Interviewing The Affluent: Unpacking Philanthropic Values And Motivations - Part Two

Interviewing The Affluent: Unpacking Philanthropic Values And Motivations - Part Two

Article posted in Practice on 31 August 1999| comments
audience: National Publication | last updated: 18 May 2011
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Summary

In last week's edition of Gift Planner's Digest, Scott Fithian and Paul Schervish discussed "Interviewing the Affluent" and why helping clients to "unpack" their values and motivations is so important to the estate planning process. In this week's conclusion, they review methods of conducting the interview itself.

by Scott C. Fithian & Paul G. Schervish

General Rule on Content: By interviewing the affluent, we are attempting to identify their core values in relation to wealth, so that we may heighten the congruency between their stated priorities in life and how they choose the most appropriate and satisfying use(s) of their wealth.

How To Conduct The Interview

There are two basic methods for interviewing the affluent: questionnaires and personal interviews. In our practice, we incorporate both methods in each case.

We use a questionnaire that is designed to allow clients, in the confines of their own home and within a time frame that is comfortable for them, to explore their feelings with respect to a wide range of planning issues. When working with couples, we always suggest that they complete their questionnaires independently. Once complete, we suggest they review and sign each other's questionnaire, acknowledging their spouse's perspective.

Below we have provided an example of the type of questions included in the questionnaire:

QUESTIONNAIRE - Sample Survey Questions

General Questions-Setting The Stage

The ways in which you have accumulated wealth may influence your decisions about its distribution. How have you accumulated your wealth?

[ ] Personal initiative
[ ] Gifts
[ ] Unexpected good fortune
[ ] Inheritance
[ ] Assistance from a higher power
[ ] Employment
[ ] Building and growing a personal or family business
[ ] Successful investment
[ ] Other____________________

Comments ________________________________
_________________________________________
_________________________________________

Financial Independence-How Much Do I Need?

Which statement most closely reflects your thoughts regarding your willingness to give up ownership or control of assets?

[ ] I am uncomfortable with any strategy that interferes with my direct ownership or interferes with my ability to spend income and principal.
[ ] I am comfortable relinquishing ownership as long as I maintain control,

[ ] and retain access to all income;
[ ] and retain access to sufficient income to maintain my financial independence;
[ ] regardless of access to income (i.e., I can continue to manage the assets).

[ ] I have no concern about relinquishing ownership.

Comments ________________________________
_________________________________________
_________________________________________

Family Legacy-What Do I Want To Leave My Heirs?

Which statement most closely reflects your views regarding planning?

[ ] I feel no particular responsibility to conserve assets for heirs,

[ ] and would prefer to spend my assets during my lifetime;
[ ] however, I am satisfied to have "whatever is left" of my estate pass to heirs upon my death;
[ ] however, there are certain amounts I would like to leave specific heirs;
[ ] nevertheless, I intend to plan my estate in a manner that will maximize my heirs' inheritance.

[ ] I do feel a responsibility to conserve assets for heirs and to plan my estate in a manner that will maximize their inheritance,

[ ] however, I am not willing to commit cash flow or assets for that purpose;
[ ] and I am willing to commit cash flow or assets for that purpose.

Comments ________________________________
_________________________________________
_________________________________________

Social Capital Legacy-Where Will My Social Capital Dollars Go?

Taking into account all of the taxes you have paid over your lifetime (income, capital gain, excise, property, etc.), if you were required to give estate assets away, and your only choices were the Federal Government as a charitable recipient and all other philanthropic purposes, which would you choose?

[ ] Federal Government 100%, Charitable Organizations 0%.
[ ] Federal Government 50%, Charitable Organizations 50%.
[ ] Federal Government 0%, Charitable Organizations 100%.
[ ] Federal Government ____%, Charitable Organizations ____%.

Comments ________________________________
_________________________________________
_________________________________________

PERSONAL INTERVIEW - Sample Interview Questions

As a complement to the questionnaire, we also rely heavily on personal interviews. We conduct these interviews the same way a good reporter would, asking thought-provoking questions and recording the results. The use of a tape recorder not only guarantees that you will preserve your client's exact words, but also helps to capture the emotion associated with the response.

Paul G. Schervish, director of the Social Welfare Research Institute, Boston College, prepared the following interview questions. They are a sampling of the types of questions we ask, and they provide a clear perspective of the tone and substance of an in-depth interview process.

Background

Personal And Professional

Could you briefly tell me a little about your personal and professional background?

  • family origin/present family (include spouse)
  • occupation/schooling
  • business/professional resume

Origin Of Wealth

Could you briefly describe the process by which you made or are accumulating your wealth?

