When it comes to money, everybodys just a little bit crazy. Thats one of the reasons that Cicily Maton, founder of Aequus Wealth Management Resources, has a clinical psychologist on staff.
Thats just part of our process, Maton says. People seem to like it. In fact, one of our clients said the thing she liked most about our planning process was how much she learned about herself.
Matons Chicago-based practice focuses on people in transition, often after theyve come into a substantial windfall.
About 60% of Matons clients hire the firm because they have received a settlement in a lawsuit or divorce, landed a lump-sum retirement distribution in a downsizing, inherited a pile of cash or sold a business and been left with more money than they knew how to handle, she says.
The psychologist is especially helpful for these clients, who may have money issues to work through, Maton says; he also aids communication between the planners and clients.
STRESSFUL TRANSITIONS
In truth, the types of transitions that result in windfalls tend to be stressful; the resulting emotions may range from fear and anger to elation and worry.
After all, if clients got a lump sum distribution in a retirement or downsizing or the sale of a business, the payout indicates that the occupation to which they had devoted the bulk of their working life possibly for decades is undergoing massive change.
And if the client inherited money or received it in a divorce settlement, theres a good chance that the payment accompanied the loss of a loved one.
Almost everyone who becomes a new client has some sort of stress going on that we can help them contain, Maton says. In 2008 and 2009, it was job loss and downsizing. Today, its people who are selling their businesses and getting ready for a new life.
CALLING A TIMEOUT
For many windfall recipients, planning is a particular challenge. These individuals may have spent the bulk of their lives trying to cover the basics: food, shelter, clothing and education.
But the windfall allows them to attain things that were previously so far out of reach that the client has never stopped to even contemplate the possibilities.
Thus, they come to Maton talking about vague goals, like getting ready for retirement but cant fully describe what a comfortable retirement means to them.
Windfall recipients also tend to go on an emotional roller coaster ride that can make it difficult to sort out priorities, Maton says.
She asks clients to agree to go into a decision-free zone a sort of financial timeout that is aimed at keeping them from doing anything rash in the first few months after receiving a windfall.
A substantial payout can bring on a feeling of elation that can make a client think he can spend wildly without any repercussions, Maton explains.
If he doesnt have somebody crunching the numbers before he starts spending, this sudden access to money can jeopardize everything he has.
Case in point: One couple came to see Maton after selling a business for tens of millions of dollars but they didnt become clients because they wouldnt comply with her timeout rule. They had their hearts set on buying a $5 million condominium and were too eager to make an offer to bother pausing for the planning process, Maton explains.
She doesnt know what else they purchased in the months after the sale of the business, but she does know that the couple ended up filing for bankruptcy protection only a few years later.
LOSING THEIR CASH
Left to their own devices, a surprising number of windfall recipients would do the same, she says. Whether its giving money to relatives and friends or buying real estate and planes, the money can quickly slip through their fingers.
Indeed, the National Endowment for Financial Education estimates that 70% of the people who come into a large sum of money run through it in less than seven years.
Maton asks clients to hold off with their spending, but compile a list of all the things they hope to do with the money. She then spends a month or two pricing everything out and running projections.
The clients decision-free period ends after Maton can present a plan that gives the client perspective on what that amount of money can buy and where their desired spending would lead.
We come back with several scenarios, she explains, and then lays out the options for the client: If you do this, youll run out of money in six months; if you do this, youll run out of money in three years but if you do this, you will have enough to maintain this lifestyle for the rest of your life.
INVESTING IMPLICATIONS
Sudden windfalls have investing implications as well.
Once a client is ready to implement a plan, Maton says, they start placing the money in the various investments theyve discussed.
However, if a client is highly risk averse and uncomfortable investing the whole windfall, Maton will suggest doing it in stages maybe dividing the money in thirds and investing over several months in order to give the client time to acclimate.
Were not going to force clients to do anything before theyre ready, but you dont want to take too long before you get your money working for you, she says.
When clients agree on a course of action, but seem unable to follow through, Maton suggests that they make an appointment to talk it through with Marty Martin, the staff psychologist, who also has a background in behavioral finance.
Theres no extra charge for the money therapy its all included in the annual fees that Aequus charges as a percentage of assets under management. And rarely will a client balk at the suggestion.
We talk about how crazy people can be with their money, and they laugh and agree, she says. That gives her a point of entry, Maton explains: When we talk about making an appointment with our psychologist, we say, If theres something thats keeping you from getting the things you want, wouldnt it be smart to figure out what that is?
Some people might not go for such a touchy-feely approach, but it seems to work for Matons clients. Aequus has $150 million in assets under management and the average client has been with the firm for 14 years.
Its probably a self-selecting group, Maton says. I think that people immediately recognize that were different. If they dont like that, theyll go somewhere else.
Kathy Kristof, a Financial Planning contributing writer in Los Angeles, contributes to Kiplingers and CBS MoneyWatch. Follow her on Twitter at
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