After winning or inheriting money unexpectedly, many people start to question everything in their lives, says Jolene Laing, associate director, wealth management with ScotiaMcLeod Inc. in White Rock, B.C. As their financial advisor, you can help them to form an objective view of the situation.
If your client unexpectedly hits the jackpot, here are five points to remember:
1. Advise clients to wait before acting
Protect clients from themselves and their new wealth by reminding them not to jump into anything without careful consideration of the implications.
Clients shouldn’t rush any big decisions after coming into a significant sum of money, says Laing. They should not give out money, make any large purchases or make any major life changes.
2. Meet with everyone
Remember, says Laing, you’re probably not the only advisor for your clients. Make a point of speaking with all of the professionals involved in the client’s affairs, such as their lawyer and accountant.
Doing so will give you a fuller picture of the client’s affairs. This could include matters such as their will and other estate plans and whether updated powers of attorney are in place.
3. Review their values
Keep your clients on track by reminding them of their goals before any extra money was contemplated.
Sometimes, people can completely alter their outlook on life after coming into money, says Laing. Ask clients to think about what was important to them three or four weeks before receiving the surprise income and whether that remains true.
4. Tailor your advice
Just because clients have a little more money doesn’t mean they need to make use every financial strategy that is now available to them.
For instance, advisors may immediately start talking to their newly wealthy clients about tax sheltering strategies, says Laing. However, those strategies may not be appropriate for the clients.
Instead, look at a client’s whole situation and then make a decision about what steps he or she needs to take to reach their financial goals.
5. Re-evaluate risk
Have your clients re-think their risk tolerance in light of their newfound wealth.
With a larger source of income, clients may not be looking for as high a return as they might have in the past, says Laing. As such, their portfolios may need to be adjusted for less risk.