How to help a client handle a cash windfall

5 July, 2017

Amassing an instant fortune may seem like a far flung dream, but it is actually more common than many people think. Many Canadians who have cashed out from the hot real estate markets in recent years have found themselves in sudden positions of wealt

Filed Under: Wealth Management

Amassing an instant fortune may seem like a far-flung dream, but it is actually more common than many people think. Many Canadians who have cashed out from the hot real estate markets in recent years have found themselves in sudden positions of wealth. Aging parents are also leaving behind more money in inheritances than ever before.

Although it may seem like a non-problem, receiving sudden wealth is not without its pitfalls. Advisors have an important part to play in ensuring the process is smooth and the new assets are safeguarded.

“The biggest mistake a client can make is not taking enough time to reflect on what’s important to them,” says Marie Phillips, Wealth Advisor, IPC Securities Corp. “The client should first assemble a team of experts consisting of an advisor, a lawyer, and an accountant. Then, they can think about what is important to them, what they want to do and how they want to be remembered.”

Advisors also have to ensure their clients don’t blow through their money like many over exuberant lotto winners and celebrities have in the past. In order to ensure the whole family are on the same page, clients should be advised to get their children into the conversation at as early a stage as possible. “Relay to the younger generation that they need to think of themselves as a steward of wealth rather than an inheritor,” Phillips says. “If that conversation does not happen, the money will not last beyond the third generation.”

If a client has come into an unexpected or vast amount of money, Phillips encourages advisors to suggest some pragmatic moves, such as getting an unlisted phone number and changing to a post office box address. “In those situations, there will be people coming out of the woodwork, which creates a lot of anxiety for the client because they don’t know who to trust,” Phillips says. “The advisor needs to put on a social worker hat and be willing to hand-hold because it’s going to be very difficult for the client.”

The behavioural coaching aspect of the advisor-client relationship is the single biggest asset an advisor can provide, Phillips says. Clients often need help defining what’s important to them and the advisor’s level-headed approach is crucial in such circumstances. “The biggest risk to the client is their emotions because if they can’t handle the volatility they are going to bail, it doesn’t matter how many charts you throw at them,” Phillips says.

When the practical first steps of dealing with sudden wealth have been made it’s usually time to devise an investment strategy. In most cases of sudden wealth, capital preservation is the top priority. “Make sure you have a platform that offers active money management and helps the client outperform the market while also enhancing the level of risk management,” Phillips says. “Look to alternative classes. Use some private equity, some real estate; different investment solutions working in tandem so you can get some growth that will outpace inflation in a tax efficient way.”

Original article via www.wealthprofessional.ca 

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