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Klay Thompson and Steve Kerr

Coaching the New Wealthy

Freshly minted high-net-worth clients require more than just an investment plan.

By Joe McLean

While many people think being rich will solve their problems, more often than not money only complicates the issue. As financial advisors, our job is to manage the financial lives of our clients. However, when it comes to the entrepreneur who found overnight success, the rising sports star, or someone who just received an inheritance, our job is more than just managing an investment portfolio and retirement plan. We often have to assume the role of coach, friend and mentor, in addition to financial advisor.

Recently, a client called me to say that a friend of a friend was offering $50,000 to have dinner with him. Before our client finished his next sentence, I had already invited myself along. He had recently signed a lucrative sports contract, and I knew immediately that the man offering the $50,000 was looking to sell some type of product for a big commission.

Fifty thousand dollars in exchange for dinner is an attractive offer. What our client didn’t know was that the salesman stood to make over $500,000 in commissions on the product he was selling. We took the meeting, but we didn’t take the money and didn’t bite on the pitch.

The moral of the story is that newfound wealth and a limited financial education is a dangerous combination. Offers on the next great “business deal,” and all manner of get-rich-quick schemes tend to gravitate toward those with the most to lose. Had we not intervened, the client may have made a financial mistake that would haunt him for decades.

When it comes to helping clients, it is critical to be more than the traditional definition of a financial advisor—be a resource, educator, planner and organizer of priorities. Here is how we advise the suddenly wealthy:

Define the Difference Between Rich and Wealthy

For individuals who have never had more than a few thousand dollars accumulated in their bank account, a few extra zeros can signal the green light to spend. But it’s important to manage expectations and help your client define the difference between rich and wealthy. Becoming wealthy is a mindset. It’s a decision you must make for yourself. Teach each client to take responsibility for their money. Educate them to always know how much money they have, and where the money is going.

Every client’s background and needs are unique, but it’s important that they start to learn and practice the financial habits of a wealthy person early on. The best relationships are when the term “wealthy” extends far beyond any conversation about money.

Teach Them to Pay Themselves First

Whether it is a multi-year sports contract or the sale of a business, the next step for any individual in a situation of sudden wealth is to pay themselves first.

For someone who has never had a lot of money or, at the very least never saved, this practice may be harder to implement than it seems. Keep in mind that they may be used to spending, not saving. A simple plan consisting of specific time frames and goals can help your client begin to accumulate wealth. We like to make sure our clients contribute a specific percentage of their earnings to a savings account before they pay their bills and expenses. Define new milestones together, and set short-term goals; attaining them creates a winning mentality for subsequent goal-setting.

No matter the approach you take, always keep in mind the habits of your client. Did they have a savings account in the past? Have they made poor choices before? Did they ever invest? Understanding a client’s beliefs about money and how they grew up talking about it will help guide on how you approach the relationship.

Make Conscious Decisions

Receiving six-figure checks might make that $30,000 watch seem like a small purchase, but it won’t tell time any better than the one they already own. While a few luxury purchases are fun, excessive luxury can spur unwise spending habits.

Here is where the coaching aspect of a financial advisor comes into play. We don’t stress budgeting, we stress conscious choices. As advisors, we won’t always be there in the showroom to say “yes” or “no” for them, but we can teach clients to make conscious purchasing decisions in line with their budgets. Just as a coach teaches their players how to execute a play, we must teach clients how to handle the tempting situations they may find themselves in for the first time.

Build a Team

Newly minted millionaires have a lot to learn when it comes to growing their wealth, and as financial advisors, there is always a balancing act between identifying needs and wants. Rather than battling your client over every purchase, work with them to redefine what money means.

Comprehensive financial planning requires a team and a hard look at a client’s bank account and their life. While newly wealthy individuals may have a lot to learn, you have the tools in place to coach them. A more cognizant perspective on money and what it means to be wealthy will help them make better decisions and ensure they live a life of fulfillment.

Joe McLean is Managing Partner of Intersect Capital.

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