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A guide for navigating newly created wealth

Finding your way in the land of wealth

A guide for navigating newly created wealth image

We would like to take this opportunity to introduce you to seven individuals. They share the common experience of navigating a new level of wealth relatively quickly and without preparation. They find themselves in a new world they don’t fully understand. What follows is a guide to help individuals or couples who come into new wealth or liquidity be purposeful about the impact of that wealth on themselves, their loved ones and their communities. Meet Sally, Isabella, Jack, Lance, Allison, Kendall and Dylan*:

Sally (widow)

Sally lost her husband, Bob, three months ago and is now having to attend to the details of their accumulated wealth. She finds herself surrounded by advisors she didn’t pick and who related mostly to Bob. In a conversation with her best friend, Sally said, “I really wish I had paid more attention. I feel naive. I don’t know what questions to ask, and I don’t fully understand what is being explained to me, yet I nod in agreement. I need someone who understands me as me, not as Bob’s wife, and will help me understand what is going on. I need help making effective decisions.”

Isabella (entrepreneur)

Isabella always had an entrepreneurial streak, and after working for several years in the technology industry, she decided to start a venture of her own. Being an owner and CEO was overwhelming but also exhilarating. As she gathered new clients and revenues soared, Isabella plowed back more investments into her business. She also met and married her husband, who had two sons from his first marriage. Isabella and her husband adopted a daughter, and with the booming business, an infant and two teenagers at home, she was finding her new balance. Fast-forward 10 years. Isabella was approached by a private equity firm with an offer she felt she couldn’t refuse. “While we were successful before, all of the ‘wealth’ was tied up in the business. I can’t really process that I now have $100 million. I feel incredibly grateful, but more than anything, I’m concerned about how this money will impact our young daughter and my stepsons.”

Jack (inheritor)

Jack is in his 20s. Two months ago, his mom and dad were tragically killed in a car accident. Unbeknownst to him, his parents were wealthy beyond his understanding. Jack says, “My parents had always lived pretty modestly, and while I knew my dad was successful, I had no idea my two siblings and I would each inherit $15 million. I feel if my parents had had more time, they would have prepared us for this. I went from managing my after-school job wages to overnight having to deal with attorneys, trusts and investments, and I feel overwhelmed. I was a liberal arts major, and I have no idea what I am doing.” He sighs and says, “I really want to honor my parents’ legacy and live out the values they instilled in me. I just wish I had more direction.”

Lance (professional athlete)

Lance had prodigious athletic ability and was picked up by a top college football program. Lance worked hard and graduated with a 3.9 GPA. He applied to law school, was admitted and deferred admission for three years. In the draft, he was picked up as a wide receiver by a National Football League (NFL) team. He now has more money than he dreamed he would ever have. He is surrounded by agents, family and friends who all seem to want a “slice of the pie.” He says, “My friends and teammates are all buying big houses and sports cars. I know my career is going to be short compared to the rest of my life after football, and, while it seems like I am getting a lot of money, the NFL warned me that many pro athletes end up in poverty within a few years of leaving the game. I want to be smart, but I don’t know where to start.”

Allison (soon-to-be spouse)

Allison grew up in a solidly middle-class family. Her parents worked hard and always provided for her and her siblings. They sacrificed to help put her through college and help with the cost of graduate school (though she is still paying off student loans). She has a solid work ethic and is holding down a high-paying executive position in a social media company. Two years ago, she met Robert. They went out on a few dates, and things began to get serious. Then Robert shared that he comes from a very wealthy multigenerational family. They dated for two more years and she has experienced the homes, the plane, the yacht and the large family gatherings. After their engagement, she attended Robert’s annual family meeting. However, she has no current say in decision-making with economic consequence. She and Robert are about to get married; she has signed the prenuptial agreement (after working with her attorney — a first for her and a real eye-opener). She knows she has only begun to understand the complexities of the family wealth she is about to step into and that one day will impact their future children.

Where they hope to find stability in their family and friends, they will become keenly aware of new, disruptive dynamics at play.

