Bridging the Political Divide

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Hi everyone, I'm Jack Otter with Barron's, and I want to thank you for joining us for another episode of The Way Forward. Today we have special guests on a very timely topic. I'm joined by Michael Tiedemann, a founding partner and chief executive officer of Tiedemann Advisors, and Jill Shipley, a senior advisor and head of family governance and education at the firm. We're going to talk about how the firm helps families with issues around governance and legacy, especially at a time when politics may be injecting an unwelcome tension to the conversation around the dinner table. Michael and Jill, thanks so much for joining us.

Thank you.

Thank you.

So let's start with just this broad brush. Can you explain why family governance and education have become a priority area for Tiedemann Advisors?

While many of our families are unique, they typically have a complex multigenerational family dynamics. They're lucky enough to have those issues based on the success they've had, the wealth they've generated. And while many of them created their wealth in a variety of ways or different ways, they really often share the fear of mismanaging that transition of wealth to the next generation, the transition of values and work ethic. And as when you think about any family, as you have 1, 2, 3, 4 children, They have marriages that introduces, you know, this, the equivalent number of new families, which spouses were raised in. And then you go down generations from there. There's a fragmentation that occurs and, uh, families, I think, are realizing that they have, you know, a lot of opportunities for wealth planning today, but also value creation and really, uh, clarity around the value structure and the most important priorities of the families to try to keep those families together and also to try to diminish the risks that often come with transfer of wealth.

And you start these conversations yourself by pointing out things that need to be handled, or do the families tend to generate these from within and seek your help?

Well, so the seat that we sit in is very intimate. If you think about everything, we are a holistic advisor. So oftentimes we're working with several generations across most, if not all of the issues. And so we really have a huge amount of information about the families. So the conversation and the advisors who are dealing directly with either the fiduciary counsel or the investment advisors that are dealing directly with the family members are really where the conversation starts. You cannot force these conversations. But, um, what you hope is that over time, as you begin to do more and more for families and help them in a variety of ways, that they begin to open up to the challenges that— or the things they're thinking about. And then we as a firm collectively are able to use and draw from the various experiences that we've seen other families do a tremendous job of with some of these issues. Maybe not perfectly applicable, but ultimately we have a knowledge source that comes from the 400+ families that we're serving.

Well, I want to dive into some of the things you're telling them, but let's put it in the context of where we stand in the world right now, which is very different from where we were 9 or 10 months ago. How has COVID and has the election at all changed this conversation or accelerated the need for it?

I'll start with COVID So COVID has accelerated the trend for a number of reasons, and I'll focus on 3 that stand out. So the first is that families are spending more time together and we have less to do. So there's more time to talk about topics that might not come up on a weekly phone call. And also our vacations, our celebrations, our outings, sports have been canceled. So we're stuck at home and COVID and politics are front and center all day, every day. The second is health fears. So COVID has created more willingness to have conversations with our senior family members around their estate plans and also an openness to discuss their plans with their heirs. So this is a silver lining in a way, because it's hard to face your mortality, but it's so critically important to plan and also have those conversations about the impact you want your wealth to have. On your kids and future generations. Jack, I can't tell you how many conversations I've had with next gens that have lost their parents and feel resentful about what was perceived as either unfair or unequal and how the assets were left. And sometimes this can lead to sibling rivalry or lawsuits that could have been avoided through having those conversations. And then a third example is that our clients, they're really grateful and feel fortunate for what they have, and they recognize that many people across the world are struggling. So they're looking for, how can I help? How can I make an impact? And we also find that in some cases, the generational differences in the family have differing priorities. So it's important to, to try to get them on this, help them become on the same page in how they're going to make an impact on the world. So we work with a family and the son is in his late 20s. So he is very passionate about climate change. He's getting a master's degree at an Ivy League school in sustainable development. Now his parents are proud of his commitment and care for the environment. They care for the environment, but probably not at the same scale. Now with the fires and the storms, the son feels like every available dollar should go to this cause now before it's too late. And the parents have expressed some concern that giving him access to his trust assets or adding more to the trust because they don't want to see it used up. He's young and they might, he might regret giving it all away today, later when he gets older and has a family. And so we facilitated a discussion between him and his parents where they were both heard. He expressed his concerns and why this is important to him. And his parents were able to do the same and they came to an amazing compromise. So they decided that the assets in the trust would be invested in our impact investment managers with a focus on sustainable development goals like clean energy and climate action. So we were really pleased to see that they could come together. The assets would be available. They would grow. The returns would be significant as they would have in traditional investments. They're not sacrificing returns and the son is able to have the type of impact on the world that he's striving for. Mike, you might talk a little bit about how our firm is seeing impact investing become more of a trend these days.

