked earlier in this podcast about the stereotypes about the wealthy. Can you think of any movie, or TV show, or book, or anything that portrays the wealthy as solid, responsible, skilled, down-to-earth, humble, and grateful and that their kids turn out responsible, grateful, humble, skilled, general society thinks rich people are screwed up and that they inevitably lose it? For many of them it's like, and they should lose it, because of how screwed up they are.

We talk in the book, if you know the work of Daniel Kahneman, the psychologist who's economist, wonderful, wonderful guy and all the stuff that we developed for behavioural economics and things. A lot of what he says is, people don't believe facts. They believe stories. The story is much more powerful. Wealth 2.0 made a great story. What's going on now in some of the writings that I've done with colleagues and what is a bit of a ground spell on is looking back and seeing the faults and holes in the story that has been Wealth 2.0.

I took a deep dive on some of the research and just couldn't believe how there was no there-there. It had been blown up way beyond what it was. The story has so many holes in it and is losing its power, but is a great story.

Cameron Passmore: This is a perfect setup to now having you describe what is Wealth 3.0.

Jim Grubman: Glad to. Because not only am I so energized about Wealth 3.0, but in much the same way I've been stunned at the reception of Strangers in Paradise, we're just really being amazed at the reception. Wealth 3.0 as a concept is just capturing and naming something. I haven't invented Wealth 3.0. We've just named a movement that is beginning to occur in multiple areas, Dennis and Kristin and I.

What Wealth 3.0 is, is not unlike a little bit of what we talked about an integration mentality and adjustment to wealth. It's built upon number one, looking at what are the good parts of Wealth 2.0 that actually were solid and that we should keep? Because there's much that was good in the last 40 years that developed. The idea that was more than just the money, you need to look at the family, the psychology, and integrated services. There's a lot of really good stuff that we need to keep. What do we keep that still serves us well?

Matched to number two, when is it time to let go of that no longer serves us well, that fear-based pessimism, poor research, lack of standards and credentials and practice on family wealth advising, a lot of things which never got built, because it's a cottage industry. Then the third part, which is the most exciting part, which is, what do we add? What do we take on that will serve us well for the future? What do we keep? What do we let go of? What new do we take on? More appropriate for the circumstances of the present and the future. I think that's the wonderful part.

The rise of positive psychology, the rise of techniques that instead of leading with as many advisors do, let's talk about what keeps you up at night, which is really a fear, negative-based approach to discovery. If I say to you, “What are some of the things you like to achieve with your family and with the money and what you're doing?” That's a more purposeful, strengths-based, resilience-focused approach. There are techniques we talk about in the book, adapted from solution-focused techniques in psychology and elsewhere, that it's like, advisors have to think more about be careful what you focus on, because that's actually what your clients are going to focus on.

If I say to you, “How worried are you that your kids are going to be entitled?” Then let's talk about how to prevent that. That's one approach. If I say to you, “Let's talk about what you've already been starting to do with your kids to teach them skills and what can we do to help you to advance that?” That's a different set of assumptions.

The advisor is looking at, what are we paying attention to? What are we emphasizing? What are we directing clients to? Are we playing up their fears? Or are we helping them build on strengths? That's what Wealth 3.0 is about, building up a much more robust set of credentials and standards, education, training, research, and practice techniques that are consistent with a much better approach to wealth.

Ben Felix: It's brilliant. Everything that you're just saying resonated very much. I don't want to talk too much about what we're doing, but –

Jim Grubman: No, it's actually quite legitimate. I mean, I know your firm and you have been a Wealth 3.0-ready firm for quite some time and you're approaching me even for the podcast was related to your interest in this. There are firms out there like yours that are already moving into Wealth 3.0 compared to firms who say, “Have I told you shirt sleeves to shirt sleeves in three generations?”

Ben Felix: Yeah. No, it all resonates very much. You were touching on this while you're talking just now. What new skills do advisors need to develop to be successful in Wealth 3.0?