  • if inherited, origin of money in family
  • if self-made, nature of money-making activities

Business, Professional, And Financial Goals

When you were starting out, did you have any business, professional, or financial goals you wanted to achieve?

  • What were these? Have these goals changed over the years?
  • If so, how are they different now?
  • Do you think you will have different goals in the future?

What do you like least and what do you like best about the business or professional activities that you have just described?

Financial Security And The Meaning Of Money

Financial Security

Do you consider yourself "financially secure?"

  • What does this mean for you?
  • When did you decide that you were financially secure?

Has being financially secure produced any negative or positive changes in your life?

What do you think is the most important thing money can give you?

  • What can't it give you?

Given your current level of wealth (and business success), what motivates you to continue the process of investing and accumulating more?

  • Why?

Personal Assessment Of Wealthy Status

Do you consider yourself a "wealthy" person?

  • What does this mean to you?

Do you experience any regrets or guilt about your status as a wealthy individual?

Do you experience any regrets or guilt about how you obtained or used your money?

Have you ever had to make any compromises in your principles or beliefs in order to use your wealth productively?

Perceptions Of Wealthy

Do you think that there are different kinds or groups of "wealthy" (i.e., between inherited wealth and self-made wealth)?

  • What are these distinctions?
  • Do you think money means different things to these different groups?
  • Where do you see yourself as fitting in?

Are there any special personal or social activities (e.g., lifestyle) associated with being wealthy in our society?

Money Management: Current And Historical Patterns Of Resource Allocation And Financial Advisement

Distribution Of Resources

Can you tell me, in general terms, what you spend your money on?

  • General Categories?
  • What do you think about dividing it up that way?
  • Is this on an annual basis?

How do you decide how to manage your money or use it for different purposes?

  • Do you have a budget?
  • Or some other kind of decision making framework that you use (e.g., how do you decide how much money to spend on yourself versus investments, gifts to heirs or charitable contributions?)

How do you think you will be spending your money in five (5) years?

  • Do you foresee any changes?
  • In what you spend your money on?
  • In what your priorities will be?

Do you think you will spend more or less on certain things?

Do you anticipate spending money on anything in the future that you don't currently spend money on?

Partners In Decision Making

Do you discuss these kinds of decisions with anyone else?

  • Who?
  • What do you discuss?
  • How involved are they?
  • What degree of influence do they have in the final decision?
  • What types of advice do you seek?

Learning About Money

How did you first learn to manage your money?

  • Who taught you about money, or how you should spend it?

Did this change as you became more experienced?

  • How?
  • What was this process?

How are you dealing with your children about being wealthy or handling money?

Taboo On Talking About Money

A lot of people say that money is or was never discussed directly in their family. Was that true in your experience?

  • Do you think there is a kind of taboo about talking about how much money you have or your family has, or how you use it?
  • Why do you think this is?
  • What is this phenomenon about?

General Rule on Methods: Interviewing the affluent requires the effective use of questionnaires and personal interviews, from which the advisor elicits patterns and themes with respect to an individual's or family's history, values and beliefs.

How To Use The Information

Before the information you accumulate through the interview process can be used in the planning process, it must be organized in a planning structure. In our practice, the final outcome of the interview process is a written mission statement that we refer to as a Family Legacy PhilosophyTM.

Articulate The Family Legacy PhilosophyTM: Creating The Mission Statement

Drafting a mission statement is not a simple task. However, the process will move more smoothly if you have effectively followed the steps outlined above. We use the following steps in developing a client's Family Legacy PhilosophyTM.

The Family Legacy PhilosophyTM. The most productive and effective way to begin the process of establishing a Values-Based Estate Plan is to define your client's Family Legacy PhilosophyTM, or FLP. This personal written "wealth mission statement" clearly expresses the appropriate uses of wealth in view of your client's values. It is fast becoming an industry standard for the effective deployment of wealth.

Like a business plan, a Family Legacy PhilosophyTM guides your clients toward their highest goals and objectives. A FLP will help your clients, their heirs, and their team of advisors more fully understand their true motivation and objectives regarding all aspects of their wealth. Used to its fullest potential, the FLP effectively governs the estate planning process, guiding advisors to recommend various strategies only if they support the client's stated goals and objectives.

We cannot stress enough the fact that the Family Legacy PhilosophyTM must be reduced to a written format. This tangible expression of objectives and values provides a unique opportunity for your clients to be in full control of the planning process.

If you think this sounds like a lot of work, you are right-it is. Building a plan to distribute a client's life's work is a major task, and does not come easily. However, if done well, it will be one of their most important accomplishments. Trust that their efforts-and yours-will be well rewarded.

