What You Say To Those Who Suddenly Become Rich
by Gene Griessman, Ph.D
Free financial advice is easy to come by if you suddenly come into a lot of money, especially if you were poor before. Unfortunately, this free financial advice is worth about as much as it costs, and frequently turns out to be disastrously costly.
Any great athlete, movie star, or lottery winner will tell you that financial advisers come crawling out of the woodwork as soon as big money appears. Often the newly rich have no one who’s ever had money to rely on for advice, so they turn to parents, siblings, friends and other relatives who know less than they do. Or worse, they make independent judgments they are not qualified to make.
There’s a constant stream of stories about football and basketball stars, actors and musicians who signed contracts for millions but now are bankrupt.
So what do you say to someone who’s suddenly rich?
Ron Lieber, in an excellent article in The New York Times, offers three recommendations:
One. “Give yourself a time out,” is the advice of Steve Young, who led the San Francisco 49ers to the Super Bowl, and is now a financial adviser. Don’t be in a hurry to double your money. Triple A bonds will work just fine.
Dana Hammonds, director of player services for the National Football League’s Players Association, says: “Focus on football…there is absolutely no need to get involved in any kind of investment. The only thing they need to do is figure our cash-flow for the first couple of years. “
That advice goes against the impulses of the newly rich. They see a lot of money sitting in the bank making diddly-squat and feel they are letting wealth slip away. Along comes someone with advice for doubling their money, and off the money flies to cattle ranches, movies, restaurant chains, and uranium mines.
This happens in many fields, not just athletics. Through the years I’ve watched professional speakers begin to make money, then put it in risky investments of which they know little or nothing. The next thing, they are in bankruptcy court.
Two. Don’t be in a hurry to buy a big house. Reggie Wilkes, a Merrill Lynch adviser who was a professional athlete himself, is quoted in the article: “Get yourself a town house, or maybe even rent.”
Three. Be careful whose advice you take. Your friends and relatives may not know enough to protect you. Professional advice is usually needed. But be careful, even then.
The newly rich are magnets for the unqualified and the unscrupulous. Michel Vick, who went bankrupt after making many millions, was sent by a teammate to one financial adviser, his brother sent him to another. Both advisers were in trouble with regulatory agencies.
The players association keeps a list of pre-screened advisers. Among the requirements to get on the list: a college degree and no disciplinary record with regulators.
Whatyousay.com thinks this is good financial advice, even if you aren’t a superstar or win the lottery.
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