Jim Grubman: Again, that's one of the areas I'm just so energized about. Interestingly, finding a lot of advisors are energized about. I'm tired of telling people, they're going to fail. What can I do to help them flourish? First of all, in terms of just even watching your language, joking about outlaws in the family, the in-laws that marry in. Those jokes, they're actually pretty painful for the in-laws themselves and it perpetuates stereotypes. Not talking about, assuming there's trust fund babies, all the jokes that we make about inheritors and things.

Just really watching for what in other contexts we often call unconscious bias, but checking your biases at the door about the different generations. For example, this is a little parenthetical. One of the biggest impacts we have seen with the discussion about Wealth 3.0 is actually on the third generation. In so many presentations and discussion forums, after talking about this, I have had essentially, the grandchildren and the family, the G3s, come up sometimes with tears in their eyes and say, “You are the first person I have ever heard talk about this in the field that didn't imply that I was going to be the one to ruin the family.” I mean, think about that.

We've said, wealth fails. It's not going to work out. Your grandchildren have no skills. They don't know what to do with it. Those grandchildren have been listening and removing the burden from their shoulders that they're going to be the ones that destroy the family and ruin the wealth. It's huge. What we say really makes a difference.

Cameron Passmore: Would you have any pragmatic advice for someone in terms of how can they identify advisors who really get the importance of Wealth 3.0?

Jim Grubman: That's a good one. That's really important because if you're a client who is ready for Wealth 3.0, you need an advisor who's thinking in 3.0, a capable advisor. I've talked with various firms and advisors and families and they raise exactly this point. If you're a 3.0 family with 2.0 advisors, that's not a good fit. How do you make a change? If you're a 3.0 firm with 2.0 clients, who still think wealth is toxic and it's going to fail and they want you to do certain things about that, that's not a good fit.

But if you're a 3.0 client, how do you identify a 3.0 advisor? Number one, listen. What do they ask about? What do they lead with? Do they focus on fears, negative outcomes, likely difficulties? Do they lead with challenges, the challenges of wealth? Or do they seem to have –remember, we talked about openness. Advisors vary from closed to open. I've had advisors who say, “Hey, I've seen shirt sleeves to shirt sleeves. It's real. Why are we not talking about that?”

The idea that actually, we have no evidence whatsoever, no statistics that are any good of exactly what does happen with families and these do struggle. But don't tell me you actually know how much, or how often. Listen to how an advisor approaches things. Are they open to talking about communication techniques? Are they interested? Do they push products, or services aimed at controlling the money for the family? Or do they show an openness to family communication? Family meetings are probably one of the best things that can be done for a family. But a lot of advisors don't know how to do family meetings or are really nervous about them.

Are they encouraging communication within the family? Giving resources that help parents talk to the next generation in ways that are useful? A 3.0 advisor emphasizes strengths more than challenges, asks what have you already done to begin working on this? Asks, what do you think I can do to help you with it? It's a very collaborative relationship. If you will allow me, that leads into a related area, which is collaboration among advisors. I'm going to pause here for a second in case you want to pursue some of the other things first.

Ben Felix: Oh, please keep going on advisor collaboration.

Jim Grubman: Well, I think one of the biggest new movements that's part of Wealth 3.0 is a rethinking of the nature of wealth management and the fact that it really needs to be collaborative and integrated among the advisors serving a family. In 2.0, and you know this better than I do, a big phrase, or label that came up was the advent of the trusted advisor and that desire to be that first phone call. That's a precious position to be the centre one. We talked about the quarterback, the general contractor, whatever you want to say. That wonderful position of the primary advisor for the family that directs everything else, particularly at the ultra-high net worth level, that just doesn't cut it anymore.

The complexity of wealth and families and the desire of families to have all of their advisors play well with each other, like in kindergarten. It's a different world. Demographics are changing. The movement is shifting from the trusted advisor to the trusted team. For a lot of advisors, they see danger in that. It's a threat to their position. They want to be the trusted advisor. They're not really very good at collaborating with others. Protecting the client relationship is more important.

