Read on to find out how financial advisers can help people who acquire sudden wealth.
A recent media report published in the Hindustan Times said that Bihar based Sushil Kumar who won Rs. 5 crore in a popular TV show Kaun Banega Crorepati in 2011 is left with hardly any money now. After winning the game show, Sushil had quit his job where he was drawing Rs. 6,000 per month.
The report says that Kumar had received Rs.3.60 crore after deducting taxes. He spent a major portion of this award money in building a house and helping his brothers set up their business. After funding his brother’s business, he is left with little money which is kept in a bank account, which fetches him some interest. Also, he had bought four cows from the reward money.
The news spread like a wildfire on social media. It became a trending discussion on Twitter, Whatsapp, Facebook and Linkedin. Most people could not fathom how a person who answered 20 questions would be so financially illiterate that he ran out of Rs. 3.60 crore in less than 4 years without creating productive assets.
Now, it turns out that Sushil had falsely spread this story so that he could avoid his friends and family members who pestered him for money. On Friday, a leading Hindi newspaper reported that Sushil Kumar’s report was false and claimed that he has enough money to spend for a lifetime.
Though Cafemutual could not independently ascertain the credibility of both these reports, we found it worthwhile to ask financial advisers on how to deal with people who acquire sudden wealth.
Vishal Dhawan of Plan Ahead Wealth Advisors suggested financial advisers to put the entire corpus in liquid fund or savings account at least for six months. “Many people who get sudden wealth by lottery, unexpected inheritance, compensation or prize money end up splurging it completely. Putting aside the entire corpus for six months or so at least gives them a time to think about their money properly. It can also help financial advisers make them understand the importance of financial planning.”
Gajendra Kothari of Etica Wealth Management has a similar view. He says, “Generally, people get excited after receiving such a huge amount of money. Even though I am a financial adviser, I too will get excited if I get Rs.5 crore suddenly. Human beings have a tendency to take irrational decisions under the influence of friends and family members in such situations. Hence, financial advisers should try to convince such clients to put a major chunk of this money in liquid funds for two months though we should let them spend some money. Advisers can share case studies of other people who acquired sudden wealth. Advisors should make them understand the importance of financial planning to achieve financial goals like retirement, children education and buying a house.”
Hemant Rustagi is of the view that financial advisers should encourage such clients to meet their financial goals even if it doesn’t make much sense. “Many people have an aspiration to buy a house and meet liabilities of families, even if it doesn’t make much sense. However, financial advisers should work with clients to meet such expenses smartly. Advisers should try to find out the priorities of such clients.”
However, a few advisers have a different view. “You cannot educate a financially illiterate person who is opinionated. Advisers should simply recommend such clients to put the entire corpus in bank fixed deposits. If a person puts Rs.3 crore in bank FD, he can withdraw an interest of Rs.27 lakh per annum,” says Suresh Sadagopan of Ladder7 Financial Advisories.
As reality shows and contests grow, the number of people who come in to sudden wealth is growing sharply. Also, this category includes people who receive compensation when their land gets acquired for projects and employees who make windfall gains through their ESOPs. This category most certainly needs professional advice so that they maximize the benefits from their windfall.