Yeah, it's interesting. We, when the more that we, so we were very lucky to have a group join us 3+ years ago. There was one of the leading firms with an impact. And what they brought was 15 years of investing in the space. And more importantly, or as importantly, what they brought was direct, uh, conversations with families. And they learned throughout all of that how to navigate those discussions and created a diagnostic tool, which is what it effectively does, is everyone— you can take it as a family or you can take it individually. And the output of that, it's a series of questions, it's about 45 minutes to an hour long. The output of that shows you your priorities, and then from there we can turn that into a portfolio. And that transition of, uh, family members sitting together learning, in often cases, what, uh, their priorities are, and then enacting that, taking that in and creating an actionable portfolio that the family benefits from, and is really something new, unique, and it's essential for our business. It has helped break down, um, the conversation around money beyond what someone is going to inherit and instead turns the conversation into what are we going to do as a family with our money and beyond charitable causes.

So you, you mentioned early on, do clients come to us wanting to talk about education and governance, or are we bringing it to them? I think what is so important and, and I love about Tiedemann's mission is that we are focused on partnering to achieve what clients want most, what matters most now and in the future. And so we start our work with clients exploring what impact do they want their money to have? On themselves, on their kids, on future generations, and on the world. So, through those discussions, we're getting at the heart of what do you want to accomplish and what really matters? And everything else we do, estate planning, philanthropy, investing, can flow from those answers.

And by investing according to those beliefs, it would seem to me you probably have a a much longer term, I mean a potentially multi-generational impact and engagement with the causes that matter rather than just sort of a one-shot deal, a nice big donation and a seat on the board. But that can fade over time rather than being able to contribute to those causes for a long time.

You're exactly right. And candidly, we have a non-concessionary return view on investing in impact. We hold impact investments the same standards as any other investment. So from starting point, that's that. But what we've seen is impact investing has outperformed now, not just this year, but over prior years. And really what no one, or people often forget, is that the underpinnings to many impact investments is technology. Technology is, you know, think about fintech, healthcare solutions that are delivered more cheaply, or over Zoom or what have you. And then you go down the line, renewable energy sources, et cetera, et cetera. So these are all hugely important things that have also been hugely relevant and successful investments standalone. And so these are, again, it's all changing and the skepticism about impact investing or ESG is falling away. Quite quickly.

Yeah. And it's amazing how there is such a stark generational difference. While it's not universal, there is a feeling among an older generation that your job as a fiduciary is to maximize returns. And among a younger generation, well, why on earth would I ever invest with you if it's not going to align with my values? I've seen that a lot in your industry. Of course, this Thanksgiving is going to be very different in many ways. The group around the dining room table may be smaller. But shall we say the fierceness of the opinions perhaps could reach deeper into the red zone than ever. How do you help clients navigate politics, avoid that polarization? I mean, we've heard lots of stories that it really has damaged family relationships as we head into this election. And I'm sad to say that post-election, these strong opinions probably will not fade away.

Well, Jack, it is easy to get caught up, and like I said, we are home watching the news, and no matter which news we're watching or social media feed, as we've all learned from The Social Dilemma, we are being fed and reaffirmed the beliefs that we hold. So the statistics tell us that younger generations have different views traditionally than their parents and their grandparents, And these biases are just continuing to be reinforced. So yes, we are extremely polarized as families in politics. I have a couple examples of some things that people might consider at the Thanksgiving table, but I'll tell you one first that I think really calls out the challenge that we're facing in how each side believes that their views are right and often fact. So one example, a client called really frustrated about him not being able to get a point across to his daughter about a political issue. And for him it was clear. And if she would just listen, if she just could hear the facts that he was telling her, she would understand and change her view. He said to me, I'm not— I am trying to tell her that the grass is green and she's arguing with me that it's not. And we talked through what would really happen if she didn't come around to his side and see that the grass is green. What are the risks if he continues to bring it up and upsets her to the relationship? And is it worth it? What are the real life day-to-day implications for her and for the family? So I'm not trying to take anything away from the dad's strong view on the issue, but it helped him see that maybe convincing his daughter isn't what's most important. It's okay to be split in their views and also agree to disagree. I think it— let's find new sparring partners. It doesn't have to be our family.

