Flourishing Families: Jay Hughes on the True Meaning of Wealth

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Stacie Jacobsen: Thanks for joining us today on The Pulse by Bernstein, where we bring you insights on the economy, global markets, and all the complexities of wealth management. I'm your host, Stacie Jacobsen.

Our guest today, Jay Hughes, is a leading expert on family governance, a critical pillar of wealth preservation.

While Jay began his career as an estate planning attorney, he found that he could have a greater impact by advising families on the true meaning of wealth.

His research and approach have set the gold standard in the industry, and his professional achievements and accolades are just too extensive to list here.

He's an author of several influential books, and a new one is in the works now. Jay, thank you so much for being with us today.

Jay Hughes: Well, it's a great pleasure, Stacie, and I'm looking forward to this conversation and what we can learn together.

Stacie Jacobsen: Where I'd really like to start is to have you walk us through the true meaning of wealth.

You know, so often we focus on the asset side and just the money, but your definition, it extends far beyond that financial capital.

Jay Hughes: Well, life seems to fall into quantitative and qualitative categories. Qualitative things start with the spirit, they're aspirational, they speak to the human condition.

So, the first thing I ask people to do when they begin to think about the qualitative questions and the word wealth is if they can reprogram their brains so that whenever they hear the word wealth, they hear well being.

And when they hear money, they hear financial capital.

Stacie Jacobsen: You started the first part of your career as a very successful estate planning attorney, started your own practice in New York, but you made that switch from, you know, how do we actually build a structure to the, why are we doing it this way?

What made you realize that you wanted to focus on the why in the latter part of your career?

Jay Hughes: Well, Stacie, Dante in his great poem starts by saying that in midlife, he found himself in a dark wood with nowhere to go.

This is perhaps the greatest clear description of a midlife crisis. I found myself in Dante's dark wood at the age of 49, right on time, with no way out. Crisis had personal aspects and it had professional aspects.

On the professional aspect, I came to the conclusion I was not helping.

So I did have quite a big reputation. I was very hubristic, traveling all over the world, getting lots of pats on the back, lots of big institutions. But I sat there in the dark woods, Stacie, and I said, I'm not helping. These families aren't flourishing.

They've got great structures, great quantitative help, but the qualitative aspect. So as I sat there and began to think about, did I want to do this work anymore?

Yes, I did. Could I do it in some way that I would perceive I was making a difference in whether the family was flourishing or not?

And that took quite a lot of thinking, finding the right view of a question a very wise person called the Buddha said many years ago is the key to getting a better outcome.

Sounds simple. It's not simple to find the right view of the question. But finally, what I realized was that I had been asking families, what do you need?

If I ask you, Stacie, what you need, you immediately assume you're needy. And guess what? You probably need what I'm offering.

This is a great business model, but you're not needy at all. You didn't know you were needy. So I thought as I came outta the midlife crisis, I'm gonna do something I haven't done before. I'm never going to ask a family again,

What do you need? I'm only going to ask them, can I help? Now if I ask you how might I help or can I help? You're not needy, you don't need my help.

You can say, I don't need your help, Jay. Fine. We, we've had a very good, useful conversation. Or you can say, I really have no idea if I need any help at all. Let me ponder the question. But you certainly wouldn't immediately respond to something that I could fix for you or not fix for you.

So that's how I got out of the midlife crisis.

Stacie Jacobsen: That led you to some pioneering work, especially in the family governance space, and you're very well known for the structure that you started to think through, which is the five capitals of wealth. Can you walk us through that?

Jay Hughes: I'm going to ask our listeners to put up your right hand, turn it so that your thumb is sticking up, and put your five fingers out.

And now I want you to close your five fingers. And now you just have your thumb sticking up on your right hand.

That thumb that's sticking up is financial capital. What I can say with absolute certainty is if a family sees itself only as its financial capital, it's toast. That quantity itself, without the qualities is meaningless.

