Sudden Wealth Is Not Always Unexpected Wealth: Don't Miss The Opportunity

A recent article in Investment Executive's HNW Guide 2017 caught my attention. The article is entitled "Kids in a Candy Store: A Sudden Influx of Cash Needs Careful Management and Attention". It has some very good suggestions about what steps can be taken to assist a client who has experienced a sudden inflow of financial capital.

The piece notes several ways that a client can receive a sudden influx of wealth:

• sale of a business;
• inheritance;
• insurance payout;
• divorce settlement;
• pension commutation;
• lottery winnings.

A couple of these transition events could be classed as unexpected in the context of planning. Of all of them, lottery winnings are often the saddest stories with most winnings gone in less than seven years. However, more accurately, most of these money in motion events are entirely predictable if there is a sufficient level of transparency and communication in a family. For example, the article rightly notes that the financial wealth created by baby boomers will be the largest intergenerational wealth transfer in history. That is not an "unexpected transition". The wealth transfer is well under way and there is no excuse for any recipient heir/client to treat such wealth as "sudden". It may arrive on an unknown date but it will be arriving.

The author suggests some entirely common sense solutions for "sudden" wealth: take time to reflect on the wealth before deciding on deployment, identify and assess your goals with the new wealth, and consider a financial plan to understand the capacity of the new financial wealth to achieve your identified goals. These things should be done at a minimum.

Yet, this is playing catch up to the facts. As Wayne Gretzky astutely noted, we do better if we anticipate where the puck will go rather than trying to chase the puck around the ice. The potential windfall represents a much greater opportunity for the advisor and the client long before the trigger event actually occurs. Instead of reacting to the event, imagine the value to your client if the influx of financial bounty was part of a continuum of purposeful planning engagement undertaken long before the cash was received. How powerful would that be for the advisor/client relationship? How thankful would the client be that the stress of the event was alleviated by a process for receipt of the wealth visioned and built long before the event itself took place? Imagine using the time in advance of the influx to prepare the heirs so that the wealth would not be squandered as it passed into the next generation? Imagine defeating the shirtsleeves to shirtsleeves in three generations curse?

So, while I agree with the article's suggestions as a minimum response, it misses a much more significant opportunity to engage clients and their heirs long before the wealth transition occurs through a strategic process of family wealth planning. Sudden wealth does not always mean unexpected wealth and there is a massive opportunity for advisors to show and sustain value - at least for those with a vision and a process.

I will offer some suggestions in my next post.

Coming soon: "The Naked Opus: Growing Family Wealth for the Long Term"