Kendall and Dylan (lottery winners)

Kendall routinely played the lottery without much expectation. But on one spring day, her ticket happened to win big. She and her partner, Dylan, now have $50 million. The phone has been ringing since the local reporters and newspapers splashed their good fortune all over the front pages and local news channels. Advisors want to help them invest their money. Charities are calling for contributions. Family, friends and shirttail relatives have come out of the woodwork asking for “loans” and have become resentful when Kendall and Dylan have declined to assist. “Sometimes I wish I hadn’t bought that ticket. We have vowed this wouldn’t change our lives. But when I am honest with myself that is really beyond our control. Our friends of 20 years are treating us differently, and things have become awkward. As much as we would like to avoid it, it is being thrown in our faces every day. I want to be thoughtful with this money — I know Dylan and I want to travel and help educate our nieces, but other than that, I don’t want to spend a lot of money. I wish I knew what to do.”

The common thread

Sally, Isabella, Lance, Allison, Jack, and Kendall and Dylan share the common experience of navigating a new level of wealth relatively quickly and without preparation. They all find themselves in a new world they don’t fully understand and feel ill-equipped to address. In the beginning, they will most likely find this new world complex and intimidating. It is filled with people who seem to be speaking a foreign language and whose motives they will suspect. Where they hope to find stability in their family and friends, they will become keenly aware of new dynamics at play. They might find themselves hesitant to ask questions out of fear of appearing foolish or because they don’t want their naiveté to become an invitation for exploitation. They probably won’t know whom to trust or how to evaluate the quality of the advice they are receiving. What follows is a guide to help individuals or couples who come into a new level of wealth move from swimming in deep waters to finding solid ground.

Sudden wealth

A challenge to identity

In some ways, the issues our friends face are deeper than they imagine. Many people who suddenly obtain a significant amount of wealth experience a sense of dislocation — a deeply felt sense they are not living their own lives and that this is happening “to” them. This sense of dislocation and even dissociation makes it very challenging to find a sense of balance and perspective. These currents affect not only the sense of self but also relationships with others and with society as a whole.

Even savvy entrepreneurs, like Isabella, who work all of their lives to build a business and then sell it can see money quickly disappear. These individuals will often buy a “lifestyle” or make investments in other enterprises that wipe out their hard-earned fortunes. Some assume their business acumen will help them to invest wisely in new businesses. It turns out that it is one thing to run a business from the inside and quite another to reliably spot a profitable venture from the outside looking in. Beyond that, while entrepreneurs often know their own business financials cold, learning personal financial management requires a very different skill set, including a clear understanding of personal financial goals, wealth management, estate planning and other issues.1

For individuals without experience in the business world like Sally, Lance, Allison, Jack, and Kendall and Dylan, the challenges are often compounded. Without familiarity with some of the key terms — everything from balance sheets to trusts to basis points — and, more importantly, an understanding of the purpose of the terms, the volume of information can be a mash-up of jargon. For some, this can lead to decision paralysis, as they feel overwhelmed by the information and unable to thoughtfully synthesize it. For others, a desire to cut through the jargon can encourage them to make decisions more quickly, often resulting in mistakes in judgment, strategy and execution.2 To make matters worse, people flock to the side of individuals with wealth with a great deal of unsolicited advice, often misguided or even self-serving. It becomes difficult to distinguish people who are looking out for themselves, those who use their friendship to gain influence, and professionals who have integrity and skill.

Gaining insight and learning skills

Understanding your money personality

Our behavior around money is driven by learned and often subconscious money scripts to which we subscribe. These scripts are frequently transgenerational beliefs developed in childhood and shaped by experience, which are acted out in adulthood, and often can be summed up by aphorisms. For example, our inheritor friend Jack noted his parents often shared their own parents’ belief that “The next Depression is around the corner.” In many ways, this informed his parents’ decision to live modestly, even as their earnings and assets increased. Likewise, our lottery winner Kendall reflected on the image she gleaned from the stories she heard from her family as a teenager and young adult, reinforcing the idea that “we grew up poor but happy.” This has heightened her anxiety over how her and Dylan’s lottery winnings may not provide the happiness that most would expect. Likewise, our soon-to-be-spouse friend Allison shared how her father’s adage of not being “pennywise and pound foolish” kept her from opening up store credit cards while in college, mindful of how paying off the balance slowly could add interest fees. She’s focused on how she can apply her father’s advice on a broader scale as she and Robert begin to collaboratively manage their assets.

