A sudden financial windfall might look terrific from the outside. But coming into money can, as advisors know, create challenges that clients never expect.
One widely-reported (if unattributable) claim is that 70% of lottery winners eventually run out of money. Real examples back up the pattern, if not the stat.
"I have seen this," said Nick Garcia, an Oakland, California-based principal wealth advisor at Compound Planning. Garcia's client base often includes those who come into money related to tech company sales around Silicon Valley, where windfalls occur "quite frequently."
People
For advisors, moments like this are a chance to show the relationship isn't just functional, it's deeper. The instinct might be to reach for the paperwork.
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Life-altering or 'just more?'
After the congratulations, the advisor's first job is to define what this money actually means, whether the client is longstanding or a brand-new referral.
The windfall can often be classified as one of two types: life-altering or just more money.
"If someone has $5 million and they win $1 million in the lottery, that's probably not going to make a material difference in their life," said Davi Kutner, partner and senior wealth advisor of Atlanta-based Aprio Wealth Management. "But if someone had $20,000 in the bank and now they have $1.2 million, that's a really really big difference."
Regardless of the amount, mindful advisors can base the definition of life-altering around where the clients are starting from.
It also, "depends a little bit on how their life has been over the past [few] years," said Kutner. "What they're accustomed to, what's important to them."
Listen before you plan
Once the money's meaning is established, it's time to plan. For the advisor, the conversation itself is the strategy.
"I cannot emphasize enough that the way you achieve that is by asking the right questions," said Armando Urena, senior partner and managing director of Coral Gables, Florida's Snowden Lane Partners. He once sat across from a client who came into money at age 70 and with very little knowledge about what to do with it. That client is, "not very interested [now] in learning about stocks and bonds," he said.
The goal is to understand what clients want the money to do for them. Starter questions can include:
- Does this money need to generate income and if so, how much?
- What are you trying to achieve with your life?
- What are your charitable goals?
- How do you want your money to impact you and your family?
Garcia also suggests brainstorming together to create a checklist with dates based around client responses. "That's more accountability," said Garcia. "It's almost like a snowball … if you do the small thing, then the next month you do the next thing, then you're seeing the progress."
Using patience with clients is also important. They might not know what they want to do immediately, and too many options can lead to overwhelm or burnout.
"In a rush to provide solutions, we may in fact delay the process or perhaps lose the client because it's just too much," said Urena.
Nobody does this alone
As tempting as it might be to try to overreach in the name of being helpful, pulling in the appropriate professionals to assist will do more good than harm for all parties involved. At the very least, in addition to a financial advisor, clients will need to consult with an accountant and an attorney.
Beyond that, however, Urena always suggests a family dynamics specialist at some point in time. These professionals, "will deal into the matters of the values that the client wants to promote within family members," he said. They are also key in helping to avoid "the things that we read about where there's a lot of friction in the family with money."
Advisors aren't the only ones giving referrals. Those who already have an established network can also benefit, according to Urena, whose client first met with an estate planning attorney who then referred them to him. The attorney, "could have gone right into [giving advice] but rather than do that, the estate planning attorney said, 'let's get a financial advisor in here to talk to you first.'"
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'You can afford it'
After addressing the more difficult discussions and assembling wise counsel for the client, the conversation can then progress toward thinking outside the box and the literal dollars and cents involved.
At times, clients might be the opposite of the big spender and need encouragement to enjoy and spend their money. Hesitant clients hold back due to factors including feelings of guilt or fear or simply out of habit, despite having enough money to support them tapping into the funds.
In this moment, setting aside time for a permission moment can make all the difference.
"You have to give people that verbal affirmation," said Urena. Sometimes, "I have to remind them: 'you can afford it.'"
Clients striving to be good stewards of their money sometimes need a reminder "at some point the money is staying, and you're leaving," said Kutner. "Nobody can take the money with them and you want it to be able to benefit you."
