Ten things keeping wealthy Canadians (and their advisors) awake at night

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“Uneasy lies the head that wears a crown,” as the poet says, and that goes for the metaphorical crown of wealth as well.

It’s been awhile since we asked what was making well-to-do Canadian heads especially uneasy. Since worldwide political and economic affairs have been anything but reassuring since then, we thought we’d take another look at what exactly is keeping clients and their advisors up at night.

1. Transitioning wealth

The question of how to pass wealth down to successors is an enduring concern. It’s so important, in fact, that it underlies most other worries, and it ultimately depends on the next generation.

“We’ve always had a particular view with the families we work with that preparing the next generation for the responsibility of wealth is a foundational factor for successful transfer of intergenerational wealth,” says Ralph Awrey, director, family office, with Stonehage Fleming, who works internationally but is based in Toronto.

2. The reluctant heir

What if the chosen successor just isn’t interested?

“We have started to see some of the next generation be less materialistic and sometimes expressing that as a disinterest in the family wealth,” says Mindy Mayman, partner, chief compliance officer and portfolio manager with Richter Family Office in Montreal.

“Some families have told me the next generation doesn’t want to be part of the family’s wealth,” she says. “That may be their perspective at one time in their life, but not forever, so the question is how to bring them into the fold in a way that’s meaningful for them.”

3. Spoiling the kids

“I don’t want my kids to screw up my wealth and I don’t want my wealth to screw up my kids.” That’s what clients tell Steve Legler, a family legacy consultant based in Montreal.

Case in point: Rising housing costs have put extra pressure on parents regarding the issue of assisting children with home purchases.

“It seems like prices are running away from first-time home buyers, and so parents who have the means want to help,” Legler says. However, “maybe one of the offspring needs help but the others don’t. How do they end up treating them the same when their needs are different?”

4. Political and tax risk

Global politics, regulation and taxation have re-emerged as areas of greater concern.

“We’ve done some research,” Awrey says, “and one of the things we’ve observed is that the level of trust in a country’s political and institutional leadership has changed a lot in our families’ home countries. About 75 per cent don’t trust their political and institutional leadership.”

Specific political views are not the issue; it’s the instability, he says. “When you have regime and policy changes, it’s very difficult for families to do that long-horizon planning.”

5. Investment returns

Poor investment income has surged back into prominence with the turbulence and volatility of the past year, which is “very concerning to families,” says Awrey. He mentions, among other factors, the “significant and dramatic speed with which interest rates were driven up by central banks that has a drastic impact on the performance of all assets.”

But there is a positive side to this, too: Partly due to the priorities of the younger generation, “families are saying they want to pursue other-than-financial goals, causing them to ask again how their financial capital can be used to effect positive change,” Awrey says.

6. Evolving economic norms

Apart from seeing lower returns on the standard investment streams, families stewarding wealth have been experiencing a sea-change. Over the past year, “all of the conventional wisdom – which was very sound – didn’t happen the way everybody suspected it would,” says Awrey.

Higher interest rates have created a new set of choices for investors. As Mayman points out, “a few years ago you couldn’t earn anything on a bank account or a low-risk investment, so you sometimes took on more risk to earn higher returns. But now you can earn an acceptable return on low-risk investments, and maybe some of those higher-risk investments have lower liquidity. How do you manage those opportunities?”

7. Reputation management

Gone are the days when a well-to-do family could hide away in an ivory tower. The lightning-swift sword of social-media censure knows no boundaries, and every investment, every charitable donation – even the actions of decades past – can be under scrutiny.

“Families really do recognize that their most important asset is reputation,” Awrey says. “Even if the objective is to remove themselves from the public eye, in the digital age it’s impossible, so our advice is that you need to proactively work with your team to manage this.”

Although, he says, the technical side of cybersecurity is relatively easy to address, “there is also a human element. This comes back to training the next generation. It’s less about the hard technology; it’s more about training, education and family leadership.”

8. Technological evolution

Once a shoemaker’s child was likely to become a shoemaker, but now “someone in their 60s and 70s has grandchildren in their teens and 20s whose worldview is so different that it’s hard to imagine what the wealth that we’ve accumulated might end up going towards,” says Legler.

He points out that once-unassailable sectors – print publishing, for instance – barely exist anymore, “so trying to pass down family values and traditions and how the family operates together is so much harder now,” he says.

9. A cloudy future vision

There have been times when it was possible to make an informed guess about future events, but this is not one of them.

Mayman says, “We are dealing with a time when there is tremendous geopolitical unrest in the world. We live in an inflationary period that we haven’t seen in decades. We’ve just lived through an unprecedented rise in interest rates.

“There is an expression that the stock market climbs the wall of worry,” she says. “It is never crystal-clear what the future holds, but when we’re in periods of volatility, we get the feeling that it’s particularly difficult to visualize the future.”

10. Legacy

Finally, it’s the big human question, Legler says: “What will be my legacy? Will it be the one that you’re hoping for, and how do you live the rest of your life in such a way that if you’re looking down from above, you’ll be happy with it?”

Legacy is not a question of figures in a ledger, he says, “it’s the people who will carry that legacy. Are you doing what you need to do in order to ensure that they carry it on?”

Which brings us back to the beginning, the next generation, both the cause and cure of all our worries.

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