Instant Wealth: The Challenges And Opportunities Of Advising "Sudden Money" Clients
John Craig / July 02, 2002
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"Your clients are going to have 'sudden money' experiences, and even long-term relationships can end when a client comes into new money — the client is in a new phase of their life, and as their advisor, you will need to understand this," says Aileen Miga, a Certified Financial Planner and financial advisor with Berkshire Investment Group Inc. in Burlington, Ontario. "When people are in transition, they frequently change advisors seeking new advisors whom they perceive have greater skills. The planners who have the skill set and understand the client's experiences will benefit from this migration."
Inheritance Boom
According to the Cap Gemini Ernst & Young report Perspectives On The Canadian Wealth Management Market 2001, the number of inheritances in Canada is projected to grow steadily and increase in value, with some $550 billion expected to be received from Canadian sources over the next 10 years. Half of this transfer is anticipated to be added to the pool of investable financial assets through inheritance conversion. Miga, who is also a member of the U.S.-based Sudden Money Advisor Network, says this factor alone could spell opportunity for advisors.
| Other Tips For Working With "Sudden Money" Clients | |
| 1 | Recognize that the family probably has some intergenerational concern. "They want to provide for their children, but also make sure that their children are not influenced by the many negative images of money in society," says Miga. "They want their children to have a good relationship with money." |
| 2 | For "new money" clients, understand that it will take some time to establish a new lifestyle and grow into their orientation of money. |
| 3 | For "old money" clients, address key non-financial matters such as financial literacy programs for the children, philanthropy, protecting wealth from outsiders (such as the kids' ex-spouses) and market losses. "High net worth families want to handle these life situations and keep the money in the family," says Miga. |
"With investment products becoming more sophisticated, and more people making the switch from being savers to becoming investors, an increasing number of people are seeking the help of an advisor," says Miga. "This trend will continue into the future and may be particularly true with respect to inheritances."
A Time Of Reflection
An inheritance may be the first time an individual feels compelled to seek out the advice of a financial planner, as inevitably there is some reflection on finances, values and mortality and there is often a surprise involved with how much — or little — was passed on, says Miga. "In any case, inheritors often resolve to pay more attention to their own finances and begin to visualize how they would like [their money] to impact their own children at the time of their death," she adds. "This can be a powerful motivator for people to take action and seek out a financial planner."
Recognizing The Emotional Impact
Many advisors fail to recognize the emotional impact an inheritance or any other sudden windfall can have on a person. "One major pitfall that occurs is that most advisors see 'sudden money' events as simply an increase in assets under administration for them, and expect their clients to act like other clients — they don't realize how difficult the situation can be," says Miga. "The success rate of integrating new money into a family is not impressive — the difficulties and challenges have been around for generations and appear to transcend culture and time period."
Time To Digest
For advisors working with clients in the midst of receiving some form of windfall, Miga recommends encouraging them to commit to not making any life-changing decisions until they have had a chance to "discover what the money means for them." Miga also suggests being proactive with these clients, helping them find their own pace while "continuously preparing them for the decisions that they will eventually have to make."
It may be difficult to get a client to stick to a plan for managing their new riches until the client has completed some sort of wealth orientation, explains Miga. The U.S.-based Sudden Money Institute offers a package of strategies and software that Miga says focuses on "creating a financial plan that is sensitive to the client's experience of money in their lives."
Being Aware And Prepared
Miga says all advisors should be aware of the various issues involved with different "sudden money" situations. However, Miga warns that advisors must be genuinely interested in adding value to client relationships in this way because the transition isn't easy or quick. "It takes about a year of training to make the shift in your practice, but this is the time to be honing these skills because we are at the beginning of this trend, not at the tail end of it."
Miga adds, "These are the kinds of skills that make us better advisors because they respond to the needs of our clients. When we are meeting the needs of our clients, it makes attracting new clients easier."
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For more information on the Sudden Money Institute in Canada, Aileen Miga can be reached by phone at 905-319-9000 ext. 330 or by e-mail at amiga@berkshire.ca. You can also visit the Sudden Money Institute Web site at www.suddenmoney.com.
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To download and print off the complete Sweet Opportunity package, please click on the icon below:
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Canadian millionaires are the most targeted group of clients and yet there are still significant holes in service advisors provide to them. Juggling the responsibilities of their business, family and community leaves millionaires with little time, but huge needs from their advisor. The July issue Advisor's Edge takes a look at what millionaires really want from their advisors and the mistakes advisors sometimes make with their wealthy clients. To view archived Advisor's Edge articles or to sign up for a free one-year subscription, please click here.
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John Craig is Advisor.ca's practice management editor and can be reached at jcraig@advisor.ca.
07/02/02
Filed by John Craig
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