A winning lottery ticket or unexpected inheritance is widely considered a life-altering stroke of luck. But psychologically, these lucky people are experiencing their windfall as if it were a traumatic event, according to Susan Bradley, founder of the Sudden Money Institute. Here, she chats with Managing Editor Lorie Konish on how advisors can best work with clients who hit the jackpot.
1. What do advisors typically see from clients who suddenly come into a large amount of money?
There's one characteristic that many advisors see. We call it inconsistent behavior. One minute clients say, "I don't want to take any risk." And the next, they have all these grand ideas for opening businesses and investing. We see it as a sign of stress. These clients need to be doing something. Frequently, doing something, even if it's wrong, lowers their stress level. It's stabilizing. We train advisors to join clients in "doing" mode, but not by making sudden decisions. Instead, we teach them how to get clients to prepare to make decisions. Let's say a client wants to buy a house. We want to know why. How does he think the house will make him feel? Then we help him determine what he wants in a house, and we make a checklist that he can use whenever he looks at property. Buying a house is an emotional thing. If you're not worried about your finances, then it becomes even more emotional.
2. What about the clients who might be hesitant to make any kind of decision?
That's another characteristic. That's withdrawal. A lot of people will withdraw and sometimes that's their best move because they know they're not their full selves. As advisors, it's crucial that we give our sudden money clients permission to step back, but we also want to make sure that there's nothing out there that would harm them if it was left undone. We also want to have an agreement on how to check in with us. Just because they've stepped back, it doesn't mean they're not thinking. They're actually percolating. They start to form ideas. Then suddenly they're ready to go with this idea that has fully formed, but without any guidance. It's better to have an open relationship with clients so they can bounce ideas off you as they're being formed. They've got a sounding board.
3. What kind of mistakes have you seen advisors make with these kinds of clients?
Advisors are frequently too authoritative with sudden money clients. Most advisors are unaware of how judgmental and prescriptive we can be. You've probably learned through years of success that this approach works. But with people going through transitions like this, being prescriptive generally doesn't work. The big mistake advisors make is they don't know how to get in alignment with those who are out of alignment with themselves. Clients in transition need someone who can help them figure things out. To be successful with this group, you have to be that go-to person.
4. What about the client who feels a sense of entitlement?How can advisors reel them back in?
You can do all this great planning and you can still find someone who is overspending and he or she just doesn't seem to care or acknowledge consequences. The traditional way of dealing with someone like this is with the "crash and burn scenario." That is where you say to the client, "If you keep doing this, five years from now you won't have any money and how would that feel?" That approach doesn't seem to translate with sudden money clients. You need a different way. Instead, we encourage advisors to say, "You're still viable. You have the possibility with the money you have right now to create this great life. And there's probably four ways to do it. Let's look at that." People are far more open to that than they are to getting shamed.
5. How can an advisor best compensate when these clients have a lack of financial know-how?
There are three things that mess up a person who gets sudden moneypurchasing a home, starting a business and giving money away. All three of those can be in the client's best interest to some degree at some point, but not all at once without a plan. So, for instance, if a client wants to start a business, rather than roll your eyes and say, "Are you kidding me?" invite the client to learn business best practices. Then you can help him or her take the first steps. The client doesn't have to leap in with big chunks of cash.