These money scripts are also shaped by larger societal events. Examples include living through the Great Depression, the dot-com era, or the market crash and recession of 2008.

Entire generations are imprinted by major economic events. We act in ways that are consistent with our beliefs. These scripts and stories about money influence our patterns of saving, spending and investing as well as inclinations for gambling, financial dependency and financial enabling, to name a few. Unfortunately, our deeply held beliefs about money may not serve us well — we often outgrow these old messages yet may replay the old “tapes” in our heads in the present day.

Exercise: Explore your own money story

Write out a few of your beliefs about money, and for each, identify an experience or life circumstance and the people who shaped that belief. Once this is on paper, for each belief, ask yourself how it has served you in your life to date and whether it is still useful. Click here for Exercise 1 a template to complete this exercise.

When we understand where our judgments of money stem from, we are able to see where patterns began and decide whether they should continue to influence our thinking and decisions. For example, you may reflect on a time when your parents were flush with cash and immediately spent it on lavish dinners and presents. You may also remember a time when money was tight, and you were told that you had to penny-pinch and work after school. Perhaps this pattern of boom and bust now causes you to be frugal, spending only on necessities. Alternatively, in the same scenario, you may have developed the belief that money comes and goes and thus should be spent when it is available. Once identified, you are free to replace old stories with new ways of looking at the world to better suit your current circumstances.

Beyond money scripts, we can see our behavior around money as reflective of one of two different “money styles.” These styles are not so much discrete types but rather reflect tendencies around how we view cash flow and how we assess risk.

While most people adapt to wealth reasonably well over time, there are two possible responses that are typically ineffective strategies that can generate unintended consequences if they become habitual. The first and most obvious is overspending. The other, quieter response is denial, often arising from guilt and responsibility that results in hiding from the reality of wealth. Neither approach can truly support long-term happiness.

Exercise: Explore your money style

Understand your own dominant money style by completing an initial self-assessment in Exercise 2.

A. Overspending

While initially exhilarating, overspending rarely produces sustained happiness. The emotional factors driving the behavior are not appeased by the spending and are often worsened by it.3

It has been shown that purchasing behavior is connected to brain chemistry. Shopping makes some individuals feel particularly good. When making purchases, compulsive shoppers experience higher-than-average levels of dopamine release. This is the powerful euphoric neurotransmitter connected to addiction.4 Brain imaging studies have shown that as people make purchasing decisions, both the pleasure and pain centers of their brain “light up” as they weigh the desirability of the object against its cost.5 Substantial wealth can potentially remove — or at least numb — the pain response that arises when comparing cost and value, and thus cause people to overspend.

Beyond biology and brain chemistry, some spending behavior is driven by social dynamics like “lifestyle creep.” In this case, people don’t splurge on items in spending sprees but rather find they are spending more and more on lifestyle without being conscious of it. They buy a big house. Then they need new furniture. Then they feel they need nice cars for the expansive garage. Then their closets look bare and they need new clothes. Then the kitchen isn’t quite to their liking so they remodel. In the process, their property taxes triple. Their insurance doubles. Their monthly burn rate grows. Before they know it, they spend to create a lifestyle that generates doubts and regrets.

Being aware of “lifestyle creep” is half the battle to mindfully managing it. Understanding the big-ticket, keystone purchases that drive budgets (items like homes, boats and planes) helps to avoid the cascading purchases and recurring maintenance expenses that will likely evolve from these high-cost items. It is not that these purchases shouldn’t be made but rather that they should be made with an awareness of their broader consequences.

B. Denial

Some individuals engage in the opposite of overspending. This is less visible, but it can be a painful state of existence. They try to avoid the fact that they have wealth by living under the radar as much as possible. They don’t want anything to do with their funds. They live in a modest home in a modest neighborhood and focus on ensuring no one can glean that they have ample means. They hide the details of their wealth from their friends and their children. These individuals are often paralyzed by their wealth and experience shame or fear by possessing it. Some avoiders become overly generous by anonymously giving large sums to charity, not because of a deep belief in the causes they are giving to, but, in their minds, to atone for having received wealth they don’t want and don’t feel they deserve.