In helping clients draft their mission statements, we follow the sections outlined below. We have provided sample paragraphs for each section to give you an idea of what the finished mission statement might look like.

Typical Sections Of The Mission Statement

Purpose. Question: Why have I (we) prepared this mission statement?

This section informs the reader of why your client wrote the mission statement. A typical paragraph would read as follows:

"This document expresses our values and intentions regarding the accumulation, preservation, use, and distribution of our estate. We wish for it to serve as a basis of planning for our professional advisors. Furthermore, it will articulate clearly to our heirs and others with whom we share it, why we have managed and distributed our estate in the manner we have chosen."

Sources of Wealth. Question: How did I accumulate my wealth?

This section provides the reader some insight with respect to how your client's wealth has been accumulated. Typical paragraphs in this section would read as follows:

"We accumulated our wealth through efforts of personal initiative and hard work, coupled with successful investments. Although we have enjoyed a comfortable lifestyle, we also have been careful to maintain spending at a level well within our means.

We have been diligent in preserving our wealth through sound investment diversification. We have paid our fair share of taxes over the years, but also have sought to enhance asset growth and minimize taxes through the ongoing use of legitimate strategies such as qualified retirement plans and tax-exempt bonds."

Responsibilities And Obligations. Question: To whom do I feel a sense of responsibility or obligation regarding the distribution of my wealth?

This section provides the reader some insight regarding your client's feelings of responsibility and obligation with respect to the distribution of wealth. Typical paragraphs in this section would read as follows:

"Our first responsibility is to each other-to secure our own financial independence for life and preserve our ability to maintain our desired lifestyle.

Our second responsibility is to our daughters. We have provided them with the best education possible and will continue to nurture their development as financially responsible and mature adults. While we are alive, we will look for opportunities to sustain their knowledge and ability regarding fiscal stewardship.

Our third responsibility is to our community for contributing to our ability to grow and maintain a thriving business. We are also thankful for the rich environment that our community provided for raising our children.

Our fourth responsibility is to respect the intrinsic value and memory of our ancestors, our heritage and our past. Although we inherited little in material assets from our parents, we are indebted to them for the grounding they provided us in the form of positive values, sound ethics, the worth of personal initiative and hard work, and for their efforts to instill in us a strong sense of self-worth. All of these attributes are more valuable to us than money."

Motivation for Planning. Question: Why am I planning my estate?

This section provides the reader with specific information regarding your client's primary motivation for planning. What is the number one thing they are trying to accomplish? A typical paragraph in this section would read as follows:

"Our primary motivation for planning our estate is to reduce tax. It is our objective that any tax savings generated first will be utilized to secure our intended family legacy of $2,000,000 and then will benefit our designated charitable beneficiaries."

Financial Philosophy. Question: What does money mean to me?

This section provides the reader with general information regarding your client's philosophy of wealth. What is important to them about money? Typical paragraphs would read as follows:

"Up to this point, our wealth has been concentrated in a closely held business. This has greatly simplified the need to venture into other investment areas. However, as we intend to sell the business in the near future, investment management will be a primary concern. We intend to preserve our wealth through sound investment diversification, with an emphasis on long-term growth and professional management.

We have paid our share of taxes over the years, but have also sought to enhance the growth of our assets through the ongoing use of legitimate tax-saving strategies. With the impending sale of our business, we intend to explore suitable options for limiting the adverse impact of taxes.

We have enjoyed a comfortable lifestyle and plan to continue to enjoy the fruit of our labor. However, we have always been careful not to live beyond our means.

Among those things we value most are honesty and integrity, responsibility for actions, respect for others and spirituality. Among those associations we value most are family, friendships and business relationships. Among those activities we value most are personal initiative and hard work, personal achievement, education, community involvement, recreation and leisure, and volunteerism."

Financial Independence. Question: What do I need from my money to maintain my financial independence?

Financial independence is at the heart of all financial decisions. This section provides the reader with specific information regarding your client's definition of financial independence, and whether or not they have adequate planning resources. It is important to be specific if your client's mission statement is going to be useful in developing their plan. Typical paragraphs would read as follows:

"Our present assets and income exceed that which is required to maintain financial independence. We intend to take full advantage of our wealth, enjoying the finer experiences in life.

At this time, we feel comfortable with $100,000 of annual after-tax income increasing at 3% each year. This adjustment will help offset the impact of inflation. In addition, we would like to maintain a cushion of $1,000,000, in case an unexpected need should arise. At the present time, this translates into approximately $2,000,000 of assets. Taking into consideration current available resources of $4,000,000, we are presently 200% financially independent. In other words, available assets are twice that which is required to maintain our lifestyle."

