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Father and daughter conflict

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A good succession plan is one thing. Making sure the next generation doesn't squander that money on clothes, cars and tropical vacations is another altogether.

When Bank of Montreal polled several hundred of its wealthiest clients recently about their financial health, the responses were decidedly upbeat. About 77 per cent said they had recovered from the financial crisis or were better off than in 2008, while 80 per cent said they were enjoying more wealth than their parents did at the same age.

But when the subject turned to succession, the responses were much less rosy. Only 58 per cent said they were confident their children would be able to properly manage the money left to them, according to the survey, which will be made public Tuesday.

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The number was low but it didn't necessarily come as a shock to Andrew Auerbach, head of BMO Harris Private Banking. When he talks with clients about transferring wealth from one generation to the next, concerns about how the next generation will manage its money are always at the forefront.

"It's not so much doubting the capabilities of the children, it's simply that they haven't really thought in a deep way as to what that will look like," Mr. Auerbach says.

But effective wealth management means more than resisting the urge to spend the family inheritance. A proper strategy ensures the estate is invested soundly so that it will grow, rather than be consumed over time.

As baby boomers prepare for the largest transfer of wealth the modern banking sector has ever seen, ensuring that children don't blow their inheritances is a growing concern, particularly on the heels of the economic downturn.

"It's not always a concern that my kids are going to blow the money. It sometimes is, 'I'm not sure they're prepared to deal with it and I'm worried about outside influences,'" said Tony Maiorino, head of RBC Wealth Management Services.

The banking sector has coined a term for these concerns: "transliquification." Clients tell their advisers they are worried that once they transfer the wealth, it will be "liquefied" by their children. About 40 per cent to 50 per cent of clients express these concerns, said Mr. Maiorino.

"The majority of our clients, probably 70 to 80 per cent of them, have a wish that the wealth that they've created be around to support not just their children but their grandchildren," Mr. Maiorino said. "But I would say about 50 per cent of people are concerned that perhaps the right things haven't been done upfront to ensure that."

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Even as the demographic bulge is forming, the strategies for effective wealth transfer are the same, Mr. Maiorino said. They include sound management, diversification and reinvestment.

But in a era when children might be looking to use their inheritance to pay down debt or splurge on their lifestyle, those strategies need to be reinforced - and taught. Thus, banks and private investment houses have introduced programs to teach the children of wealthy clients how to handle their inheritance, large or small.

BMO Harris Private Banking has taught wealth management to kids as young as 14 and as old as the mid-20s, Mr. Auerbach said. As financial institutions compete for wealthy clients, these programs, with day-long sessions operated at offices across the country, are designed as perks.

"It's the sort of thing you're not going to learn in MBA school. It's not business school stuff, it's really about the personal side of how to deal with a lot of these issues," Mr. Auerbach said.

Bank of Nova Scotia decided to create such a program two years ago. "Let's Talk Money" is aimed at the adult children of clients between ages of 20 and 25, but limits the size of the day-long courses to groups of about eight to 10, said Kevin Fairs, head of learning and performance consulting for Canadian Banking and Global Wealth Management at Scotiabank.. So far 35 people have taken the course.

"It isn't about lecturing, it's about really good strong awareness, debate and discussion," Mr. Fairs said.

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Subjects covered include investment acumen, stocks and bonds as well as taxes, borrowing and debt.

Mr. Fairs said the topic of debt has come up often.

"Certainly with this age group, the 20- to 25-year-olds who are coming into these sessions are very much focused on, 'How do I not fall into the pitfalls that others have fallen into around over-borrowing and leveraging?'"

In fact, succession concerns are not necessarily limited to parents worried about their kids. Mr. Fairs said there is an awareness among the young adults about the broader financial world, and how their parents might be managing affairs.

"They do want to know a lot more about the global financial crisis, [such as] how is it impacting my mom and dad?"

The Succession Problem:

Confidence today, Concerns for Tomorrow

Affluent bank clients in Canada (those with at least $1-million of investable assets) are confident about their financial situation, even in the wake of a recession, according to a survey that will be made public Tuesday by Bank of Montreal's wealth management division, BMO Harris Private Banking. Here are a few figures from the survey:


Have amassed more wealth than their parents


Say their wealth is self-made


Believe their financial situation is the same or better than before the 2008 recession

However, the same survey shows a lot less optimism among those clients that their wealth will be properly managed by the next generation:


Believe their children will be able to manage their inheritance

Source: Bank of Montreal

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Senior Writer

Grant Robertson is an award-winning journalist who has been recognized for investigative journalism, sports writing and business reporting. More

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