July 17, 2012

A Refreshing Twist to the Pitfalls of Sudden Wealth Syndrome

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In 2009, Sports Illustrated estimated that 78% of NFL players are bankrupt within two years of ending their careers, and that 60% of NBA players are broke within 5 years of retiring. Although not as dismal, Lottery winners also have an extremely poor track record of successfully retaining their wealth. Many of these individuals suffer from Sudden Wealth Syndrome (SWS), a term coined by Dr. Stephen Golbart and Joan Di Furia of the Money, Meaning & Choices Institute (MMCI) in the late 1990’s. Through their investment advisory firm’s dot com and lottery winner clientele, they witnessed a host of psychological issues that they associated with the stresses of new or sudden wealth resulting in financial disasters.

SWS can create anxiety about worthiness, responsibility, relationships, and a general disequilibrium. Many who find sudden fortune become overwhelmed and start to overspend, grow suspicious of those around them and make poor decisions leading to familial and financial ruin. SWS can cloud a beneficiary’s thought and decision making processes, regardless of whether the wealth is the result of an inheritance, lawsuit, lottery winnings, or athletic prowess. It afflicts people regardless of age, circumstances or geographic location.

MMCI found that there are four stages that suddenly affluent people commonly go through when coming to terms with their new wealth:

1.  Honeymoon: Spending sprees, risky investments, a feeling of power and being invulnerable.

2.  Wealth Acceptance: Invincibility mixed with vulnerability, realization of need to set limits.

3.  Identity Consolidation: Acceptance of financial situation.  Asking: “What do I want to do now?”

4.  Stewardship: Reaching a mature resolution, establishing financial plans and prudent lifestyle guidelines.

Similarly, individuals with a disability that receive a significant financial settlement associated with their injury are as fallible as the professional athlete. As Tort victims, they confront the same challenges, and many more, often at a younger age. Although many individuals with disabilities have significantly reduced means to earn back any potential financial mistakes, unlike professional athletes for example, the overwhelming influence of ensuring their financial independence is due to having a down-to-earth understanding of their situation and a solid support system of family and knowledgeable advisors.

To assist individuals with disabilities and to help guard against SWS, Coldstream established Settlement Advisory Services (SAS). This initiative provides comprehensive wealth management guidance to the disabled community in a dignified manner consistent with their assistive requirements and unique circumstances. The fundamental objectives of SAS include serving as an advocate and liaison to critical services, which may encompass special needs trusts, adaptive equipment providers, health care funding alternatives, assistive technology, adaptive recreation, and more.

Due to the short-term nature of the professional athlete’s career, those that do not make it past stage #1 above often cause irreparable harm to their financial lives. For the disabled, the long-term demands on their financial resources coupled with significant uncertainty necessitate addressing their assets in the most conservative manner possible. This commonly results in arriving at Stage 4 with their wealth intact and healthy relationships in place with family, advisors and their community.

Refreshingly, Coldstream has numerous clients with disabilities as well as former professional athletes who are bucking the negative SWS pitfalls through proper planning, the establishment of prudent strategies and an intentional focus on the preservation of their financial resources.

Achieving this success does not occur by happenstance.  Hard work on behalf of the individual, their family, and their team of advisors is necessary; including Coldstream’s ability to partner with other professional service providers in the disabled and professional athletes communities to bring expertise and unique solutions to our clients.

Roger Reynolds


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