Four top concerns of wealthy Canadian families for 2024

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A host of familiar and new concerns challenge clients of multi-family offices in Canada as they usher in 2024.

While their investments are perennially on their mind, this figures less among their wealth anxieties than most Canadians, according to advisors who serve them. Instead, it’s more intangible aspects of wealth keeping the leaders of these families up a night.

Here are four concerns advisors see for wealthy Canadian families heading into the new year.

1. The only certainty is uncertainty

While most family office clients have more wealth than they need to support their lifestyles, that doesn’t mean they don’t worry about risks of increasing economic, social and political upheaval in the coming year, says Patrick O’Connor, chief executive officer at Winnipeg-based Blackwood Family Enterprise Services.

“One concern is indeed political with the U.S. presidential election coming.”

Based on the last two election cycles, the runup and eventual outcome in November could roil markets and the economy, potentially affecting families with significant cross-border interests, he adds. What’s more, a contested election could add fuel to current geopolitical fires raging in Ukraine, the Middle East and elsewhere.

Even in Canada, politics is a worry. “There are all kinds of concerns about changes to capital gains and a potential wealth tax,” Mr. O’Connor explains. And an eventual change in the federal government could result in other tax changes. Notably, the carbon tax may or may not be around for the long-term. And with so many families operating businesses, it’s not so much higher taxes being the concern as it is uncertainty surrounding tax policy that creates long-term planning headaches, he adds.

2. Age – the tightening vise – and business succession

For years, family offices have been discussing the importance of succession and business transition planning. Certainly the need is palpable. A 2023 report by the Canadian Federation of Independent Businesses found 76 per cent of business owners plan to exit their business in the next decade – leading to an estimated $2 trillion changing hands. Yet just one in 10 have a formal succession plan.

And with each new year, the need to act becomes more pressing, especially for families led by aging owners, says Kerry Smith, national leader for family office services at MNP LLP in Vancouver.

“Much of the challenge is just letting go,” he says. Often family members who have been running the business for many years struggle to hand over control fully to younger generations, concerned they may not have the skills to run the enterprise. In other instances, it is not even a matter of ability; it’s a numbers game. There are simply not enough family members to fill all leadership roles, Mr. Smith says.

“So that often then falls on non-family members on management teams.”

Ensuring these individuals are part of the planning process is not just important for succession within the family; it is equally so when selling businesses. Pre-existing management expertise is often essential to the success of deals, providing stewardship through the transition. And without clear planning ensuring their roles, these key employees may look for opportunities elsewhere, he cautions.

3. Private and public markets are more correlated than investors may think

Alternative assets have increasingly been the go-to asset class for Canadian family offices and high-net-worth investors to generate long-term growth, de-correlated from public markets. That was true through much of 2022 when both equity and bond public markets were upended by inflation and fast-rising interest rates, says Spencer Clark, portfolio manager with Richter business and family office in Montreal.

Yet 2024 presents a new concern, especially for private equity and credit, he adds. “In a lot of cases, private equity and credit may be classified as ‘alternatives,’ but they are really just a different kind of equity and credit that can have similar risks to public investments.”

Consequently, some clients owning technology venture capital (VC) funds, for example, “may feel confident they don’t have as much risk exposure as they would owning high-flying tech stocks in the public markets,” even though both may share strikingly similar risks.

The key difference is often pricing. Prices for publicly traded equities and debt generally react more quickly to changes in the economy than private investments. That pricing gap, which widened in 2022 and, to some degree, in 2023, is likely to close in 2024, potentially upending the natural private investment liquidity cycle.

Normally, capital calls for new investment come just as older VC investments are paying out, allowing old deals to fund new ones, he says. But in this environment, “capital calls are speeding up” amid growing opportunities to invest in companies at low valuations. The problem is “distributions are slowing down” from funds with existing investments that fund managers are loath to sell at current low valuations, Mr. Clark says.

More broadly, a slowing economy could even have a deeper negative impact on private markets than on public markets, which have arguably already priced in a slight recession. “If you’re buying private equity, you’re buying a stake in a business just like buying stock in a publicly traded company, and so to expect that they’re truly decorrelated is a little naïve.”

4. Thinking multigenerationally

The challenges of preserving and growing wealth for high-net-worth clients often revolves around meaning for generational wealth, says James Dunne, managing director of Markdale Financial Management, a multi-family office based in Toronto.

“Once you get to the point in life where you have more material resources than you need for your own consumption, you often start to think, ‘What the purpose of it all?’” Answering this question is often most challenging for families new to substantial wealth, like those who have recently sold a business.

After purchasing a large home, travelling extensively and enjoying other luxuries that significant wealth affords, they begin to wonder about their legacy and impact on the world. It’s not just a matter of philanthropy; their efforts to make a difference increasingly involve impact investing, Mr. Dunne says.

Part of philanthropy and impact investing is involving younger generations of families to foster a sense wealth stewardship and responsibility to ‘do good’ in the world. “That’s far more important to the families I work with – that their kids will do something worthy with their lives and their wealth – than what the return is on the portfolio for next quarter.”

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