Avoidable Mistakes For The Suddenly Wealthy

Avoidable Mistakes For The Suddenly Wealthy
  • August 14, 2023

From Financial Advisor Magazine, by Jacqueline Sergeant

It’s not unusual for Joe Farren and his team of financial experts to occasionally come across clients who have suddenly inherited a windfall and are not equipped to manage the influx of money.

“We often see sort of a lack of financial sophistication in terms of how they should manage their lives,” said Farren, the president of Aquilance, a financial administration company that provides personal day-to-day financial management for ultra-wealthy and wealthy individuals.

That newly wealthy naïve client, Farren said, runs the gamut from athletes, entertainers and CEOs to other top-tier executives, and people associated with business that are experiencing liquidity events. And then there are the individuals with the startup or the entrepreneur “who hit it big with an idea that catches fire and all of a sudden they’re managing a business and they’ve got this massive infusion of cash,” he said, adding that this is overwhelming for anyone.

Farren said they see it more often with young athletes “who are getting these massive [contracts] and oftentimes they are coming from backgrounds where there weren’t good financial underpinnings, no real sense on how to manage money,” he said. “The thing of it is if you were not brought up with that level of wealth, you don’t think about revisiting your lifestyle and the security point of view.”

Farren said there is “a complete lack of awareness” on the part of that segment of his client base that wants to cling on to old behaviors. And while they cannot force people to change their ways, Farren said he and his team try to educate those clients on certain behaviors and habits that they need to set aside. The hope, he said, is that “an informed person can start to think about these things and understand that there is a pro and a con or a ramification.”

Here’s some of the advice Farren has for newly wealthy clients…