When Clients Acquire Vast Wealth, Advisors Are A Priceless Resource
When advisors plan a client’s financial future, they may assume a steady income stream. But in rare cases, a client stumbles upon an unexpected fortune.
Whether they receive a surprise inheritance or hit the jackpot in some other unpredictable twist of fate, individuals can find themselves facing a host of challenges. Advisors step in to provide perspective and sound judgment.
To help clients manage unforeseen wealth, advisors wear many hats. Aside from offering tax planning and investment advice, they may serve as a sounding board as clients adjust to a new reality.
“Money changes people,” said Joe Wirbick, a certified financial planner in Lancaster, Pa. “Their family dynamic changes. Their kids act differently. Their friends act differently. It can get ugly.”
Over a decade ago, he worked with a client who won the lottery. The client used some of the money to build his sister a house.
Everything started off amicably, but the sister kept expanding the square footage well beyond what they originally agreed. As the construction cost soared, Wirbick’s client pulled the plug.
This led to a feud, and the siblings stopped speaking to each other.
“If you don’t earn money slowly over time, you don’t know how to handle it when it comes all at once,” Wirbick said. “You are not equipped to manage that money.”
His client started attending a support group for lottery winners, where they heard cautionary tales of how others had squandered millions. Wirbick recalls that his client couldn’t believe that another support group member spent $50,000 on a toilet seat embedded with gold coins.
What Matters Most?
Advisors can play a stabilizing role in keeping their clients grounded after gaining great wealth. That’s especially true if they’ve known the client for years and earned their trust.
“I’ve seen too many people give away their money to their kids or grandkids and, 15 or 20 years later, they may not have enough for themselves,” Wirbick said.
He gives three pieces of advice to those who acquire a huge windfall: It’s important to be a good steward of the money, the dollar amount is not as large as it appears on paper, and try not to let everyone know.
On a deeper level, advisors strive to enable clients to extract more meaning from their newfound wealth. Doubling as life coaches, they offer guidance on how to harness the money to leave a lasting legacy.
Michelle Maton, a Chicago-based certified financial planner, cites a client who sold a painting for vastly more than she paid decades earlier. Maton posed a series of questions such as, “What have you always wanted to do?” and “Who will this impact?”
“That clarifies their values,” Maton said. “It uncovers what’s really important to them. Say their family is really important. They have a choice of buying a fancy car or taking the family on a big vacation every year.”
When basking in sudden wealth, clients can look to their advisor to take on a new role as a family mediator. Financial planners often lead meetings to educate family members on the repercussions of having so much money.
Wait To Spend
“With my clients, we discuss what expectations family and friends might impose on them and what expectations they impose on themselves,” Maton said. “I tell clients that they can say to their adult children that I’ve set this rule (about disbursing funds), that they can make me the bad guy.”
In addition, advisors can provide a calming influence amid the turbulence that accompanies a planeload of money. Their ability to assess the situation with clear-eyed understanding produces an invaluable benefit.
“The first thing we say to a client is, don’t do anything until we develop a plan for what the money would be used for,” said Ryan Dennehy, an advisor in San Ramon, Calif. “There’s no rush. The worst case is to lose it in a casino right away.”
From his experience with two clients who hit the jackpot — one in a lottery, the other in a lawsuit award — Dennehy prioritizes debt avoidance. He cautions clients to resist the temptation to finance their high-ticket purchases.
“You can buy so much more if you finance it out, but that’s what gets people in trouble,” he said. For newly rich clients, he recommends that they spend $1 million in cash to purchase a home outright than buy five $1 million properties — paying a total of $1 million and borrowing the rest.
“Those mortgages stack on top of each other,” he said. “People can get themselves into financial trouble more quickly than they can get out of it.”
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