How do you advise the newly wealthy?Article added by Paul Wilson on January 4, 2013
Paul Wilson

Paul Wilson

Denver, CO

Joined: May 30, 2007

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Although there has been a recent push within the advisor community to consciously focus on the middle class, a large number of financial professionals still target the affluent. And who can blame them? The temptation of these wealthy prospects is undeniable, and strategies and tips on how to work with them have filled countless books and articles.

But while it's easy to lump the affluent into one big group, the truth is obviously much more complicated. Like the middle class, this demographic is made up of millions of people who arrived there in many different ways and must be handled accordingly.

The past few decades have drastically increased the number of Americans who, whether through an IPO, acquisition or inheritance, have come into money very quickly. They are often looking for advice – but what strategies do advisors need to know when working with the newly rich?

First of all, advisors must adopt a different approach when working with the newly wealthy, according to's Pat Graham. In a recent video, Graham notes that those who come into money quickly often ramp up their spending accordingly. To help curb this tendency, advisors should create a detailed spending report that helps prioritize the client's needs versus their desires. Offering a bill-paying or check-signing service is another way to enable the advisor to analyze spending and suggest cost-cutting strategies, Graham adds.

Another overlooked aspect of dealing with the newly rich is "sudden wealth syndrome" — the guilt, identity crises and feelings of isolation that often accompany such a sudden windfall. In these days of economic instability and frequent layoffs, it's easy to snicker at the very idea. "Sudden wealth syndrome, a painful reality afflicting at least 1 percent of the 1 percent," as The Daily Show recently put it.

But "newfound wealth may bring a major life change for clients, often stirring a range of complex emotions," according to a recent article by Scott Shutte on Financial Planning. And it's important that advisors working with these individuals recognize and acknowledge the emotional impact of this sudden change in their client's lifestyle, Shutte writes.
It's also important to communicate clearly and often, understand family dynamics and have a process specifically designed for clients in this situation when working with this demographic, he notes.

While increased spending is common among the newly wealthy, others react differently and become more conservative, overwhelmed by their new financial responsibility, according to psychologist Stephen Goldbart in a blog by Daisy Maxey on Financial Adviser. "They may think, 'My life has changed now … How am I going to take control of it in a way that's in line with my values?'"

Goldbart is of the opinion that advisors who serve newly wealthy clientele should seek special training in values-based financial planning, the psychology of wealth and new money, and specific planning models. He recommends that those who lack this background should work with a specialist to ensure their clients are well served.

The piece also advises that advisors move slowly to allow clients to absorb the implications of their newfound wealth. Specifically, advisors should tell clients to "hold off on financial decisions for six months after a windfall [and] … work with them to define goals, including deciding what would be an acceptable investment return."

Recent trends, both economic and social, have also had an impact on this demographic. In an interview on, John Benevides, president of family office services at Silicon Valley wealth management firm Harris myCFO, says, "If you’re talking about what has shifted in terms of cycles, clearly 2008 and 2009 had a profound impact on everyone. For the most part, we’ve seen a more conservative approach to wealth. For those getting several hundred thousand to a million or two million dollars, we’re seeing a more conservative approach to how they’re investing their funds. "

Meanwhile, Hilary Martin, of the Family Wealth Consulting Group, adds, "What we’re seeing really is this consciousness about being part of the 1 percent. There is a backlash in the public perception about being rich, so I think that people are making an effort to do things like get involved in movements. If you’re going to be public about your small windfall, then I think the cultural trend would be to get involved, give back, donate to charity, or invest in startup stage companies."

There are never any easy answers when one's job is working with people. Advisors must be careful not to pigeonhole members of this very unique niche — each requires a varied and thoughtful approach. What strategies do you implement when working with the newly wealthy?
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