Results Oriented Trust Environment (ROTE™)
Building Financial Responsibility and Connecting Advisors to the Next Generation
For several years, Mr. Gallo has been refining a concept that addresses two of the biggest challenges facing financial advisors and affluent families:
What can advisors do to retain existing business when funds under management are inherited by the next generation?
What can affluent families do to increase the odds that the next generation will be able to manage inherited wealth responsibly?
Currently advisors try to address both concerns through a range of optional ancillary services, ranging from newsletters and programs for parents and grandparents, to financial boot camps for the next generation.
However, this approach does not position the advisor, and his or her firm, as integral parts of the family's plan for the successful transmission of wealth to the next generation.
In 2007, Mr. Gallo was retained by the guardian of an 11-year old who had inherited $60 million when his parents passed away. The guardian wanted to motivate him to learn to manage money responsibly. With his wife, Eileen Gallo, Ph.D. and Boston psychologist, Jim Grubman, Ph.D., he created an approach that is based on more than a hundred studies in motivational psychology and business management. These studies showed that the best way to motivate behavior that involved judgment and reasoning (a good description of learning to manage money responsibly) was to identify the desired results and give the person autonomy in achieving those results. Such an approach is known in the workplace as a Results Oriented Work Environment (ROWE).
Mr. Gallo identified seven results of responsible money management, ranging from living within one’s means to having savings and not abusing credit. He then used the ROWE approach to create a trust which not only identified the desired results, but it also supported the trustee and financial advisors in helping the young man acquire the skills necessary to accomplish these results.
The Gallos call this concept a Financial Skills Trust utilizing a Results Oriented Trust Environment (ROTE™).
The Financial Skills Trust makes the advisor, and his or her firm, an integral part of the process by which family wealth is transferred and the next generation learns to manage wealth responsibly. It enhances both the likelihood that the advisor will retain funds under management when control passes to the next generation, and the likelihood that the next generation will learn to manage the wealth responsibly.
The Financial Skills Trust uses contemporary findings in economics and motivational psychology to create a trust that is a tax-efficient vehicle to transfer wealth down the generations. The trust also addresses the second common challenge by positioning the advisor in a key role in that process. Rather than being viewed as the parents’ advisors, the Financial Skills Trust places the financial advisor as a mentor to the next generation, increasing the likelihood of retaining existing business when next-generation clients receive their inheritances.