Helping Clients Handle Newfound Wealth

A client with newfound wealth has special requirements.As a financial professional who helps your clients manage their money, you’ve probably seen them earn their wealth in all manner of ways. Many likely have successful business or investment ventures, while others may be the beneficiary of a trust fund. And while those two categories each present unique and interesting circumstances, there is another type of high net worth individual who may give their financial professional interesting challenges: those who suddenly came into life-changing wealth through either an inheritance or lottery winnings.

If you are presented with a client who came into their wealth unexpectedly, here are a few tips to help them handle their change of lifestyle:

First, do nothing

When your client first comes into their wealth, there’s no doubt that they want to start changing their lifestyle right away. But encourage them to do nothing for a while, and hold off from making life-altering decisions for as much as a year. The psychological impact of suddenly having a huge and surprising amount of wealth has a different effect on everyone, but it will certainly carry some amount of weight on their  psyche. To avoid taking wrong steps that can land them in trouble down the road, advise your client to sit tight for a couple months while you go through the wealth planning process.

Be prepared for the onslaught

While everyone has their own unique family circumstances, anyone who suddenly comes into a great deal of money can expect calls from friends and family members. And though it is tempting to want to help everyone out they can, especially those who may have supported your client along the way, it’s important that they don’t grant every request that comes along. Again, your client needs time to readjust to their new reality, encourage them to get their bearings straight before doling out money.

Similarly, they can expect to hear from charities that are seeking donations for various causes. Again, prudence is key, and your client needs to do their due diligence before making any sizable donations.

Put together an estate plan

Even if your client already has a will in place, their newfound wealth will likely throw a wrench into their former plans. Work with your client to immediately create a new estate plan that takes into consideration their changed circumstances. Then, advise them to revisit it frequently. As they acquire new assets, those will need to be accounted for in their estate plan.

Set goals

What does your client want to do with their money? Sure, they may want to improve their standard of living by purchasing a larger house or nicer car, but those are extremely short-term goals. Where does your client want to be in 10 or 20 years, financially speaking. Presumably, your client no longer has to work a nine-to-five job, so how will they spend their time? They may be interested in real estate or charitable giving, but regardless, make sure they have medium- and long-term goals that help them remain focused and keep them from squandering their funds.

Consider practical matters

As a newly wealthy person, your client’s life is likely going to change dramatically and they will have newfound responsibilities. While they may now be able to fly on a private jet instead of in coach on a commercial flight, there are also newfound responsibilities. Income and estate taxes are going to go up dramatically, so your client needs to be aware of how much money they need to earmark to cover those expenses. Financial panning should now be something your client is constantly addressing, as to not get into tax-related issues.

While your client is certainly going to see their lives change for the better in many ways, be sure they have the resources they need to handle the practical end of newfound wealth.

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Highland Capital Brokerage

Highland Capital Brokerage

Highland Capital Brokerage is committed to developing client-focused relationships with financial advisors using our core competencies of life insurance, annuities, and long-term care. We distinguish ourselves by providing point-of-sale support, advanced marketing, and creative estate and business planning techniques.
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