Now, if you turn your hand upside down, so your right thumb is now sticking down, and your five fingers are sticking out to the left, now imagine that your pinky is spiritual capital, your ring finger is social capital, your middle finger is intellectual capital, and your first finger is human capital.

All of a sudden, you see what your family actually is.

It's the four qualities, wiggle those four upper fingers, supported by financial capital, and now the financial capital has a job to do. Grow those.

If you're growing those four fingers, spiritual, social, intellectual, and human capital, supported by the financial capital, I can assure everyone who's listening today that they will have an entirely different experience together, because they will actually be growing that which is most important to them.

Stacie Jacobsen: Let's go through each one of those for a moment, and we'll start with the pinky, which is that spiritual capital. If you're starting to walk through this with a family, how do you get started?

Jay Hughes: Well, I tell them a children's story. Of course, they're very grown up people. They want to get to how and what. But I say, I'm sorry, you have to start with why.

Oh, Mr. Hughes, why? It's process. I don't like process. I want product, right? No? Sorry, if you ask me to come, I can't help you with product. I can help you with process.

So, Stacie, imagine for a moment that you were Alice in Wonderland, and one day as you're wandering in the woods, you come to a big oak tree or a big fig tree, whatever the biggest tree is in the forest, and it has a big branch sticking out over the path that you're walking on, and the Cheshire Cat is sitting on that branch.

Now, the Cheshire Cat, if you recall, always has a huge smile. He says, oh, Alice, where are you going? And she blissfully says, I have no idea.

And then the Cheshire Cat said, well, Alice, then you're certain to get there. Now, what he doesn't tell Alice is, it probably isn't where she wants to go. So, the pinky is where do we want to go?

Why are we doing this? Do we want to be a flourishing family?

Does it matter to us? Does it matter to us that the people in our family of affinity are thriving or not?

Does it matter whether we're on an intellectual journey together to learn like crazy together or not?

Does it matter whether we can make joint decisions, thousands of them over a hundred years or not?

If it doesn't matter, then the why question is answered. It doesn't matter.

And like Alice, you then you wander in the woods.

Well, Stacie, I can tell you that every family I've ever told that story to, or any hundreds of people, stopped and think about that.

And they think, well, Cheshire Cat is asking a really good question, where are you going?

Do you have some consensus about that or not?

Stacie Jacobsen: How do you bring a family together who says, yes, we want to make joint decisions together.

We want to be able to flourish for many generations. How? How do you make joint decisions when there's so many different personalities in the room, and also those personalities that aren't actually in the room that still show up in these decisions.

Jay Hughes: Families are full of ghosts. They're living and dead.

But you're absolutely right. There are many more people in the system than are in the room. That's always a case.

I don't want to sound like I have a perfect answer. Because I don't. Every family has its own unique characteristics. What I would say is that from all of the different books I've read over these Years since my midlife crisis, many thousands of books.

My goal was to try to synthesize from those books what might help a family flourish. Of course, it's got to want to flourish. That's the why question. Is it committed?

Now, let me say, as I'm coming to the answer to your question, no family I've ever met could answer that question intelligently and competently right away.

It's aspirational, the idea of flourishing might inspire them, but the perspiration needed for a hundred years, they might not have.

So what I asked them is this, I said, well, suppose you decided together that you would adopt the following idea, that your family exists to enhance.

So suppose you agreed together that you would adopt a policy that was this, we will seek, so that's a vision, that's where you're starting, to enhance, improve, the journey of happiness of each family member toward the entire family flourishing.

Now, that's philosophy.

So, a lot of families would say, they say, what are you talking about? I say, well, I'm going to ask you the following. If you think of yourselves as a flotilla, a bunch of boats out on the lake, how important to you is it that none of the boats are sinking?

Or is it even more important to you that all the boats are not stopped because they don't know how to move?

So to enhance the individual journey of happiness for each member, that's a big thought. But what you're actually asking me is am I consciously, intentionally seeing to it that every boat is sinking? of each human being is rising.