Jill, it's funny you say that because I come from— I'm the youngest of 4 kids and 2 parents who had polar opposite views at the dinner table. My father was a Republican. My mother was not. She was a Democrat, and, um, and the kids all split. And I, I was so much younger, and I just remember watching the tense conversations. And what I learned from my father, he was, he was very good at, um, being empathetic and hearing people out and not speaking over them. And even if what they were saying flew in the face of his reality, he really tried to do his part of listening. And And then he would love to conclude the conversation by saying, "But last week when I was with Henry Kissinger having lunch, he told me—" Now that you've exhausted yourself, here are the real facts. That was his go-to move, which not everyone can do nor should do. But ultimately, as a parent talking to your children, trying to provide perspective without forcing it on them And trying to also learn a little bit from their perspective because ultimately the younger generations, they're talking, they're sharing information, they're likely seeing things and certainly hearing things that are different than what their parents are, either through news source or just through their life experience. So trying to make it more of a balanced conversation, but one where empathy and sort of civility governs.

I have two examples, Jack, of how families are dealing with it. This coming Thanksgiving, and they might come across as a little cheesy, but if you'll bear with me, I'm telling you they work. So already, one is this family has a code word, and they've been using it in family meetings for years. And if anything gets tense, anyone that's in the room has the right to call octopus. That's their code word, and the discussion stops, period. And now the family has started to do this sort of dance where if it's starting to feel tense, somebody will raise their arms around like an octopus and everybody giggles and it changes the mood and they move on. So that's one example.

I think the cheesiness is what makes that work. That's a lot of fun. You have to laugh.

It just changes the mood. And this one is a little bit silly too. So a family was having some arguments and needed some help. So I facilitated a Zoom call to how to deal with the continual back and forth around politics, especially since they were trying to get together for Thanksgiving. So we brainstormed options and they ended up just making a commitment to not talk politics with each other, at least through the end of the year. So the person that was hosting Thanksgiving and who's actually, she's the most political of the group, said, I have an idea and it's going to be a surprise. So she sent packs of gum to everyone in the family with a little note that said, I love you and our relationship matters more than anything else. We may not agree on everything and that's okay. Anytime you feel like talking about something political, grab a piece of gum, and if I ever bring it up, you're welcome to throw a piece at me. She had— she's planning on having packs of gum at around the Thanksgiving table, and she bought 100 packs that are going to be on her plate, I think, is also humorous and creative.

So I have to ask you, so that's the, the most important side, the relationship side. But of course, you guys are also managing money. And when it comes to the election, there are many differing views, of course, as to what different outcomes will mean for stocks, bonds, and other assets. We at Barron's have actually been telling people that elections, if you look historically, matter far less than we all like to think they do, just because the narrative of politics is so compelling. But what, if anything, are you doing in portfolios? I'm not talking about taxes yet, we can talk about that later, but in terms of investment choices, have you made any changes in anticipation of the election, and do you foresee making any post-election?

So our portfolio, we really do take a long-term approach to investing. So the short answer is we have, and we also believe the consistent throughout time, irrespective of political backdrop, the cost, the largest cost of investing is taxation. So in general, that is front of mind in any due diligence we do on a manager or an underlying strategy. Everything is viewed with an after-tax lens. That's a huge part of our strategy, um, or an important part of our strategy. So, um, we lean towards tax-effective or tax-efficient strategies. With that said, uh, in my lifetime, this is the first time that I've heard of long-term cap gain treatment, the increase that's being, uh, discussed. So, uh, that change in tax policy is obviously meaningful and would likely— we would make some adjustments beyond what we have naturally in our portfolio.

So in other words, would you invest in different asset classes because of their tax efficiency?

Well, so the short answer is the asset classes are the decision to and the weighting of asset classes are driven really by the attractiveness of the underlying investment themselves. And then obviously the tax characteristics is come typically more with a strategy being utilized in that. For example, an equity manager can be many things. Sure. And it can be concentrated, you know, sector-specific, or you can have, you know, index-like proxies. So our weightings towards those index-like proxies that have tax alpha incorporated would be, or tax loss harvesting as part of it, would likely increase.

So When it comes to taking those indexed or not funds and transferring the wealth, there are obviously tax implications there, but there's also what you referred to before as concern that the wealth creators' beliefs and fears won't necessarily transfer with the wealth to the next generation. How do you handle that process?

Well, I'll say every generation thinks of the upcoming generation with a little bit of disdain. So there's a bit of a kids these days comment.

It's always been us. Yep.

