Is your client prepared for a financial windfall?

A client who receives a significant sum of money unexpectedly might need your help navigating the associated sociological and psychological fallout.

That’s because Canadians change their financial priorities when they imagine receiving a windfall, finds a BMO survey.

For example, when an unexpected sum was not part of the equation, survey respondents said their financial priorities were achieving their retirement lifestyle goals (55%), increasing wealth (49%) and protecting current wealth (40%).

After visualizing a windfall, however, only 38% of respondents said their financial priorities would remain the same.

Instead, priorities shifted to sharing the money with family, friends and charity (64% of respondents), and paying off debts (also 64%). Further, almost half of respondents (47%) said they’d make investing in the stock market, a business or property a priority, and just under one-fifth (17%) would buy big-ticket items they’ve always wanted.

The responses are timely because an estimated $1 trillion in personal wealth will transfer to the next generation of Canadians by 2026, with about 70% of that sum comprising financial assets, says the BMO report.

The source of funds also makes a difference. For example, strong emotions might accompany a divorce settlement, or clients might be tempted to make impulsive decisions from a sudden payout.

While conventional wisdom holds that more money provides opportunities and happiness, many people instead find themselves overwhelmed, says the BMO report.

“They start to overspend, grow suspicious of those around them and make poor decisions that lead to personal conflict and financial ruin,” it says. Thus, sudden wealth syndrome is a wake-up call to align priorities and core values. That’s where advisors come in.

Also, with more clients interested in investing after receiving a windfall, the survey finds that 46% of respondents say seeking investment advice would become a top concern. Further, just under one-fifth (18%) would want to know how the windfall changes their retirement outlooks, and 12% would consider whether they could stop working immediately.

For full details, download the BMO report.

About the survey: Between June 28 and July 5, 2018, Validatelt Technologies conducted a survey for BMO Wealth Institute using an online sample size of 1,011 Canadians aged 35 and older. Overall probability results for the sample size are accurate to within +/- 3% at the 95% confidence level.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.