Investments  

What to consider when advising a newly wealthy client

  • Describe the challenges faced by advisers dealing with the newly wealthy
  • Explain some of the pitfalls of being newly wealthy
  • Identify a good giving policy
CPD
Approx.30min
What to consider when advising a newly wealthy client
 Photo by Timothy A Clary/AFP

There are many reasons a client may become newly wealthy.

They may come into an inheritance or sell a business and deposit the sale proceeds, or they may have no prior knowledge or expectation of wealth but win the lottery or a high prize in their sports profession, as we have just seen with the 18-year-old tennis champion Emma Raducanu.

When working with clients who have an expectation of wealth, such as a knowledge that they will inherit or that the sale of their business will provide a significant sum, you can make plans from an early stage to prevent them becoming overwhelmed by it.

However, when you encounter a newly wealthy client who has come into a significant sum unexpectedly, it is important to help them adjust to their new-found position with appropriate and well considered advice. 

From the outset, it is key that you and your client consider how they would like their life to look from now on. Having recently come into wealth, it may be an overwhelming period for your client as they absorb the realisation that they are significantly well off and now have choices and options they may never have thought possible.

Too often we hear stories of those with new-found wealth such as lottery winners spending it all and finding themselves back where they started with nothing to show for it. It is important to build a solid adviser-client relationship that enables them to trust in your judgements.

Money is a tool, and their toolbox just got far bigger. A financial plan, while constantly evolving, will gain a lot from having a few guiding, over-arching principles to follow. It is important to discuss with your client what is most important to them.

Are they most concerned about security? Legacy? Consumption? Once your client has really determined what they would most like to achieve from their new-found wealth, then a financial plan can be built backwards from this point.

Financial education

Clients who find themselves in the position of new-found wealth will often need reassurance and will likely rely heavily on your guidance, particularly those with no expectation or experience of wealth. 

Education can have a huge impact in terms of empowering financially inexperienced clients and helping them to feel more of a connection with their money. By supporting your client and helping educate them on their financial plans as you put them in place, they will likely feel far more secure and confident in their financial futures as they understand how the plan will get them to where they want to be.

As an adviser, you may find that individuals, and particularly those who value financial security, may also need ‘permission’ to enjoy a portion of this windfall. For instance, if the client has become wealthy following the sale of a business, you may wish to help encourage them to set aside a portion of their new-found wealth to spend and enjoy as a reward for their years of hard work.