|
|
 |
|
| Feature |
After the Windfall
Anne Field
09/01/2004
|
Indeed, Cook had no idea just how much she needed to
live. In a panic, she would call her financial advisor to see whether she was
going to be able to pay her bills. She recalls opening envelopes and thinking,
“Oh my God, how will I cover this?” Calmly, the advisor told her she was going
through what he called “first-year syndrome.” Particularly during the first
year, people with sudden wealth feel overwhelmed by managing their new money and
find it difficult to readjust their lives. To help her cope, Cook’s advisor
called her in for regular meetings. At these conferences, Cook not only learned
lessons in more complex investing, but also devised a plan to make her feel
secure. First, she and her advisor determined how much money she required for
living expenses. Then, he invested a portion of her wealth into securities that
would provide a steady monthly income. This income was deposited directly into
her checking account, giving the illusion of a regular paycheck.
| A couple may realize they have irreconcilable goals for
their new wealth. |
Cook decided
to invest her money in a diversified portfolio. However, other entrepreneurs are
not so levelheaded. John Nersesian, managing director for wealth management
services at Nuveen Investments in Chicago, remembers a client who sold his
business for $5 million and proceeded to invest almost all of the proceeds
in a series of start-ups. All of them failed. Conversely, other newly wealthy
people tuck their money under the mattress. Susan Bradley, a financial advisor
with Raymond James and author of Sudden Money: Managing a Financial Windfall,
once worked with a client who put $45 million in a money market account—and kept
it there for months. Such investment confusion is one reason why, six years ago,
former entrepreneur Michael Sonnenfeldt founded a New York-based group called
Tiger 21 (see “Tiger Tales” at the end). Tiger 21 gathers together small groups of
newly wealthy business people to discuss investment skills and other matters
related to investment for novices.
With her investments secure, Cook resolved
to maintain a sensible approach to spending. She bought a new Acura, because,
she declares, “I like Acuras.” This one she paid for in cash, instead of in
monthly installments. On her honeymoon cruise, she and her husband stayed in the
owner’s suite, instead of a regular cabin. About a year after selling her
business, the couple flew on a private jet to India for the husband’s 40th
birthday. But other indulgences were often nearly impossible, either because she
was not interested, or they struck her as silly extravagances. She recalls
admiring a set of demitasse spoons, at $30 each, and being unable to pick them
up to pay for them. Her husband eventually scooped them up for her and plunked
them on the counter. “Sometimes I need help,” she admits.
| The less showy the newly wealthy
are, the more they keep their friendships. |
Deciding how, when
and what to purchase are typical quandaries for the newly wealthy, according to
experts. Surprisingly, many do not go on spending sprees in the first year.
Recently wealthy entrepreneurs, however, often purchase a new house. Six months
after receiving her windfall, Cook bought a three-bedroom condominium in Deer
Valley, Utah, a favorite skiing spot. Others make similar moves. Rob DeSantis, a
cofounder of Ariba Software who amassed more than $100 million after an IPO in
2000, made few changes in his life in the first year, except for buying a beach
house in California. Fernandez of Proxicom, meanwhile, saw a picture of a
vacation home on Fisher’s Island and bought it sight unseen.
Keeping Mum
Cook quickly realized she did not want a dramatically
different lifestyle. Like many entrepreneurs, she has also made it a point not
to discuss with anyone—not even most family members—the exact amount of the
sale. Contract stipulations limited what she could reveal, but Cook also
preferred, from the beginning of the process, to keep it to herself. “People
realize I have money. They just don’t know how much,” she says. Similarly, Steve
Schultz of Atlanta, who sold his software company to Automatic Data Processing
in 2000 for “eight figures,” kept mum about the specifics after his sale. “I
told neighbors and friends I sold the company,” he recalls. “I didn’t say, ‘I’m
very wealthy.’”
| One brokerage client put $45 million in a money market
account— and kept it there for months. |
Experts advise that maintaining a low profile is probably a
wise move for the newly affluent, at least for those who want to keep their old
friends. “The less showy they are, the more they keep their friendships,”
Goldbart says. In some cases, however, fear of alienating friends can paralyze
the newly wealthy. Goldbart counseled a company cofounder who served as CFO in
her business before and after an IPO, in which she made more than $70 million.
Although she had always worked with numbers and was eminently comfortable making
corporate financial decisions, she was unable to do anything with her own money.
Finally, her financial advisor suggested she speak to Goldbart. Together they
devised a plan for allocating her money so that she could enjoy her wealth
without risking her friendships. “She bought a new house, though not a bigger
one, and a new car,” he says.
Entrepreneurs who do indulge their family and
friends meet mixed reactions. Cook took her mother and stepsons on a trip to
Antarctica, and relished in the experience. In other cases, however, such
splurges can backfire. Money Meaning & Choices’ DiFuria, for example,
recalls a client who paid for lavish vacations for parents, sisters, brothers,
nieces and nephews for two years. By the third year, the family had grown to
expect the trip to be a regular event. “That took the joy out of it,” says
DiFuria. The client was forced to write a letter to the family explaining they
were going to forgo the trip for that year, and that he would think about trying
again the next year.
|
|
|
|
|
|
|