Yeah, that's exactly what I'm talking about over a very long period of time.

Stacie Jacobsen: So when we think about social capital, how does that work into the qualitative capital?

Jay Hughes: [00:10:45] One thing's for sure for families, if they make black and white decisions, they will fail. If we went to another of the assessments that I use Enneagram, which is the best projector of personality that's ever existed, They're nine different points of the star.

So if everybody's an eight, we're toast. It's not possible. You have all these different kinds of personalities and different learning styles.

See, they come together. So when we're going to make decisions together, and if we think of a hundred year journey, which is to get the third generation born and part of the way along, What we'd like to do is to learn how to find consensus.

So I'm going to be very, very simplistic here, but boy is this important. A family must be two or more people.

I think we all agree with that. But what happens when you have two or more? You have to make joint decisions. What I ask people to do is to say, look, if it's a joint decision-making system, then work toward learning how to have difficult conversations that lead to consensus.

And what I would add is, if you know how you learn, and you know what your Enneagram personality type is, and I know how you learn, and I know your Enneagram personality, the chances of that conversation getting difficult are way reduced.

Because if I'm going to try to make a decision with you, I have to honor the fact that I do know how you learn the material, and I know how you've been processing that decision.

Stacie Jacobsen: So Jay, let's move on to intellectual capital. How do you discuss that concept with the families you work with?

Jay Hughes: Well, we all know that each of us absorbs information every day. We also know that information, if it is only data, takes you nowhere, whereas information that becomes knowledge becomes useful.

The problem in families is that we tend to learn alone at home, and we don't share what we learned.

Intellectual capital, in the way that I define it, is not just what each person learns, it's what all share.

Let's look at the intellectual capital. What I know, and the family knows, but doesn't consciously know, is that every member of that family learns in a slightly different way.

Just imagine for a moment that we know how everyone in that family from age six, including the trustees and the family office executives, know how they learn.

So, the first thing I suggest to families that they do is do a learning styles assessment. It's incredibly useful, and do it with the people in the system, including the ghosts, the living ghosts, who are the trustees and the family office executives and the other people in the system.

What's happened is first, when the family processes information together, each person receives that information in the way he or she can best process it, feel how the joint decision making is going to be already better.

But staying with intellectual capital, the question you asked, if everybody gets the same material initially, then when they're sharing what they learned, they will be passionate instead of having information provided to them in a way they can't best assimilate it, they can't best integrate it.

So just think of a whole different system, a system in which you're getting the information the way you most like to integrate and process.

And you share it, then, with your family toward its knowledge base in a passionate way.

Stacie Jacobsen: And that last capital on the finger, the human capital to round out the four qualitative, let's move on to that one.

Jay Hughes: Well, if our purpose is to enhance the individual journey of happiness of each family member, then we care profoundly about his or her personal thriving.

We adopt a way of being in family in which we are committed to his and her wealth. And his or her wealth is his or her wellbeing. So the human capital is, are the human beings in the system thriving?

Are they individually finding the system supporting their individual journey, particularly by the way, in vocation and in health.

So again, at the very beginning of the way I help a family and they say, okay, how can the quantitative financial capital help?

And I say, well, suppose you established a fund for education, and you established a fund for health, just those two funds.

And you basically said any family member who wants to improve themselves can go to that fund and ask for help.

Immediately, you have got your mind around how the quantitative capital can grow the first of the capitals.

If the health and education of each member is growing, the intellectual capital is growing, the social capital is growing, they can join a better joint decision-making system.

And why? The family itself will flourish and then have something to hand on to the rising generation.

Stacie Jacobsen: Jay, all too often money or the financial capital is not discussed with the rising generation. So they're just not prepared and ready to handle the responsibilities that come with it. When you're working with families, how do you suggest they properly prepare their beneficiaries?:

Jay Hughes: I honor people by asking them to be adults about this problem, and I said, well, look, Sigmund Freud, he said, that the happiest people he met in his practice the most adjusted, he used that term where those who learned to love and who learned to work, by which he meant vocation.

