An unexpected windfall from a lottery or a generous relative is fantastic news for a client. Keep the celebration going by showing your client how to protect their new wealth.
“If you can sit down with the client and just provide a sober second thought,” says Christine Van Cauwenberghe, director of tax and estate planning with Investors Group Inc. in Winnipeg, “you will become that client’s trusted advisor in the future.”
Follow these tips to keep your client on the right path when their wealth suddenly increases:
> Advise restraint
Tell the client to take a deep breath and not make any snap decisions on what to do with the money.
“Just relax and take your time with the future decisions that you have to make,” is what Drew Abbott, vice president and investment advisor with TD Waterhouse Private Investment Advice in Toronto, would advise.
> Protect clients from themselves and family members
Until the client can calmly make decisions, place the money in a safe, low-risk account.
“Don’t make any rash decisions,” says Van Cauwenberghe. “Invest their money in some sort of short-term guaranteed safe place for a period of time.”
Warn the client against giving out or promising large sums of money to family and friends.
> Let the client splurge — a little
Allocate a small sum the client can splurge with, to get it out of their system.
How much? Van Cauwenberghe suggests allotting the client 5% to 10% of the sum to play with. They will thank you later when they realize how quickly that money disappeared.
> Make a plan
Once the client has calmed down, talk to him or her about the next steps for their new wealth.
Ask the client about his or her new objectives, says Van Cauwenberghe. Do they want to quit their job at age 40? Do they want to travel? Will they keep their lifestyle the same?
“You need to make sure that you invest that money in a manner that’s consistent with those [new] objectives,” she says.
> Build a team
Consider introducing the client to other professionals to help protect and grow the assets.
Introduce the client to an accountant and an estate lawyer if they plan to open trusts, says Abbott. Having access to trusted advisors and professional opinions is crucial when a client has a sudden increase in wealth, he says.
> Update the will
Have the client update the will or, if necessary, create a will to handle the new wealth.
If the client has children, he or she should be concerned about how their money will be handled if they were to die unexpectedly. It’s best to have the client re-do the will or set up a trust to make sure the money will be handled in accordance with their wishes, Van Cauwenberghe says.
IE