Understanding your money style provides greater awareness and therefore more control over your financial life. Awareness of money styles gives those with newly created or liquid wealth an important tool to address the lasting changes necessary to adapt well to the sudden change wealth brings. It allows people to become mindful and not merely reactive in the face of their adjustment to wealth.

Dealing with wealth: Building capacity and competency

A key aspect of successfully navigating wealth is developing the capacities and competencies of dealing with the complexities of wealth. As one young rising generation member with two children said, “I have two jobs — raising my children and being a good steward of the wealth I received.” Her days are filled with carpooling and attending sporting games, but also meeting with private wealth advisors, reviewing statements, reading about investments and making wise philanthropic decisions. “It takes at least a third of my time to manage this — and even then, I feel I am not learning enough or staying on top of it as much as I should.” The pressure to manage all of the different responsibilities speaks to both the complexity of wealth and the benefit of individuals surrounding themselves with skilled and thoughtful advisors.6

Exercise: Finding the right private wealth advisor

Using the considerations listed here as well as considerations in Exercise 3 explore what factors are most important to you.

A. Finding the right private wealth advisor

One of the most critical decisions for individuals with wealth is the choice of who will be in their advisory network. While individuals of wealth will develop a team of people to help them that may include attorneys, accountants and family dynamics consultants, the most critical person on the team will likely be their private wealth advisor, who has a unique function. Merrill private wealth advisors7 serve the role of a quarterback, spot critical issues and develop integrated solutions to the complex issues and problems that significant wealth can bring. They often empower the client in navigating the complexities not only of financial investments but also of wealth structuring and estate planning, insurance, philanthropy and family governance. Private wealth advisors focus not only on their clients’ money — their assets and portfolios — but also focus on their clients as individuals — their dreams and aspirations.

To help identify the right private wealth advisor for you, it’s important to consider the following factors:

  • Is the private wealth advisor someone who will educate you, has the desire to see that you are empowered, and has the patience to help you understand the complicated world of investments and taxes that you have entered? Is this someone who cares about your goals and well-being, as well as that of your direct family members? Do they focus on you holistically versus solely how they can invest your money?
  • How many and what types of clients does the private wealth advisor team serve? You will want a sense that the private wealth advisor and team have expertise serving clients with a similar degree of wealth and broadly comparable investment goals. Checking references and seeking referrals are also terrific ways to gauge whether a particular private wealth advisor will be a good fit for you.
  • What has been the private wealth advisor’s ability to cultivate trust and loyalty with clients of significant wealth? Private wealth advisors who have client relationships that span many years have earned the trust of some very sophisticated people.
  • What is the range of services that the private wealth advisor and broader firm provide? It will be crucial to understand the scope of capabilities and the private wealth advisor’s ability to serve as a “quarterback” in addressing not only investing, but also wealth structuring, family governance, insurance, lending and a range of other issues important to clients who seek insight in these areas.
  • How does the private wealth advisor view his or her duties to clients? Private wealth advisors must avoid conflicts of interest, make full disclosures of fees, and provide unbiased and comprehensive advice that is in their clients’ best interests.
  • How is the private wealth advisor compensated and what is the level of transparency in regards to fees? Clarity about fees is vital to a successful relationship. Payment — whether a percentage of assets or per transaction — should be structured around your needs and preferences.
  • What is the private wealth advisor’s and broader team’s expertise? Teams often have personnel with advanced designations such as a Certified Financial Planner® (a professional who assesses a client’s overall financial situation and generates comprehensive plans to achieve goals), a Chartered Financial Analyst® (a professional who concentrates on investment analysis, portfolio construction and ongoing investment management) and/or a Certified Private Wealth Advisor® (a professional with advanced certification for serving high-net-worth clients).
  • What is the process for interacting with the private wealth advisor team? An advisor team should be committed to conversations in person, by phone or online - whatever your preference is - as often as you require. Every client has different needs and expectations. Addressing this question will clarify how easy it will be to make decisions, ask questions and receive truly customized and tailored service.

B. Learning

As you enter the complicated world of managing wealth, you will find your capacities and competencies will begin to grow. You will learn what a sustainable lifestyle is for you and your family, and you will grow slowly into your new reality. You will notice if you inadvertently adopt patterns of overspending or avoiding and take steps to address these tendencies as appropriate. You might become more philanthropic — learning how to give money away wisely to organizations you care about and that will use the money effectively. You might find yourself staying in your job, not because you need to earn a living, but because it keeps you grounded and connected with people you know. Alternatively, you might explore other ways to use your time to make a difference.