However, most people don't know that Freud went on and said something else, which comes us now to your wonderful question.

about the rising generation, and what does it know? How does it get brought into the system of quantitative capital?

Freud went on to say that the two great depressants of adjustment are sex and money. He then went on to say that money is the most difficult of these two because no nice person will speak about it.

The thing I ask the adults in the room is to say, Do you know how to talk about money? The answer is no, almost none of us are comfortable, even with our spouses, maybe particularly with our spouses, if one has more than the other talking about money.

So what I would say is this, if there is financial wealth, wealth in the financial capital sense in the family, there will be for every rising generation member.

And note, I never say next, no one wants to be next. But everyone wants to rise when the rising generation members are going to be anointed into the joint decision making system, and there are financial resources, there will be what we call Stacie.

The great reveal. Here's our choice. Do we want the great reveal at 21 for the most valuable assets of the family are rising generation members.

They're our future. Do we want them to be sent to the lawyer as in literature and be told that they don't have to work ever again?

No, that's what the lawyer would tell them at the great reveal or because we're terribly worried that the money is going to destroy them. Might we do something about it?

Might we actually learn how to talk about money ourselves?

Look at there's some wonderful literature by the way about how a six year old begins to learn or a ten year old does well Why not? As part of the intellectual capital of the family, start learning about how to talk about money and at the different stages of life and how that financial capital integrates to grow those human beings.

Stacie Jacobsen: So if you know that the end goal is to open this line of communication, how do you take that first step?

Jay Hughes: Well, I take it with the adults. So if we can start our conversation. About these incredible assets, these young people that we love right there rising as the critical question or a long term future, then why not start learning together how to talk about money?

Now, I want to be very careful here. Fair warning, the beginning of those discussions with adults does not mean that the adults will be good at it right away.

And it doesn't mean that in their couple's conversations, it's going to go smoothly. Because just maybe, they haven't talked about money since the prenup.

Oh! Uh oh. Have we opened Pandora's box? We might have. So, what I strongly suggest Is when a family is ready, it bring in a really wonderful person, not for therapy, but, and not even for coaching, but for actually opening up a conversation in which they will eventually feel more comfortable with this system.

Problems, Stacie, as I was taught years ago, as a way of something never to do, so when people say, well, Mr. Hughes, what, or Jay, what must I never do? You must never say to your child, we can't afford it in the store.

You must only say we choose not to have it now. Because if the four year old knows that you have the money, and you say you can't afford it, you've already, Freud, to work.

You've lied. It's not a big lie, but I can promise you it's a slippery slope right after that.

Stacie Jacobsen: So I'm going to repeat that quote of yours, because I think that's so impactful. It's, we choose not to have it now, right? Not that we can't afford it, so we choose not to have it now.

Jay Hughes: Yes. Well, which is an adult conversation with a child.

Stacie Jacobsen: And it's building the foundation for big decisions down the road.

Jay Hughes: Yeah.

Stacie Jacobsen: So, Jay, so often this big reveal occurs during a period of transition, during the prenup signing, right before this child is about to embark on a whole new journey. And that in itself is risky, right?

So you're assuming that that child can live within the family plan and will accept it.

When we think through that rising generation, they don't tend to have much of a say in what they're going to inherit. So how, again, like, how can we help to structure a plan that the beneficiaries can live in?

Jay Hughes: Well, at the risk of our audience thinking I'm selling books, I'm going to offer a book that I wrote that I think would be more helpful to them than the answer.

I'll give a little answer. But I wrote a book called The Cycle of the Gift, along with Keith Whitaker and Susan Massenzio. Why did we write that book?

We wrote that book because we felt that the field did not have a way to have a conversation about the question that you're raising. And that question is this.

