Hausner also differentiates two very different kinds of new wealth-sudden new wealth and slower new wealth. Sudden wealth involves any instant acquisition, whether by lottery winning, court settlement or unexpected inheritance. Hausner includes the dotcom phenomenon in this category-employees of successful companies (or companies the stock market deems successful) that are started and sold in less than five years. The experience of clients in either instance is the same: "shell-shocked," as she describes it. On the other hand, most new wealth is acquired the slow, old-fashioned way-building a business over 20 years, selling it and coming into liquid wealth requiring financial management.
Why do advisors need to be aware of these distinctions? According to Tom Livergood, an advisor at Family Office Management LLC in Hinsdale, Ill., to provide their clients with the right advice, advisors need to be sensitive to the different motivations of old and new as well as active and passive wealth. For example, in his experience, active wealth creators who sell the family business before their "inner time" is right, usually suffer from a serious case of "seller's remorse." Entrepreneurs need to be counseled about the pitfalls of "offers they just can't refuse."
In an article for the Journal of Retirement Planning (January 2000), Livergood traced the three stages of CHBO (closely held business owner) grief. Pre-Deal Stage: "It's too good to be true." Doing-the-Deal Stage: "Circle the wagons." Post-Deal Stage: "Oh my gosh, what have I done now?" For the slower, new-wealth types, trading their life's passion for liquidity is a transaction that does not consider their unique relationship to their money.
Livergood's stages of CHBO grief point to the simple fact that old-money clients have quite a lot to teach their new-money counterparts about the stages of wealth. Furthermore, while the market for old-money clients is clearly limited (as Hausner says, inheritors already either have advisors or their money is tied up in trusts), new-money clients are turning into and reproducing old-money clients everyday. Wagner points out that trillions of dollars are in the process of being transferred to the next generation, leaving plenty of people grappling with issues of generational wealth-to be examined in the June issue of Financial Advisor.
Jim Grote, CFP, is a financial writer who has written for numerous magaznes. He can be reached at [email protected].