Family Legacy. Question: If I could leave my heirs any amount of wealth, how much would I leave them and why?

A specific family legacy goal is essential to developing an effective estate plan. This section provides the reader with specific information regarding your client's definition of an appropriate inheritance for each heir. It is important to be specific if the mission statement is going to be useful in developing the plan. Either a percentage of estate assets or a specific dollar amount is appropriate. Typical paragraphs in this section would read as follows:

"We feel a responsibility to conserve assets for heirs in order to assure that our intended family legacy is achieved. Furthermore, we are willing to commit both cash flow and assets for the purpose of accomplishing this objective.

We believe each child should receive an equal share of the estate, regardless of individual circumstances or needs. We would like to transfer some assets today, but prefer to transfer the majority of our children's inheritance through our estate. Rather than transfer assets to our grandchildren directly, we prefer to transfer assets to our children; they can determine if it is appropriate to pass a portion along to our grandchildren.

Under the present circumstances, we realize that approximately 40% of our $4,000,000 net assets will be lost to estate tax, leaving some 60% of our total estate for our daughters. Although we are not happy to see our estate reduced by tax to this extent, we are confident that a family legacy in the 50% range will be adequate to provide our daughters with a sufficient financial supplement to achieve their highest goals, dreams and desires. At the present time, we feel a family legacy of $1,000,000 each would be sufficient for this purpose."

Social Capital Legacy. Question: If I choose to control my social capital, to what organization(s) will I give it? Why?

This section informs the reader whether your client chooses to direct social capital personally, or will allow the government to do it for them. It also specifies what the client is willing to do in converting tax into gifts. Finally, it clearly indicates the organizations and causes the client would like to benefit through their estate plan. Specific percentages or dollar amounts are essential. Typical paragraphs in this section would read as follows:

"It is our objective to reduce taxes in favor of charitable gifts where possible, as long as these gifts do not interfere with our ability to maintain our financial independence or provide the desired family legacy (i.e., $2,000,000 total family legacy).

We feel that it is important to do our fair share by paying reasonable taxes and have always paid significant personal and corporate income taxes in the past. At this point, we would rather direct money to charity than pay taxes.

We feel good about our philanthropic history. However, thus far in our lives charitable giving and personal involvement with charitable organizations has played a limited role. Now that we have retired and have a satisfactory financial cushion, charity will play a larger role.

To the extent charitable giving strategies can be used to maintain or enhance our financial independence and will not interfere with our desired family legacy, we would like to begin the process of philanthropy during our lifetime. In particular, we are interested in charitable strategies that will enhance our annual income and reduce the burden of tax.

Regarding our philanthropy, we prefer to make gifts with a specific purpose in mind and to hold the charitable recipients accountable for fulfilling those objectives. We prefer to contribute to well-established charitable organizations that can demonstrate an ability to effectively use our gifts.

We prefer to be directly involved with the charities we support financially and would like to be directly involved with the work of exploring and/or analyzing problems and shaping promising solutions with our philanthropy. We enjoy being recognized for our philanthropy in order to encourage others to follow our lead.

At this time, we are interested in three areas of philanthropy: health care, education, and our community. At the present time, we have identified three charitable organizations toward which we would like to direct our philanthropy. Although this list presently makes good sense, we wish to reserve the right to adjust our plans should our feelings change in the future."

The following list is expressed in order of priority:

"Our top priority is Anytown Children's Hospital. We intend to direct 50% of our self-directed social capital to this organization. This gift is made in recognition for the life-saving treatment Children's Hospital provided for our daughter Sarah.

The second organization is XYZ University Foundation. We intend to direct 35% of our self-directed social capital to this organization. This gift is made in recognition for the quality education afforded us by this wonderful education. The quality of this experience has positively impacted our lives and contributed to the lifestyle we have attained. Education is among the pursuits we value most.

The third organization is The PDQ Fine Arts Museum. We intend to direct 15% of our self-directed social capital to this organization. This gift is made in appreciation of the contribution this organization made in teaching our children to appreciate the arts."

Acknowledgment. Question: Can my advisors, heirs, and other with whom I choose to share this document rely on it as a fair representation of my (our) values and opinions regarding wealth?

It is necessary for your client(s) to sign and date the mission statement, as assurance that their professional advisors may rely on the document as an accurate reflection of their values, opinions, and objectives. The advisor who assists in developing the mission statement should also sign the mission statement. A typical paragraph would read as follows:

"This document accurately reflects our desires and intentions with respect to the management and distribution of our estate. Our advisors shall rely on this document in the preparation and development of a plan that will fulfill our stated mission."