You will also begin to learn about managing wealth. Here you will need to become familiar with the language of investments and other aspects of having wealth. Your private wealth advisor should be someone who will teach you basic concepts you need to understand to be a savvy consumer of financial services and help you prioritize your goals. Carving out time to learn about investments and other topics like family governance and decision-making is another helpful strategy to empower you to maintain momentum in the learning process.

Beyond investments, over time you will need to understand vehicles like trusts, estate planning devices, gifting rules, taxes and insurance. For most clients, wealth structuring includes the goals of basic estate planning (for example, creating wills, revocable trusts, and health care and legal powers of attorney); asset protection (for example, reviewing one’s balance sheet, property and casualty insurance, considering domestic asset protection trusts); and wealth transfer (for example, different techniques for transferring assets to children, parents, siblings; contributing to philanthropy outright or through vehicles like donor-advised funds or foundations). Your private wealth advisor can work with your personal tax professional and estate attorney to address your family’s needs. You can also locate well-respected attorneys through the American College of Trust and Estate Counsel (ACTEC®), a membership organization of the nation’s top estate planning attorneys, or Super Lawyers®, a peer-reviewed directory of top attorneys.

Exercise: The land of wealth

In Exercise 4, you will find a worksheet to help you determine your own preferences for living in the land of wealth.

Territories in the land of wealth

As identified by noted psychologist Dr. James Grubman, coming into wealth has many parallels to being an immigrant coming to a new country.8 People new to wealth must learn a new legal and financial language, decide how much of their old lifestyle they want to keep and what they want to change, determine how they will relate to new and old friends, develop new professional relationships, and become connected with new organizations and institutions. The shift is profound. Within the land of wealth lie different regions or territories. In rough terms, these can be identified by different features such as total net worth and residency. In more subtle terms, there are many niches in the land of wealth, and there are many ways to be wealthy. Understanding what “territory” in the land of wealth you want to occupy is an important consideration for those with newly created wealth. Making conscious choices helps individuals smooth out their transition.

The bottom line: Helpful principles

Reflecting on the above discussion, we share the following core principles not as hard and fast rules, but rather as guidelines that many have found helpful.

Eight core principles

1. Don’t make major decisions immediately.

5. Carefully gather your companions.

2. Gather perspective and don’t overshare.

6. Explore. Keep options open and take calculated risks.

3. Know yourself.

7. Hire the right advisors.

4. Identify your priorities and operating principles.

8. Build your capacities and competencies.



Principle One:
Don’t make major decisions immediately.

People who act impulsively in transitions often find themselves regretting it later. Delaying major life-altering decisions, such as moving or quitting a job, can put the brakes on impulsive behaviors. This is not to say you shouldn’t pursue certain endeavors that are important to you or treat yourself a bit. The key is to pace yourself and give yourself time to really think through what you want. As part of this, also consider holding off on making major commitments to others, whether to family, friends or charities. For example, it is common to advise the recently widowed not to make significant life decisions for a year, such as selling a home, jumping into a relationship or radically shifting lifestyle. Of course, a year is an arbitrary deadline. But the principle holds.

Principle Two:
Gather perspective and don’t overshare.

There are many ways to gather perspective, but the point is that you need to get to 30,000 feet to really see your life and what you desire for yourself. Sometimes this involves travel, journaling or self-reflection, therapy or coaching, meditation or prayer, poetry and art, studying and reading, watching relevant films or reading relevant books. People have approached gaining perspective in countless ways, but they have found a way to gain balance and insight as they face their life after the “wealth event.” As you gain perspective, be mindful of what you communicate with others. If you can keep the news private, do so to limit unsolicited advice and pressure from others. If the news is out, develop an elevator speech to address it, particularly in handling awkward or inappropriate questions (and helping your family members handle awkward questions as well). By keeping the news close to the vest to start, you will buy time to gather perspective. You will use this time in part to explore Principle Three.

Exercise: Elevator speech

An elevator speech instantly creates a clear boundary based on principles that are important to that person. See Exercise 5 to explore ways in which you can create your own elevator speech.