For families and clients that are ready for 3.0 approaches, one of the things to watch for is not just, how does your advisor talk to you? How do they talk to your other advisors? Are they open, collaborative, and willing to function as a team with accountability? Or do they want to own the relationship and they are mistrustful, or wary or standoffish when you ask them to work with other advisors? That's one of the most important changes that's going on.

Ben Felix: What about going in the other direction? How receptive do you think clients are to Wealth 3.0 ideas if they're expecting or used to Wealth 1.0 and 2.0 type services?

Jim Grubman: Not very. That's the short answer.

Ben Felix: That's interesting.

Jim Grubman: It's funny, because actually, I think you may be aware, I am very connected to this thing called the Ultra-High Net Worth Institute, which is a non-profit think tank, where we spend a lot of time actually talking about these very things. Integration, collaboration, and a Wealth 3.0 approach is something that we are really focused on and spending time developing and thinking through. That's one of the issues, which is in a lot of financial services, it's not like the clients are beating down the door for a new approach to services. Some of them, many of them don't see the benefit in integrated services.

They say, is this going to be more expensive? Is this going to cost me? Why do I need that? I just want to deal with one person. There are a lot of clients who are perfectly happy and don't see the wisdom in a new approach. If that's the case, they need a 1.0, or 2.0 capable advisor that's a great fit. A lot depends on, in a sense, the end user, or customer, what are their expectations and their mindset, their openness? Is there a good fit with the people who are helping them?

Cameron Passmore: What are you most excited about in the emerging Wealth 3.0?

Jim Grubman: I would say, two things. One is the change, the front line where clients and advisors talk to each other and work together, and just what I see of how much better that goes when you focus on strengths and capabilities and purpose, rather than fears. Personally, having been in this business for a long time, what I'm most excited is about the other stuff we talk about on the book, which is the development of family wealth advising, finally, as a true, good, solid, professional field. We are way behind on where we need to be as a field with standardized, good, solid, broad education and training. Education and training and skill set for advisors in the field is all over the place with no standards.

There needs to be some credentialing that actually in the marketplace will tell clients who knows what they're doing and who's working on it. There needs to be solid, much more extensive, good research, with good research design, so that actually, we have a basis for telling clients what we tell them. We are just so far behind where we need to be as a professional field that what has been remarkable and very energizing and empowering is with the discussions of Wealth 3.0.

It is amazing how many important organizations are coming out of the woodwork to say, “I want a piece of that.” We have very significant organizations interested in doing research now in ways that they had begun thinking about, but this is sort of coalesced. We're talking with some of the major professional credentialing organizations, names that you would know, that already support some credentials, but they're looking to beef up credentials, and some of the things that the institute, the Ultra-High Net Worth Institute has done is being recognized as a potential curriculum for training.

Wealth 3.0 is bringing together a lot of parties who are on separate tracks and initiatives, somewhat in a similar direction, but it's given a focus and a roadmap in which people are stepping up to be collaborating to make it happen. It's going to be years, decades, possibly to really make it all happen, but I'm just really excited to see the movement that's going on.

Cameron Passmore: That is very exciting. Our final question for you, Jim, how do you define success in your life?

Jim Grubman: That's an existential question. And give you one answer. That is love. Years ago, I attended a presentation with somebody, and the topic of the presentation was something in financial services, but the guy talked about having done some volunteer work in nursing homes and hospice, and he said, interestingly, at the end of life, what seemed to make the most difference, and I would agree with this, is whether somebody felt that they were loved and that they loved. That they loved somebody, some other people, and that they were loved by others. That's a successful life.

I have to say, in my life, I've been very blessed, and that there are many people that I love and cherish quite a bit, and I feel that I am loved. So far, I'm a happy man, and it's what's really important in life. That's success in a way that may have been different than what you were asking about, but to love and be loved is the greatest success that I believe one can have. So far, so good.

Cameron Passmore: What a wonderful answer and a perfect cap to just an incredible conversation, Jim. It's been so great to have you. Thank you.

Jim Grubman: Well, thank you for having me. Great questions, and again, you're speaking and asking from a position where you know a lot about what I'm talking about, and you try and live it in the firm. It's great when we can have that conversation in a deep way like this. Thank you for having me.

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