· Sudden celebrity in entertainment or athletics
· Stock options
Bradley found that many people were so affected emotionally by the sudden or unexpected money they received that they ended up losing some portion of it within just a few years. In addition to the emotional impact, many people who receive money unexpectedly are unprepared to deal with a sudden windfall. “There is no dress rehearsal for Sudden Money,” Bradley writes, “You don’t know how you will react until it actually happens to you. But you can prepare yourself for certain decisions and problems that seem to be universal for windfall recipients.”
We often see the consequences of lack of preparation among business owners. Most discuss and intensively plan for the sale of their business, but once it is sold, they are rarely prepared emotionally. Many go off the radar screen afterward, detaching even from family and friends. They often do not know how to occupy themselves day to day. If you ask whether they are glad they sold the business, the response usually is yes. But most will also say they believe they retired too early.
An advisor can help avoid this situation by asking critical questions as the client prepares for the sale of the business. Ask what he or she would like to do after the sale. Tell them stories to illustrate how people have handled things well and how others have handled things poorly. Business owners are smart, confident people—lecturing isn’t the best choice to help them come up with a plan, but hearing real life stories from an advisor who has seen it before can be very effective.
Retirement, even a planned one, can be nightmarish if a client hasn’t considered his or her life after work ends. It’s not unheard of for people to start spending money on travel or large purchases just because they haven’t thought about daily life in their next chapter.
The death of a spouse is among the most difficult transitions, especially unexpected deaths. It can take years for a surviving spouse to recover, and certainly months before they feel able to make good decisions.
To help clients prepare for financial transitions of all types, we use a questionnaire that covers non-financial matters as well. We ask them about their interests and what they like to do when they’re not working. Part of this approach is to uncover interests that could have a financial impact, such as extensive travel or expensive hobbies. But a lot of planning is psychological and emotional—taking care of family, donations to charities, passing on a legacy—and talking about it in advance allows them to prioritize without pressure.
Many transitions are one-time events, which is why it’s so important to be prepared for the unexpected. A person might sell more than one business or experience more than one divorce, but most transitions happen only once. When the unexpected occurs, advisors can be of critical help in getting clients to slow down and recognize the heightened stress. They can point out to the client that they may feel almost like a different person and are vulnerable to making strange or inappropriate decisions about big and small things including their portfolios or the sale of a home. The goal is to help them slow down and realize that they have planned well, that they know how much they need to live on, and that they can go on with their lives and be OK.
Bradley refers to this slow down as getting into the Decision Free Zone (DFZ), during which the person gives himself or herself the time and space to be free from making unnecessary financial decisions, something she recommends regardless of the nature of the transition or the amount of money involved. Among her advice for time spent in the DFZ is that it’s important for clients to retain control and seek help from a financial advisor to plan for the new circumstance, gather information to understand the financial implications of the transition and make a list of necessary decisions.