Principle Three:
Know yourself.

Understand your own tendencies around money. Write down your beliefs about money and wealth. What were the messages you received as a child? What is your money style? (As noted earlier, please see Exercise 1 for a template to consolidate your responses.) How is having money challenging your identity, if at all? How is your relationship with this new wealth evolving over time? What would have to be true in order for you to effectively integrate this new wealth into your life? Examine these questions and bring into the open the hidden drivers of your behavior. Understanding yourself is a solid starting point to help cut through the noise to begin to identify your goals and operating principles (Principle Four), as well as to avoid some common traps.

Principle Four:
Identify your priorities and operating principles.

The opposite of acting impulsively is not acting at all. There is definitely a downside to that as well, particularly when it’s driven by a lack of identified priorities and principles. As part of gathering perspective and understanding your own predispositions around wealth, it’s important to distinguish what’s most important to you in navigating wealth. If you effectively navigated wealth, what would success look like to you in five years, in 10 years, in 20 years? Although there may be plenty of unknowns, putting a stake in the ground around the values that are most important to you — whether the freedom to travel, providing for your children’s education while fostering a strong work ethic in them, and donating both money and time to philanthropic causes you care about — is essential to help make a multitude of other decisions. It’s easier to decide the amount of risk to take with a particular pool of money or the guidelines to set in a specific trust if you have clarity on the overarching goals and operating principles driving your actions. Sharing your values and priorities with your advisors is also fundamental to ensuring they understand your views in recommending different strategies.

Although there may be plenty of unknowns, putting a stake in the ground as to the values that are most important to you — whether the freedom to travel, providing for your children’s education while fostering a strong work ethic in them, and donating both money and time to philanthropic causes you care about — is essential to help make a multitude of other decisions.

Principle Five:
Carefully gather your companions.

In literature and film, as in real life, one of the key aspects at the beginning of the adventure is finding companions on the journey. Great adventure and life-altering endeavors are rarely solo journeys. Frodo had his band. Luke Skywalker had his. Susan B. Anthony had hers. Harriet Tubman had hers. Your companions are likely to be an odd assortment — advisors, old friends, new friends, confidants, and fellow adventurers. The benefit of meeting peers who are experiencing similar events can’t be overstated, so consider attending a workshop or conference for others navigating significant wealth.

Principle Six:
Explore. Keep options open and take calculated risks.

Experimentation is good in the first year. Try things you imagine you will like and take some risks with some things you might not. The key here is to make sure that you see these experiences not as lifestyle choices but as valuable experiments. For example, with respect to large purchases such as homes and planes, it’s often wise to apply the “rent before you buy” adage, whether in renting a residence to test out an area or exploring a flight-sharing or fractional jet program. The goal is to test to learn and potentially help make a more permanent commitment. As American writer Rebecca Solnit reminds us, “Fear of making mistakes can itself become a huge mistake, one that prevents you from living, for life is risky and anything less is already a loss.”9

Principle Seven:
Hire the right advisors.

Start with hiring a reputable private wealth advisor who has the experience working with clients of significant wealth, and then add competent legal, tax and family dynamics advisors. Build a team of individuals who will not only look after their areas of specialization, but will also provide advice and counsel as you navigate the transition you are experiencing. Look for people who will not only provide technical expertise, but will also offer wisdom and be collaborative. Seek a team of advisors who will:

Understand you— Taking the time to get to know you, your feelings toward investing and financial situation.

Create your strategy— Building a unique strategy based on your needs.

Help to keep you on track— Helping guide you, making adjustments as your needs change.

Principle Eight:
Build your capacities and competencies.

As discussed, gaining the financial and wealth skills you need will allow you to take control of your life. Your private wealth advisor will be an invaluable source for you as you develop these capacities. Learn at a pace that feels comfortable to you, but note that those who are deliberate about their development and establish thoughtful (and realistic!) plans will typically have better outcomes.

Conclusion

We have given you an overview of the experience, the principles and some guidelines that many who have navigated newly created wealth have found helpful. Our hope is that this guide has been thought- provoking and useful. In the following pages, you will find worksheets that will allow you to practically apply and synthesize much of what you have read to help reflect on where you are today, define your objectives and operating principles, and translate intention to action.


A private wealth advisor can help you get started.

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