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In a photo from June 5, 1997, the new president of Eatons, George Kosich, looks up at the statue of the founder of the store, Timothy Eaton. In background on the left is Fred Eaton. On the front right, George Eaton. Behind George on left is Thor Eaton and far right is John Craig Eaton.Tibor Kolley/The Globe and Mail

For a telling example of the adage "shirtsleeves to shirtsleeves in three generations" – meaning that wealth gained in one generation will be lost by the third – Canadians don't have to look far.

Under the helm of his great-grandsons, the famous retail empire founded by Timothy Eaton went from boom to bust, although in this case it took four generations.

The wealth attrition rate is surprisingly high. It affects 90 per cent of family fortunes, according to one study from the United States. In some cases, the money itself disappears, and in others it's the family business that's lost.

"There is certainly enough evidence to suggest that the momentum is toward not keeping the money as opposed to keeping it," says Tom McCullough, chief executive officer of Toronto-based Northwood Family Office, an investment firm that manages families with high net worth. "You've got to work pretty hard at keeping it."

Among the causes of the phenomenon are taxes, inflation, bad investment decisions and the natural dilution of assets as they are shared among generations of heirs.

Yet among the most compelling causes are younger family members who are ill-prepared or unwilling to shoulder the responsibility of wealth stewardship. They have grown up with plenty of money and are a step or two removed from the work ethic and drive of the people who made it for them.

"There is a risk of entitlement that comes to the fore, and that is where things tend to go off the rails," says Thane Stenner, director of wealth management at Vancouver-based StennerZohny Investment Partners, part of Richardson GMP.

The key to overcoming that, he adds, is communication, which means "family discussions, family meetings, and trying to be very proactively engaging with the next generation, rather than reactive.

"Successful families are basically talking a lot to them about what the previous generation has done and engaging them by asking about their own dreams and aspirations. And really helping to enlighten them, or get them excited about their own future and how the family can help fund that future, but in a very responsible, business-like way."

According to Mr. McCullough, almost as much time and effort should be spent in preparing the heirs to receive the wealth as actually investing and managing it.

"That involves understanding what your family's set of values is," he says.

Most owners of multi-million-dollar family businesses are keenly aware of the destructive consequences of not doing so, says Susan Bell, executive vice-president at the investment consulting firm Bell Kearns & Associates Ltd. in Toronto.

"I would say that almost every client who walks through the door has come to us already knowing two things," she says. "One is that shirtsleeves to shirtsleeves in three generations is true, and secondly, that there are many families out there who have been very publicly ripped apart over the money.

"But I would say the one that keeps them up at night, the one that worries them, is the family deterioration."

Consequently, advisers in the high-net-worth space can find themselves having to broach difficult topics.

"Many things are solved by time and experience," says Mr. McCullough, "but money and often power short-circuit those natural consequences. So parents end up using money, out of love, to help their children avoid the natural, character-building consequences of life."

His firm takes a common-sense approach. "Because we are a family office and people come in to work with us and deal with various aspects of their lives, it is a very natural part of the conversation," he says. "So there is no digging, no pussyfooting around. It is, 'Tell us about your kids. How are you feeling about your progress financially? How are you feeling about your relationship with them?'

"It's like going to see your doctor," he says. "It doesn't help not to tell."

For Mr. Stenner, the earlier those discussions about wealth and values take place, the better. "When they are teenagers, or even younger," he says.

His firm uses storytelling exercises, courses and even games "that help to engage the next generation. So it's learning, but there has to be an element of fun woven in."

Establishing a philanthropic family foundation is another way of involving younger generations, says Krista Kerr, CEO of Kerr Financial, a boutique personal wealth-management firm with offices in Montreal and Toronto.

"You can get adult children to sit on the board with you so they learn how to invest the assets and how to give them away," she explains. "You can even get their kids to help, whereby every year they do some research and decide on a particular gift. That brings them into the discussion, and can also get people used to making financial decisions together as a family."

Another method employed by high-net-worth individuals is setting up a family bank that provides investment funding to heirs with an entrepreneurial spirit, Mr. Stenner says.

These families are "telling the younger generation, 'If you have a dream or a vision or a business idea that you want to develop, come to the family with a business plan.'"

Education and mentoring are usually part of the package, he adds.

"There's a lot of equipping that takes place," he says, "and a lot of communication."

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