Is there a downside to sudden wealth? Omnia Family Wealth says there is: The suddenly wealthy can lose the money.
Omnia, a multifamily office based in Aventura, Fla., calls the downside “sudden wealth syndrome,” and says it can lead to massive wealth destruction.
Omnia works with large, multigenerational families to help guide them through the complexities of life with wealth. As part of their work, they often see what happens to heirs who are unprepared to manage wealth. Because they are unprepared, the family wealth is lost after it is transferred from one generation to the next, the firm says.
“Sudden wealth syndrome is preventable,” says Steven Wagner, the firm’s co-founder and chief executive. “It all boils down to talking to your heirs about the legacy you want to leave.”
First, advisors need to encourage wealthy families to engage in structured family meetings where the second- and third-generation heirs can ask questions and learn about the patriarch’s guiding values and long-term goals can be set.
Then, the wealth creators should provide educational opportunities for succeeding generations. Often, a finance or investment educational course can help prepare heirs by giving them a basic understanding of finance, says Omnia.
Finally, advisors should help the family establish a mission statement for the family’s legacy.