It's when the young person, the rising generation member is approaching the Great Reveal. When they have the Great Reveal, it will always be as if they were hit by a meteor from outer space. And then the person has to process. Do I run away from it? Do I fight it? Am I frozen by it, or can I integrate it?

So the question of how that conversation occurs, because it can't avoid the problem of the meteor, it can't avoid the integration reality, is so incredibly important. That's why people are so afraid of it.

The fear of the child having that conversation, yes, entitlement, yes. But what really is going on there is the love of the parent or the grandparent for that child, the parent and the grandparent suddenly understand that they did something that they even feel remorse about, that this person they love is going to have the meteor hit.

Let me be very simple. If I were an estate planner, which I am not anymore, and I was saying to a family with extra financial resources, you know, you really should put into this little trust for junior 14,000 a year because it's a free gift.

Oh, sure. Says the person. No gift tax. Great. Let's do that. So here's 14,000 a year.

It's going into this trust for this young person who's our most important asset. And all of a sudden, at 21, they've got a million dollars. And everybody says, how does this happen? What are we going to do?

That's the reality of these family circumstances. That's not an unusual case. What we know is that the great reveal for that person does have the risk of entitlement, does have a risk of going to sleep, does have a risk of running away from it.

So the issue is At what point does the grandfather begin to have a conversation with the grandchild? Why did I make you this gift? Because if it isn't a gift, it's a transfer.

And transfers are dangerous to your health because they always have obligations and duties associated with them. That's why we wrote this book.

We wanted to ask people, are you making a gift? Not what the gift tax law says, no. Are you intentionally giving this to someone you love?

And are you prepared to express that love, not through the money, but through the reason that you hope this will enhance this person's life?

Otherwise, it's a transfer, and transfers are dangerous to the rising generation's health.

Two of my colleagues and I are writing a book, which probably will come out next summer, which picks up this theme in a different way.

We're asking this question, can the family live in the plan? By the way, over 200 people we've interviewed now, not one person said yes. So here's grandpa putting 14,000 simple money for three grandchildren because the accountant called and said write the check.

Grandpa doesn't know that by the time that money is going to be revealed. It's very unlikely that person can live in that plan. That's the sky falling, that's that meteor coming down. So if Grandpa really wants to make a gift, then he has to be in the conversation with you that you're engaging me in today, at the first 14, 000, not the 20th year, whatever the number is at that point.

Stacie Jacobsen: I have one more idea, if we had the time, but I'd love to hear what you have for a wrap.

Jay Hughes: I do have one more thing that would be a good wrap. Uh, Stacie, many, many centuries ago.

There was a man sitting in Athens whose name was Aristotle, and most of us at some point in our educations heard about this man.

Something stuck with me that this man said. He wrote a book called The Politics. It's the greatest book on political philosophy ever written. Aristotle said, do you want to live in a flourishing society?

Anybody who memes, of course I do. Then Aristotle said, well then, you must answer my second question, is your family flourishing?

Oh. Because Aristotle said the mathematics are very simple. The building blocks of a flourishing society are flourishing families.

So, my question this year, which is not making people happy, I'm, but I'm an old man, I can be a curmudgeon occasionally, is, I ask them very blithely, do you want to live in a flourishing society?

Oh yes, of course I do. Okay, then is your family flourishing? I think this is a worthy question. Is your family flourishing?

Because if it isn't, then you are not contributing to a flourishing society. You can't kevech, as they say in New York. You have to go do something, and that's a whole lot more likely to produce a flourishing society than anything else you could do.

Stacie Jacobsen: Jay, thank you so much for joining today and walking our audience through the five forms of capital and reminding us which ones are the most important to focus on for a flourishing family.

Jay Hughes: Wealth is wellbeing, and I think we've contributed to it. This has been a joy. Thank you so much.

Stacie Jacobsen: Thanks to everyone for giving us a listen.

Please subscribe to The Pulse by Bernstein on your favorite podcast platform. I'm your host, Stacie Jacobsen, wishing you a great rest of the week.