Annual Review And Update. Reminder to Client: This is your mission statement. It reflects your, or your family's, financial philosophy. You should review your mission statement each year to assure nothing has changed. If nothing has changed, you need not take any steps at that time. If your opinions or values have changed, or for any reason your mission statement no longer makes sense, you should change it. A new version should be prepared and signed reflecting the appropriate changes, and referencing the version being replaced.

Through the mission statement, your client maintains control. Make sure that it always accurately reflects the client's views and opinions.

General Rule on Analysis: The most effective means for analyzing the information obtained through the interview process is to help your clients create a personal mission statement that accurately reflects their values and points the planning process toward the ultimate target.

Achieving Significance And Effectiveness At Each Level

The final stage of the planning process is to develop a plan that is congruent with your client's mission statement and maximizes significance and effectiveness at each level of the pyramid.

The most effective way to achieve congruity is to first identify all those areas where the client's current plan in incongruent with the mission statement. We refer to this as a table of incongruity. Remember, if the mission statement provides an accurate summary of the client's values and beliefs, then the resulting plan should support those values and beliefs at every level of the pyramid.

Financial Independence. At the financial independence level of planning a clear definition is required. The client's definition of financial independence in many ways describes what is required for the client to maintain a sense of confidence that personal significance will be maintained over time. At the same time, the application of effective investment management techniques, cash flow management, tax planning, social capital planning strategies, and risk management are essential.

Family Legacy. Once an appropriate family legacy is defined, clients often feel a tremendous sense of satisfaction from helping succeeding generations receive a financial head start, as well as providing a solid foundation of family values on which to build their own futures. The advisor's challenge is to preserve this sense of significance while accomplishing the client's objectives at this level. At the same time, it should be noted that both effectiveness and significance at this level will not be possible if they can be achieved only at the expense of effectiveness and significance at the financial independence level.

Social Capital Legacy. At the very top of the planning pyramid rests your client's social capital legacy-that unique sense of satisfaction and significance one feels from being able to help others. While this is most often the driving force behind the philanthropic journey, do not overlook effectiveness at this level of planning. Even those with tremendous amounts of wealth pride themselves on financial efficiency.

General Rule on Implementation: Products, services, and strategies are appropriate if they positively contribute to the effectiveness or amount of significance achieved at one or more levels of the pyramid. Your success as a professional advisor (for-profit or nonprofit) is ultimately judged by the value you create for those you serve. How you create that value is a matter of your professional discipline and your personal perspective.

Conclusion

An in-depth understanding of the client's innermost thoughts, dreams, goals, and desires has not always been clearly reflected in the development of the typical estate plan. Certainly each of us, with regard to specific clients and certain circumstances, has achieved this desired level of performance at one time or another. Our goal is to make this approach the norm, rather than the exception.

You already possess the basic skills of a good listener, advisor, and counselor, or you would not be in this line of work. Helping your client sort through the myriad of issues relating to their wealth is not unlike helping a good friend overcome a problem. Simply treat your clients with same level of respect and compassion as you would a friend or family member. The results will speak for themselves.

Remember These Six General Rules

General Rule 1: The rapid expansion of wealth, increasing numbers of affluent, and an intense desire for personal values to be reflected in planning, all create a context within which interviewing the affluent is not only important, but essential.

General Rule 2: The purpose of interviewing the affluent is to unearth the natural inclination to identify those things that provide greatest meaning in their lives.

General Rule 3: By interviewing the affluent, we are attempting to identify their core values in relation to wealth, so that we may heighten the congruency between their stated priorities in life and how they choose the most appropriate and satisfying use(s) of their wealth.

General Rule 4: Interviewing the affluent requires the effective use of questionnaires and personal interviews, from which the advisor elicits patterns and themes with respect to an individual's or family's history, values and beliefs.

General Rule 5: The most effective means for analyzing the information obtained through the interview process is to help your clients create a personal mission statement that accurately reflects their values and points the planning process toward the ultimate target.

General Rule 6: Products, services, and strategies are appropriate if they positively contribute to the effectiveness or amount of significance achieved at one or more levels of the pyramid. Your success as a professional advisor (for-profit or nonprofit) is ultimately judged by the value you create for those you serve. How you create that value is a matter of your professional discipline and your personal perspective.

* * * * *

Copyright 1998 and 1999. The Legacy Companies, LLC. All rights reserved. For information about these or other services and products, telephone 617-689-0777 or 1-888-645-4591; fax 617-689-3224; email can be found at www.legacyboston.com.

For information about the research findings on wealth and philanthropy produced by the Boston College Social Welfare Institute, see the Institute's website or contact the Institute at (617) 552-4070.

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