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Susan Latremoille heads the six-person Latremoille Group at Richardson GMP in Toronto.

Kevin Van Paassen/The Globe and Mail

We love to read stories about the second- and third-generation scions who blow the family fortune.

But these stories are also reminders that having wealth today does not make people immune to economic cycles, currency crashes, bad advice or bad decisions.

Of course, those with high net worth have far more options to build and protect their investments than people of more modest means. Those advantages can include owning their own businesses, extensive real estate portfolios, exclusive investment products, and the ability to hire the best financial, legal and accounting advice.

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It was that host of options for the well-off that prompted Susan Latremoille to switch the focus of her financial services practice to high net worth clients who have plenty of options.

"It is infinite the opportunities that they have and the solutions that can be customized to their specific family situation," says Ms. Latremoille, who heads the six-person Latremoille Group at Richardson GMP in Toronto. "That's the key, all this exists out there, trusts and holding companies and income splitting and insurance, but it is getting the right advice to customize it."

With so many tools, tax breaks, investment products and specialized professionals to steer family fortunes, it seems unlikely that a 2008-style crash can wipe out the wealthy, but there are plenty of pitfalls to avoid, she warns.

Chief among them: the children. Rather than fret about how to pay for their education and extra-curricular activities, wealthy families need to be wary of the mindset of the next generation, the wealth adviser says. "How do you avoid this sense of entitlement that so often comes when the money bags are there, without the responsibility of earning it, or making it?" Her firm offers education for clients on how to best raise children and instil desired values in an environment of abundance.

Family dynamics and jealousy are also magnified by wealth, as New Brunswick's McCain family saga so graphically illustrated. "You don't have to be a McCain, you can be a normal high net worth family," she says.

Financial complexity – to save tax today or in the future – can also become as much a hindrance as a benefit, Ms. Latremoille adds. Businesses, real estate, trusts and holding companies can make family finances overly complicated and resistant to improvement or change. "It is almost like they don't know where to start, and they don't," she says. "Then when something happens, it can often be a legal battle."

Ms. Latremoille gives the example of a wealthy family whose business winds up being run by a son-in-law of the company's founder. The marriage breaks up and what looked like a silky smooth succession, and the main source of the family money, is suddenly up in the air.

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Many of her wealthy clients earned their money the old-fashioned way, meaning they earned it by creating and running a successful business. Beyond succession headaches, in some cases too much of the wealth is tied up in the business and is vulnerable to economic downturns or, in a more current scenario, the fall in the Canadian dollar against the U.S. dollar affecting the bottom line. (Though this can be countered, she suggests, by increasing investments outside the main business to reduce risk.)

Amassing wealth can also breed arrogance, especially if it came suddenly in a period such as the dot.com boom, which minted many Internet millionaires in North America. "A high net worth does not necessarily equate to a high I.Q.," says David Sung, president of Vancouver's Nicola Wealth Management. Akin to lottery millionaires, sudden business jackpot winners typically do not display the experience and attitudes about money that those who have built a business over decades develop almost naturally.

"Arrogance can get the better of everybody," he says. "If you become a little too arrogant and a little too greedy, it can bite you, especially when a financial downturn hits." Wealth, he says, should be measured by net worth, not assets, particularly if those assets are leveraged, something many seem to have forgotten in this "super-low interest rate environment," he observes. "When a downturn hits and you are leveraged, that is usually a recipe for disaster."

The Vancouver adviser also monitors the "burn rate," or spending, of his clients; in particular, those who are no longer drawing a salary or revenue on a continuing business. "What we look for when we are doing the wealth planning for our clients is to make sure the income that they are generating from their long-term assets is more than enough to cover the burn rate."

Mr. Sung had a final warning for Canada's moneyed class: they make a good target for fraud. "The wealthy are probably as susceptible, if not more, to fraud." He knows that first-hand, having been introduced to a potential client a decade ago who had a $1-million "investment" that delivered regular, 10-per-cent-range returns every year, eerily similar to Bernie Madoff's somewhat more sophisticated, multi-billion-dollar Ponzi scheme uncovered a few years later.

"When I looked at these investment statements, to me it looked as if these statements were printed on a home computer," recalls Mr. Sung. The would-be client's adviser was generating false statements and taking in new money to cover current clients' withdrawals. "It turned out, bottom line, it was a fraud. It was a Ponzi."

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He stresses that people need to monitor their finances closely, whether they are a modest do-it-yourself investor or the head of a wealthy family. "It is when you are not paying attention that you end up getting burned."

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