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.
On the other hand, you may come across individuals whose immediate reaction is to spend their money with the realisation they can buy the things they could only previously dream of. This is where financial education and building a plan are critical.
It is important to show your client the impact of their expenditure on their financial future. In the same way uncontrolled spending through credit cards and other lending can lead to significant debt, uncontrolled spending of new-found wealth can lead to this being exhausted unintentionally.
Implement structure and assign jobs
Structuring your client’s affairs properly at the outset is, of course, imperative. It is important to give every penny a job.
You will need to consider whether a simple structure and proactive use of the client’s tax allowances is going to be sufficient for them, or whether they would perhaps benefit from a more esoteric structure. When a client is newly wealthy, particularly with large sums, the normal approach to financial planning and investing such as putting as much as possible into an Isa each year and making the most of an employer’s pension contributions is unlikely to cut it. However, these investment options are more easily understood and can be a great starting point.
Offshore bonds, family investment companies and trusts all have their own advantages and disadvantages, and you as their adviser will be best placed to determine what will work best for your client.
To a large extent, the answer to this question will be determined by the client’s need for liquidity in the short term, their age and length of their financial plan. For example, are they going to continue to work, or perhaps volunteer with a charity? Complicated structures may be very tax efficient for your client and their family but can be expensive and difficult to unwind. It is therefore important to discuss the various options available to your client and to understand their plans for their future, both short and long term.
