Find yourself with a financial windfall? SEEN spoke to Schechter’s managing director about how to manage a sudden influx of wealth.
By Cassie Kunze
Photography by Brett Mountain
Sponsored by Schechter
Congratulations! You finally took the plunge and successfully sold your business. Your net worth became liquid overnight, and you suddenly have the financial freedom you’ve always dreamed of — so, what’s next?
While it may be a far cry to characterize making more money as a “problem,” there are several factors associated with the dynamics of managing newfound fortune.
SEEN spoke with Jason Zimmerman, managing director at Schechter in Birmingham, to provide insight and unpack the strategies to approaching the tremendous task of managing a sudden influx of wealth.
“Liquidity creates new opportunities, but it also creates new challenges,” Zimmerman says. “Most people think that now that you have all this money, you have it ‘made,’ however, in a lot of ways, the experience of receiving a large financial windfall is similar to winning the lottery.” According to the Consumer Financial Protection Bureau, nearly one-third of lottery winners eventually declare bankruptcy.
Whether it’s a sale of a business, inheritance, stock payout, retirement or legal settlement, consider these key strategies when addressing a liquidity event.
Check Yourself Before You Wreck Yourself
Take a pause and avoid making hasty decisions. While that may seem easy, can you imagine suddenly having the capital to buy that high-end sports car you’ve always wanted? Funding a relative’s business venture? In fact, one of the bigger challenges after receiving a cash payout is navigating the temptations of impulse, extravagant purchases.
Take some time to consider how much you need to live and what you want in the short and long term. If you must “treat” yourself, avoid buyer’s remorse by opting to rent initially to see if it’s something you want to invest in later.
Additionally, it is also smart to keep your wealth quiet. This will protect you and your family from any potential “creditors and predators” trying to get a piece of the pie. Having less third-party distractions will help eliminate the chances of making uninformed or premature decisions.
Hire a Manager
It is essential to hire a reputable wealth manager from a credible firm with experience managing at your level. Look for an adviser who has a strong team with a broad range of investment opportunities and expertise in various tax strategies, legal and estate planning.
If you’re considering selling a business, ideally, it is best to talk to an adviser beforehand to mitigate taxes and secure assets.
When dealing with generational businesses or inheritances, often multiple advisers must work with each other. Baby boomers, for example are expecting a tidal wave of wealth via inheritance from their parents. So, it is important to choose an adviser who ”plays well with others” and always keeps the client’s best interest in mind .
Apart from financial prowess, it is equally important your adviser understands the emotional side of money. Having an adviser with a high emotional IQ who understands your communication style is fundamental.
1. Road mapping: Work with your wealth manager to set goals and strategize a plan. This phase helps clients define objectives and creates a vision for next phase of their life. Based on your goals, discuss diversification and asset allocation.
2. Read the fine print: Often there are tax burdens and limitations with financial windfalls. Refer to your adviser on the most tax-efficient strategy and be sure to uncover all terms.
3. Common mistakes:
- The shotgun approach, in which the client “sprays” their cash to too many places. Work with your manager to control access to the cash and let your adviser handle uncomfortable conversations.
- Adversely, another common mistake is taking too little risk. It is a mistake to not expose yourself to investments – cash sitting in bank has little benefit.
4. Make informed decisions: When deciding to make a nominal purchase, it is important to consult your adviser. It is not your adviser’s role to tell you what to do with your money, but to help you fully understand the consequences of a decision so you can make an informed one.
251 Pierce St., Birmingham
The views and opinions expressed in this article belong solely to the author. Jason R. Zimmerman is a Senior Managing Director and owner of Schechter Investment Advisors, LLC (“SIA”), an SEC registered investment adviser located in Birmingham, MI. Mr. Zimmerman’s views are his own and do not necessarily reflect the views and opinions of SIA. The material herein is provided for informational purposes only and should not be construed as investment advice, a specific investment recommendation, a solicitation, or an offer to buy or sell securities.