Some of the biggest risks in a successful family’s financial life were not created by bad decisions. They were created by very good decisions that accumulated over 30 years and were never properly connected.
Nobody deliberately sets out to create an unnecessarily complicated financial life. Complexity tends to arrive gradually and, particularly among successful families and business owners, it is often the natural consequence of things going well.
Some of the most consequential risks in significant family wealth do not sit neatly inside an investment portfolio, tax return or estate plan. They exist in the spaces between them.
The business grows, so an accountant recommends a holding company. The family buys a cottage and eventually an investment property. Insurance is purchased when the children are young, additional investment accounts are opened, perhaps a trust is established, and another corporation becomes useful for a new venture. Years later, the children are adults, one has joined the business, another has moved outside Canada, an inheritance has arrived, and the business that once represented almost the entire family net worth is now one part of a much larger financial picture.
By then, the family may have corporations, trusts, registered and non-registered investments, private holdings, insurance policies, real estate, estate documents and several professional advisors. There may be absolutely nothing wrong with any of it, yet nobody has recently asked whether everything still works together.
That distinction matters because some of the most consequential risks in significant family wealth do not sit neatly inside an investment portfolio, tax return or estate plan. They exist in the spaces between them.
An accountant understandably approaches the family’s affairs through a tax and accounting lens, while the lawyer focuses on legal structures and estate documents, the investment advisor manages the portfolio, the insurance advisor reviews protection and the banker deals with credit. Each professional may be highly competent, and each recommendation may make perfect sense within that person’s area of expertise.
Families, however, do not live in professional silos. The ownership of a corporation can affect an estate plan, which can affect future liquidity requirements, which should influence investment strategy. A decision involving a child in the family business may have implications for succession, tax and estate equalization, while a decision about a cottage can involve capital gains, liquidity and family dynamics at the same time.
This is why successful families need to become much more conscious of what I think of as complexity risk.
When individually correct becomes collectively wrong
A financial strategy can be perfectly reasonable when viewed independently and still be wrong for the family as a whole.
An investment portfolio may suit a family’s stated risk tolerance but fail to account for a large future tax obligation or business transaction. An insurance policy purchased 15 years ago may still be valid even though the reason it was originally purchased has changed completely. An estate plan may have been thoughtfully drafted while marriages, divorces, grandchildren, business growth and changes in residency have since altered the family around it.
There may be no obvious mistake and nobody to blame. Life simply continued moving while parts of the planning remained where they were.
This is what makes unmanaged complexity difficult to identify. Bad advice can often be spotted and corrected, while complexity risk can remain hidden because each individual component still looks entirely defensible on its own.
Not all complexity is bad
It would be a mistake to suggest that successful families should simply make everything simpler. A family with significant business interests, multiple properties, substantial investments, cross-border considerations and several generations to plan for will naturally require sophisticated structures.
The more useful distinction is between necessary complexity and unmanaged complexity.
Necessary complexity earns its place because somebody can explain why a particular corporation, trust, account or insurance structure exists, what it is intended to accomplish, how it interacts with the rest of the family’s affairs and when it should be reconsidered.
Unmanaged complexity merely accumulates. It is the corporation everyone continues filing returns for even though nobody can clearly explain its current purpose, the insurance policy that has not been reviewed in years, the investment account opened because of a relationship that no longer exists, or the estate plan drafted before the family’s circumstances changed dramatically.
There is a tendency to equate financial sophistication with adding more structures, strategies and products when, occasionally, the most sophisticated recommendation is to remove something that no longer serves a purpose.
Complexity has overhead
Businesses understand overhead instinctively, yet families rarely think about the carrying cost of their own financial complexity.
There are obvious costs, including accounting, legal work, administration and professional fees, but the less visible cost is cognitive. The more moving pieces a family accumulates, the harder it becomes to understand the consequences of any one decision, which can slow decision-making and increase the likelihood that something important will be overlooked.
Complexity also makes transitions substantially more difficult because the next generation does not simply inherit assets. They also may inherit a financial architecture that took their parents decades to create, but they lack the history required to understand why it looks the way it does.
For that reason, every meaningful financial structure should periodically have to answer a deceptively simple question: Why does this still exist?
If the family and its advisors cannot answer that clearly, the structure deserves another look.
One useful test is whether someone can explain the family’s overall financial architecture on a single page. The underlying legal agreements, tax records and investment statements may legitimately run into hundreds of pages, but the family should still be able to see what it owns, how major assets are held, where the significant liabilities are, why the major structures exist and which advisors are responsible for each area.
Most importantly, somebody should understand how those pieces affect one another when life changes.
Success will almost inevitably create additional complexity, and that is not evidence of poor planning. The risk arises when complexity accumulates without anyone periodically stepping back to determine whether the pieces still form a coherent whole.
The objective is not to make a sophisticated financial life artificially simple, but to ensure that its complexity remains purposeful, understandable and manageable. At a certain level of wealth, sophistication is not measured by how many structures a family has accumulated. It is measured by whether anyone can still see the whole picture.
Elke Rubach is a Certified Financial Planner with CLU and MFA-P designations. Her expertise lies in optimizing income and tax efficiencies, achieving cohesiveness in financial and estate plans, and providing ongoing asset management strategies that foster wealth accumulation and growth. Elke is a reformed lawyer who earned her graduate degree in law, with a focus on banking and finance, at the London School of Economics, where she studied on a Chevening Scholarship. She worked as an associate at the London (U.K.) and Toronto offices of the law firm McCarthy Tetrault. During a stint in banking, Elke observed the life-changing impact of good financial advice and decided to switch to a career in financial planning and wealth management. She founded Toronto-based Rubach Wealth in 2012. Today, Elke is a sought-after speaker on wealth management, estate planning and philanthropy. She’s the founder of Fashion Heals for SickKids, which has raised more than $500,000 for pediatric cancer care and research since 2016. She also gives back with board and volunteer commitments with the Professional Advisory Council for SickKids Foundation, the Investment Committee at the Office of the Public Guardian, the advisory board for Transpod Inc., and the board of Ronald McDonald House Charities in Toronto.
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