Family Wealth Report spoke to an executive at SunTrust Private Wealth Management about the firm's approach to working with clients that have become wealthy very quickly or suddenly.

A number of circumstances or events can cause an individual or family to acquire significant wealth very suddenly or very quickly. One of the most common illustrations of this is “the lottery winner,” with other sources including compensation from a legal settlement, business owners experiencing a liquidity event and athletes, given their often inconsistent income streams. Inheritance in cases where the individual had no prior knowledge of their future windfall is also another prime example (the list, of course, goes on).

Individuals that come into a lot of wealth quite suddenly (although this may not of course be totally “out of the blue”) are often – understandably – approached by both people they know and don't know with a whole host of investment opportunities and advice. But all too often these opportunities simply aren't right for them, or they don't have the skills – without a dedicated financial advisory team – to be able to pursue them, said Craig Cascio, a wealth planning manager at SunTrust Private Wealth Management. Cascio outlined the key considerations for financial advisors when working with an individual who has experienced “sudden wealth.”

“One of the biggest differences [compared to a more “conventional” wealth management client] is that they are simply not prepared for the wealth,” Cascio said. These individuals don't usually have a team of advisors on-hand, whereas those that have generated their wealth over time will have likely accumulated a strong wealth management network.

“Many times, I find these clients don't have a concept of what the sum of money means, and how much they can spend without the funds running out. So – more often than not – they don't have a financial plan in place. They're not educated in terms of investments and understanding what their options are.” They may understand simple things such as saving accounts and “safe” investments, but they don't typically have any knowledge about other marketable securities and more complex vehicles, which can be very beneficial to the high net worth.

Cascio emphasized that creating a comprehensive wealth management plan from scratch that accounts for a sudden, dramatic acceleration in net worth requires a thorough understanding of the clients' goals and financial needs. For example, who do they need to support financially? What type of legacy do they want to leave behind? How much risk are they willing to take in their investments? Indeed, not having a concrete plan and taking on too much risk in investment endeavors are among the biggest catalysts for losing new wealth, Cascio noted.

Challenges

This is a difficult client niche to market to as, clearly, it is not apparent who or where they are until the liquidity event happens, and at this point they are generally inundated with suggestions and introductions – often by people who mean well, but ultimately are not financial professionals.

“I've seen the most business success through referrals from other institutions or individuals,” Cascio said. “You don't know who they are until they have the wealth and, once they have it, it becomes very difficult at that point to differentiate as a firm in terms of the services you provide and how you can help them.”

While it is of course advantageous to have a relationship with the client prior to their sudden wealth event, Cascio is confident that there is significant potential for these individuals to become long-term clients. “If you can help them work around all the difficult – emotional and financial – circumstances around their sudden wealth, and help them build a multi-generational plan, they can become a very long-term client,” he said.

For example, beyond the very tangible issues associated with sudden wealth, people often go through unexpected emotional and psychological experiences – and firms today are increasingly well-equipped to handle such challenges. Indeed there are changes taking place in the industry, which is moving away from an “investment sales culture” towards holistic, planning-centric wealth management, with a strong emphasis on areas such as family dynamics, Cascio said.

Many of the advisors at SunTrust Private Wealth Management have acquired the “softer” wealth management skills required in these instances from having worked with clients of all stripes over the years. On top of this, SunTrust also has access to a dedicated group through its family office arm, GenSpring, which specializes in family dynamics and helps clients work through all kinds of emotional and money-related issues they face, or may face in the future.

“You need a real focus on education among sudden wealth clients to help them understand what they can and can't afford to do, as well as some of the more difficult issues such as how it may impact their family and relationships with family members,” Cascio said. Another big area, particularly with ultra-wealthy individuals, involves helping them set up complex but crucial structures such as trusts to pass the wealth on to multiple generations.

“If there are dysfunctions in the family, money may make that worse,” Cascio added. “Having a team of advisors that can reinforce various viewpoints as it pertains to good wealth management is critical. Newly-minted individuals often find it hard to say 'no' to friends and family. This is where I see the biggest problems arise.”

Ultimately, “sudden wealth” clients will have many of the same wealth management needs as those whose wealth was acquired more gradually. The main difference is that among the latter cohort, wealth planning strategies and investment endeavors are formulated and deployed over time, in a variety of scenarios. Of course, wealth management plans are never “static” - it is crucial that they are reviewed regularly and adjusted to reflect big and small life changes. With sudden wealth clients, however, advisors are very often starting on a clean sheet of paper. Not only must they develop a profound understanding of the client's life, values and goals, they also need to help the client understand the processes and culture of financial planning.