Post-pandemic spending: Finding meaning in purchase of that party boat

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Call it “revenge spending” or “banknote bingeing.” Canadians have opened their wallets for fun purchases after months of lockdowns and austerity. And why not? If the pandemic has taught us anything, it’s that life is tenuous. Might as well enjoy it.

This splurging was expected, though. According to a 2021 Ipsos poll, a full 32 per cent of Canadians planned to spend more than they normally would on everything from travel to dining and entertainment, once restrictions lifted.

Canada’s wealthiest families have been no different. But instead of splurging on a weekend at a resort, the high-net-worth contingent sets their sights on vacation homes and boats – what better way to bring friends together and party like it’s 2019? Or they pick up the tab for friends at an exclusive restaurant or nightclub. Again.

“I do think that COVID has kicked people in the butt to say, ‘You know what? We don’t know what tomorrow will look like,’” says Kathy Bright, a family enterprise strategy and governance consultant with Trella Advisory Group in Vancouver. “I don’t know how many people I’ve talked to who used to say, ‘Oh, you can take me out of my office on a stretcher.’ But COVID made people reassess that.”

But how should a family office guide clients around inessential purchases, especially when they start to feel essential?

Who decides whether an item is frivolous? And how do advisors talk to clients when their spending is starting to threaten their long-term wealth and legacy plans?

Doing it ‘with purpose’

Bright is not particularly fond of the term “revenge spending,” calling it “too judgy.” Spending money on some extravagances can be perfectly fine if it reflects a family’s values and their wealth’s objective, she says. The trick is being purposeful about where they allocate their money.

“People may have defined the purpose of their wealth to allow them to enjoy their life a little more. Perhaps integrate more balance if they’re working, working, working,” Bright says.

“The great family office is really focused on the development of the family, so if a purchase is proceeded by a conversation about ‘what is the purpose of our wealth,’ then the whole revenge idea is oftentimes a misnomer.”

Rather than just travel for the sake of travel, it’s more about being really deliberate about having a meaningful experience for the family.

Tina Di Vito, EY

Far and away the most common purposeful expenditure for wealthy families these days is travel. At least that’s what Steve Ivacko, partner, family office services, with MNP in Vancouver, has found. Say goodbye to quick trips to the cottage and hello to Antarctica or taking the whole family – including in-laws and extended kin – to Greece.

“A lot of people just sort of white-knuckled it [during the pandemic]. I have a lot of families now who are doing the big trips and the bucket lists,” he says.

“Purposeful” is the way Tina Di Vito, a partner and family office leader for EY in Waterloo, Ont., describes travel for clients today. Multi-generational vacations are more common now, she says. After years of being isolated from family, it makes sense to pull together and create a once-in-a-lifetime experience.

“Rather than just travel for the sake of travel, it’s more about being really deliberate about having a meaningful experience for the family. It’s ‘let’s help it build our ties,’” she says.

In larger and wealthier families, family boards or councils plan the excursions specifically for family bonding. They decide who will be included, the trip duration and location. But the most important decision is about the purpose. Why travel together in the first place? What are the objectives of the vacation? And does the trip actually help meet that goal?

If the answer is yes, then bon voyage.

When should the family office step in?

But what if this is, say, the fourth luxury trip a client family has taken in a year, and the goal – connect with family – has already been met?

If a family is starting to spend more than is wise, it’s time for the family office to step in for a potentially difficult conversation about the state of their investments, current economic conditions, global unrest and how that will all have an impact on family wealth.

To make the meeting easier, Di Vito says it’s important to show clients numbers in black and white. By not keeping track of the money they’re spending themselves, clients might not realize that spending $1 million a year now will seriously eat into their wealth later.

“Family offices play a very pivotal role here with families, not to put them on a budget necessarily, but to provide regular feedback as to the performance of their investments,” she says. And with several months of dire performance recently, that discussion may be enough to convince the client to rein in spending.

This type of advising works well for multi-family offices where the advisors work at arm’s length. But in the case of a single-family or embedded office, the cost of giving tough-love advice can feel more fraught. The patriarch or matriarch is signing your paycheque, after all.

Ivacko says, “If they don’t like what you’re saying, they’re just going to find somebody else that’s going to tell them what they want to hear.”

‘Willing to be fired every day’

Bright agrees these conversations can feel uncomfortable, particularly if families don’t always see eye-to-eye with you, but they’re non-negotiable.

“I think as an advisor you have to be willing to be fired every day,” she says. “Part of our role is to hold up a mirror and ask for feedback about what we see. Is it an accurate reflection?”

Ultimately, once the conversation is over and the math is presented, it’s up to the family to decide whether that trip, party yacht or dream car today is worth potentially less wealth later. Maybe, in light of recent life-changing events, it is.

“You can lead a horse to water, but you can’t make him drink,” explains Ivacko. “Whatever trusted person you are to them, all you can do is provide the information – and they’re going to make whatever decision they’re going to make.”

More from Canadian Family Offices:

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• Does least-happy child deserve extra helping of parental resources?
• When a suspected gold digger is at work, what can family members do?

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