Money is a good thing.
By and large, most people believe that. But individuals who come into large amounts of money suddenly, whether through inheritance or some other circumstance, can face difficult and emotionally charged changes.
Melissa Hammel and Holly Thomas, two financial planners who run their own firms, spoke to advisers at the annual conference of the National Association of Personal Financial Advisors about how to deal with these situations.
“Money affects our identity. It has impacts on our relationships and affects our lifestyles,” said Ms. Hammel, managing principal at Hammel Financial Advsiory Group LLC. “When a large sum of money comes in, clients can often make decisions that aren't in their best interests. Our job is to be an anchor for our clients.”
The most typical source of such a windfall is an inheritance, though other sources include legal settlements, divorce or large stock option payouts — though these are less common these days.
In many cases, having the money is not an altogether positive experience for people. Some can experience shock, denial or guilt. Some have had negative connotations about rich people and are conflicted about becoming rich. Others fear that a windfall of money will change their standing with friends and family, and alter their lives irrevocably.
“More than likely, the client will be in shock and denial, and that's when they most often look for help,” said Ms. Thomas, head of Holly P. Thomas LLC. “They can make bad decisions that they'll regret later.”
BUYING BINGES
Chief among those are buying binges — many times followed by regret and self-recrimination.
Others feel a sense of guilt if the money has come from the death of a loved one. Several advisers in the audience recalled situations where clients who came into a lot of money gave most of it away because of emotions they had about where it came from.
Generally, the best thing that advisers can do for clients who have received large sums of money is to help them avoid irrevocable decisions, the speakers said. The best way to do that is to get them to express their feelings about money, and what their goals and life objectives are and were prior to receiving the windfall.
“Help them understand their own judgments and values about money,” Ms. Hammel said. “But also understand what your own judgments are, because the client may feel very differently,”
Ms. Hammel maps out what she calls family genograms that lay out the history of family relationships for clients. She looks for cases of substance abuse and family dysfunction to better understand the motivation behind a client's decisions. When she feels clients would be open to it, she also tries to get a release to speak to their therapists, if they have one.
Ms. Hammel cautioned to tread lightly and not to push them to take or not take actions too aggressively.
“It's critical that you give them space and time. If you push, they'll resist,” Ms. Hammel said. “You have to go where they are, not just where you think they should be.”
Houston adviser Charles Parker concurs. He recalled a widow in her 40s who received a large settlement after the death of her husband. “She was not unsophisticated, but she was in unfamiliar territory. She started spending outrageously on a new home, chandeliers, expensive evening gowns. It took a while, but with our encouragement, she eventually realized she was a T-shirt-and- jeans kind of gal,” said Mr. Parker, whose firm specializes in helping women in transition.
“Those who handle [a monetary windfall] best are the ones who are determined to hold on to their frugal ways,” adds John Gugle, a financial adviser with Alpha Financial Advisors LLC.
aosterland@investmentnews.com
