This post has appeared in the India Markets Observer 2018, an online publication that brings together experts who discuss these challenges in the fund industry and investing insights and various perspectives.
Founder of The Sudden Money Institute, Susan Bradley is a recognized thought leader in Financial Transitions Planning. The author of ‘Sudden Money: Managing a Financial Windfall’ chats with Morningstar on how she coaches people who have acquired sudden wealth.
Tell us more about the Certified Financial Transitionist course offered by your firm. Is it available for advisers in India?
The training and certification is available worldwide. One of the requirements is to be a practicing Certified Financial Planner (CFP) for at least five years. This is like a master’s degree in financial planning. Those who have the The Chartered Institute of Management Accountants (CIMA) or Chartered Financial Analyst (CFA) designation are also eligible for enrollment.
You serve on the board of National Football League’s Players Associations’ Financial Education Advisory Board. What are the unique goals and aspirations of these players?
There are financial advisers who coach these athletes on managing money. These advisers need to have a CFP certification because the board is serious on who gives them advice.
Athletes have unique circumstances of celebrity and youth. They are paid in an unusual way. Their salaries are high and it is paid over 17 weeks and stops for the entire year. They usually get a bonus in March and a couple of small payments throughout the year.
They don’t have much time to meet and talk as they work six days a week during the 17-week football season. During off season, they have to show up for training. So they have a very busy schedule. They have expectations from their families. All this needs to be managed with awareness. I have met a few athletes who done well but most of them have some financial trouble.
Can you share some case studies of clients who have acquired sudden wealth and squandered it?
Unfortunately, there are many stories. The hard part is that the celebrity status and money doesn’t last long. Hollywood actors always have a chance of reinventing their career. But celebrities don’t have that possibility. So what they do is invest in businesses which give them a steady income.
That it not a bad thing. But unfortunately, the businesses are usually recommended by their college friends or relatives. There are many celebrities who put money into speculative businesses. They not only lose the money but go into deep debt.
Simultaneously, they haven’t learned to compromise their lifestyles. Many a time, they will have children who may be married or single.
So they end up with a lot of responsibilities. They sometimes end up in bankruptcy and their body doesn’t hold up to keep playing for long. They are surprised when they hit the bottom. It is not fun to see that.
How should people ensure that they save and grow their sudden wealth?
People who acquire sudden wealth should hire a financial planner. The first thing that the financial adviser would like to do is to make an agreement that is more than just managing money. We form a brain trust of advisers by involving attorneys, a Certified Public Accountant (CPA) and a family psychologist to make this financial transition.
The first thing people who strike it rich should agree that this is big, complicated and the success rate is not high. But there is a way to be successful. We use a decision freeze zone concept. We look at only things that are urgent.
For instance, paying taxes or an urgency within the family. So we advise clients to deal with one thing at a time based on their priorities.
People usually have a pent-up desire to spend money on things like expensive cars and luxury homes. If they want a big beautiful house, we have them rent it for a month to experience it.
Also, we make them rent the expensive car. Renting is better than buying. So we get them to taste and not have the whole meal. Then we seek feedback on how did they feel. Most of the time they don’t know how they feel. It is confusing for them. So renting gives them a chance to backup and turn around.
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