Yeah. Each older generation tends to say, um, so, and it's common that especially for the first-generation wealth creator that likely really put their blood, sweat, and tears into getting to this level of financial success. There's natural concern about if my children have access or know about their inheritance, they're going to turn into that college roommate that was a total slacker, stereotypical trust fund baby, or the person I see on television. And I am not going to allow that to happen to my kids. Now, I have conversations and have been having more and more over the last few months given a little bit of pressure to finalize and move money out of your estate with wealth creators. And when you dig in and ask them to talk about their adult children, they raised them. They modeled what a good work ethic looks like. They passed on the values to their children as they were raising them. And so, if you ask them, tell me about what your children are really like and how much do they look like your college roommate or the stereotypical trust fund baby that you're so worried about. And oftentimes they say after a long pause, okay, you're right. And honestly, my work over 20 years, the next gen, they don't want to let their parents down. 89% say they want to work. Almost 90% say they care about their family's legacy. And making their parents proud. So having conversations with the wealth creator to say, you raised them to be who they are. Now you have the opportunity. Show them you trust them, prepare them, engage them. The fact that you might disagree on politics can be frustrating, but it's typically not a good reason to change your wealth transfer plan. One more thing, just, you only have 3 choices, right? You can't take it with you. So you can leave your money to your kids or future generations. You can give it to philanthropy or you can give it to the IRS. That's what we got.

Um, I spoke to one advisor who works with a similar client base as yours, and, um, he has come to the point where he says he won't work with them unless they agree to design the trust such that the next generation can't get the bulk of the wealth until age 40 or over. And, uh, do you have any strict rules like that, or is it more that you, you work with the client to make sure that everybody's aligned before the trust is established?

I feel very strongly that there's— every family is different. Absolutely every family is different, and there's no, in my opinion, no hard and fast rule. I think because our brain isn't fully developed until our late 20s, early 30s, that it does make an impact on your decision-making. I think it's important to understand what are you striving to accomplish and how have you communicated and prepared your children for those outcomes.

I'll just add to that, Jill. One of the benefits of having internally within Tiedemann a trust company and to be able to serve as a fiduciary Um, when we started the company, uh, 20 years ago, it was based on my, my father's, uh, personal experience, uh, and his, his grandfather's trust. Uh, his grandfather's chairman of American Tobacco, and, and when he, and he died in '32 just after the Great Depression. When his mother passed away in '72, it was the same dollar amount 40 years later. So he was aghast, and he was on Wall Street, and he was extremely frustrated with, with how it was being managed within a traditional bank. And the view was, why can't I— why is it so hard to fire a trustee? They can have terrible performance, they have terrible service, totally inflexible, but I can't remove them. And, uh, so we, we've created— essentially, we will not take a trustee assignment unless they have power of removal. And Delaware is a great operating hub for a trust company for a whole host of reasons. But ultimately, trying to create a trust company that really understands and spend a lot of time with the generation that's creating the wealth to create the distribution rules. So that way the money will be used on healthcare, education, some of the obvious, maybe the down payment of their first home when they're married or whatever. There's a fair amount of flexibility you can have within a traditional trust, and then you remove the next generation's parents from having to deal with the governance of it without losing the ability to fire the organization if we or anyone else doesn't do a good job.

Gotcha. That's certainly an intelligent provision. Incredible story about your family. So onto a slightly happier subject, when you— you want to avoid all of these issues, of course. By setting a vision for the family, defining its philosophy toward legacy that everyone agrees on. Can you give some examples of how you help bring the family together along those lines? Sure.

So, we facilitate multi-generational family meetings and start with that question about what impact do you want this to have on you and your family and the world? We do activities to help people uncover their core personal values and the values that the family shares. And it is so powerful. And you see these parents and grandparents so full of pride because oftentimes there's so much overlap in the shared values. And the parents and grandparents see, we did a good job. We successfully passed down our values to our kids and to our grandkids and have them celebrate those core aspects of what guide their behavior and guide what they want to do together as a family. We should also say that we celebrate differences and diversity in values. There's power in both, but helping families come together to decide what's important to them and how are they going to live in alignment with their values. And in these times, I have a great example of a family I've been working with for a number of years. They'd already set their values and their mission And at a recent family meeting, they were going over what was important to them, and part of their mission states, "Respect differing opinions and foster independence." It also stressed the importance of family relationships above everything else, that there was a commitment to being cohesive. And this was a family that was fighting about the current political state. And so just having that reflection period of what they'd already committed to and decided really mattered to them, and that their behaviors and arguments were opposite of what they had committed to, it helped put it into perspective. And I think they've really changed their behaviors going forward.

I bet it's helpful to have that even though, of course, if you ask them, they'd all say family first. But once it's actually in writing, I bet it changes behavior a little bit.

Once it's in writing and then you talk about it every time you get together, what are we doing? How are our behaviors aligning? And oftentimes they're not. And then we need to change the mission if we're not going to live in alignment. Right.

