In the movie The Godfather, Michael Corleone, the youngest of three sons, is chosen as successor of the New York mafia family throne, after his eldest brother is slain and over his older brother Fredo. While tradition generally designates the eldest child as successor in most family businesses, Fredo Corleone, less intelligent and weaker in character than his younger brother Michael, is superseded by Michael. The incendiary family dynamics that ensue, sparked by Fredo’s anger and resentment toward his own family, end with betrayal and in the tragic demise of Fredo himself.

In real-life family businesses, similar dynamics (though typically not as grave) can arise in which children may get overlooked for leadership positions or roles of successorship because of their lack of experience or skill. And yet, business-owner parents often feel obligated to ’take care of’ their children, and sometimes end up giving them inconsequential roles in the business because they want them to at least still be involved (which can sometimes also include a disparately high level of compensation because they want to provide what they can for their child). Alternatively, children can at other times be given roles that they are outright ill-equipped to handle (i.e., nepotism), which can result in bad decisions that cause harm to the company itself.

Thus, while these business-owner parents may only have the best intentions for their children, the behaviors and family dynamics that result can be counterproductive, arising in circumstances that can ultimately hurt the family business. This situation is called the “Fredo Effect”, and refers to the damage that results from the dysfunctional interactions between parents and children in the context of a family business.

The primary cause of the Fredo Effect often boils down to “role ambiguity”, in which parents have difficulty separating their role as business owner from that of parent. The child, too, can have role ambiguity challenges, as they often have unclear guidance about their role in the business, complicated by (often unfair) overcompensation they might receive, and may thus struggle to understand what specifically is expected of them.

Not only are parents and children affected by the Fredo Effect, but other employees and family members involved in the business are also impacted. Seeing a child-employee get compensated and otherwise rewarded for a job-not-well-done can be demoralizing to workers who are diligent and dedicated to their jobs, but who get none of the recognition or benefits that “Fredo” gets. Over time and left uncorrected, the situation can lead to severe erosion of employee morale and working conditions.

The most effective way to mitigate (and potentially prevent altogether) the Fredo Effect is to ensure that formal, well-written job descriptions are in place, which clearly define the standards and expectations for each role in the company. Establishing a “family council” can also provide a forum to facilitate open communication between family members, which can help them work through role ambiguity challenges by identifying (and delineating between) personal and business concerns, and talking them through with family members.

Financial advisors can help their clients by offering services to assist them implement these solutions. For example, an advisor can assist their family-business-owner clients in reviewing job descriptions to ensure that they clearly define the role, requirements, and expectations for each job; that a sensible reporting structure is in place; and that growth and development opportunities exist for all current employees. Advisors can also participate as an objective expert in family council meetings (and also facilitate the participation of other subject-matter experts as needed). And finally, advisors can help family-business-owner clients establish their own support system with each other, by coordinating introductions and hosting instructional events around issues relating to the Fredo Effect.

Ultimately, the key point is that many family-business owners struggle with role ambiguity issues when it comes to their children. The children, too, face role ambiguity challenges that can lead to dysfunctional behaviors, which can be potentially harmful for the business itself. Financial advisors with family-business-owner clients are in a unique position to serve as an objective third-party expert to help the family mitigate the effects of Fredo, and ideally prevent them from arising at all in the first place.

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In today’s digital-age culture where nearly all sources of news and media are instantly accessible and information overload is a normal state of being, it is not surprising that stress and anxiety are very commonly experienced in our fast-paced society. And in fact, stress and anxiety about specific financial problems are what most often drive people to seek the help of an advisor in the first place! Which, in turn, means that advisors should have some strategies in their toolbelts to effectively help clients (prospective or otherwise) who might be stressed and anxious. Accordingly, the first step is understanding that, while the terms “stress” and “anxiety” are often used interchangeably, the reality is that they are two very different things, indeed, and require different approaches.

While stress is the result of external stimuli perceived to pose some level of threat (with a corresponding response to the threat that may involve uncertainty about one’s own ability to deal with the issue at hand), anxiety results from internal forces arising from unhealthy attitudes towards a particular idea or concept. Thus, while stress can be eliminated when the external stimuli are removed, the same is not necessarily true for anxiety. While an external stimulus might serve to trigger anxiety, removing it may have no effect on the anxiety since it is the internalized idea that causes the anxiety (versus the actual external trigger).

A recent study released by the FINRA Foundation examined specific differences between individuals reporting financial stress and financial anxiety and found that 44% of all respondents reported experiencing financial stress. Other results provided by the study showed stress levels varied by sex, income level, age group, healthcare concerns, presence of dependents, and retirement status. More detail on these differences can be found in the following figures.

Interestingly, financial anxiety is consistently higher than financial stress across a variety of demographic groups, roughly 10 percent higher. This might be justified by the very definitions of stress and anxiety, whereas stress can be addressed by removing the stimuli acting as the stressor, anxiety will linger as psychological damage even in the absence of whatever stressor might be the initial root of the anxiety.

And while stress and anxiety may appear very similar, the underlying causes are distinct and communication styles to deal with each condition should be adjusted accordingly. For instance, advisors who have clients experiencing stress can most effectively help them by reframing the stressful issue positively (such as by reminding how they’ve successfully overcome similar challenges in the past), focusing on the problem (discussing the specific problem and plan of attack), and making to-do lists for the client. On the other hand, clients with anxiety may be overwhelmed by these strategies. Accordingly, advisors can use a different set of techniques, such as providing a safe place to have conversations about money issues, offering guidance as a teacher and supporter, and recognizing and acknowledging growth and progress. And while stress and anxiety may appear to have similar symptoms on the surface, simple assessment tools can help the advisor assess whether their clients are experiencing stress or anxiety so that communication strategies can be adapted accordingly.

Ultimately, the key point is that while stress and anxiety affect many individuals, financial advisors can best help their clients by having mechanisms in place to help them identify any stress and anxiety they may be experiencing. Additionally, taking care of themselves and managing their own stress and anxiety issues is something else advisors must do; otherwise they run the risk of unintentionally transferring their own emotions onto the client.

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