One just anecdotal question for you. I'm just interested, given your lens on the world, the stereotype is that the first generation who are older and they are the creators tend to be the conservative ones and that the younger generation— now you mentioned the 20-year-old interested in climate change— is more seen on the liberal end of the spectrum. Does it always align that way, or do you have Michael J. Fox in whatever that show was called situations where the kid is the conservative and his former hippie parents are the liberals?

It does not line up that way. If you actually look at the research, oftentimes if the parents are strongly political during the child's formative years, the child is more likely to be aligned with their politics. Oftentimes there's a period of 18 to 30 where it shifts for the the reasons that you would imagine, but then they tend to fall back into what they grew up believing. But, but I will say, just anecdotally, is that when you, when you look at the statistics, that 80% of the wealthy are first-generation wealth creators that came from little, and they're working to provide their family a better life, and then they provide their family a better life and their kids experience a lifestyle that's very different than the one that their parents had. And they become accustomed to that lifestyle. So expecting that they're going to view their behavior differently or in the same way as the parents did is too much to ask. Sure, sure.

Well, that brings up an interesting point because, of course, the wealth creator thinks that, and with some legitimacy, that their initial values were formed in a world where they didn't have so much. And that they worry, of course, that the children who'd never experienced that won't have that view. And so just giving them more wealth could harm them. And so you guys have found that some of these fears are actually heightened due to the election. Can you explain that phenomenon and how you suggest advisors mitigate those fears?

So I would say that the fear, the election is heightening everything. So when you have polarization in a family and it is, like I said before, in your face all day, every day, I think it raises the temperature. So I don't think, Jack, that it has a long-term impact, and we are trying to encourage families to stay grounded in that this too shall pass.

Yeah, the challenge today, and it really is unlike, or there's these levels and number of dynamics that are at play in this election And the lightning rod that many of these topics represent is part of what is making it more challenging perhaps than normal. There's political discourse is common and everyone shouldn't be ashamed that everyone in their family doesn't see things the same way. It's absolutely common. The challenge here are there's more polarization partially due to A, the press, and B, both sides are catering to more of the edges of their parties as opposed to the center. So I think the common thread that we do hear is many people who are in the middle, which is probably the majority of us, are feeling, are feeling unrepresented currently. And, and it's, it's this sort of one pendulum to the other, and you have to pick that extreme pendulum as opposed to a leader or a senator that you like, what have you, in your district. And it's just making it more inflamed than it always is, but certainly than it needs to be.

Yeah, let's hope that that center can somehow find a way to come back. It will make the dinner table happier, and perhaps the country can get more done as well. Agreed. On that note, In Barron's tradition, we always ask our guests to share at least one actionable idea with listeners. I'm lucky enough to have two guests today, so we get a minimum of two actionable ideas. Who wants to start?

This Thanksgiving, use your family's time together to think of, write down, transcribe the values and the, the priorities that create— and really try to focus on the positives, the things that you think make your family what it is today, uh, and the things that the generations before you passed down and you took from them. And that's one. The second is, once you've established that, begin to think of rituals, because families having, you know, maybe it's once a year or maybe it's more frequent, but Uh, try to create rituals and, and, you know, gatherings, what have you, uh, Zoom calls. You can do it in a variety of ways. And then the last is really making sure that everyone gets an opportunity to present something. So shared learnings among family members, uh, whether it be younger generations. And, and try to— all of that, if you notice, none of it was about politics. It was all about things that people are doing, career paths are going down. Part, you know, what they're learning in school, or, you know, living in a different city, what it's like versus the one they grew up in. I mean, it can be little things, but ultimately it creates a little bit of discipline and structure to family meetings and family gatherings that gets away from kind of the trend back towards these conversations around politics or anything else.

I'll just add, and we talked a little bit about this, But if you're nervous to participate in the holidays with your families because a topic around politics may arise, set boundaries up front. Octopus. Come up with some— either commit to not communicate about the things that are polarizing. Give everyone some grace and empathy and respect. We are tired as a nation and we are anxious and we're bombarded with political polarizing messages. And this is an amazing time over the next few months to come together and remember what matters.

Guys, thank you so much. You've given us not only a lot to think about, but a lot to actually do. I am tempted to try that this Thanksgiving. And I'd love to see what my 14-year-old has to say in answer to your questions.

Give him some gum to throw at you. Great idea.

He'd love to. He'd love to, I'm sure. I really appreciate it. Thanks so much for joining us on the show today.

Thank you, Jack.

This is fun.

Uh, and I want to thank everyone who listened, and we will be back next week with another newsletter and another episode of The Way Forward.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.