We often talk about the challenges people face when they suddenly become rich. Receiving a cash windfall – from an inheritance or a lottery jackpot, for example, can turn someone’s life upside down in unexpected ways.
People who experience a sudden loss of wealth also have their lives turned upside down – their plans for the future vanish in a flash.
Maybe they are victims of an investment scam or their business tanks. Perhaps a spouse is hiding gambling losses or other bad debts. Or home insurance does not adequately cover severe damage caused by floods or earthquakes.
Whatever the cause, the effect is often crippling. As individuals and their families struggle to cope with the erosion of their assets, desperation can set in.
Financial advisors can’t work miracles, but they can provide perspective and emotional support. Even as they help clients strategize to recover from a massive financial blow, their compassion and willingness to listen are just as important.
“The challenge as a financial planner is to provide both emotional and financial support,” said Jay Zigmont, certified financial planner at Childfree Wealth in Water Valley, Miss.
For example, a seemingly healthy mid-career professional suffers a heart attack, stroke, or other life-altering illness or injury. Depending on the provisions of the medical and/or disability insurance policy, there may be gaps in coverage that create significant expenses. “You can run through hundreds of thousands of dollars pretty quickly,” Zigmont said. “And there’s the loss of income if you can’t get back to work.”
As uncovered medical expenses increase, advisors can provide options to help clients stay afloat. For example, they may suggest the client use a medical bill negotiation service that specializes in reducing the balance owing.
“You can apply for financial assistance or charitable care while you’re in the hospital or after you’re discharged,” Zigmont said. He can advise a family on how to work with the facility’s billing office to agree on a payment plan so that the hospital does not assign a collection agency to the account.
Advisors often urge clients in their 50s to purchase long-term care insurance to protect against the ever-increasing costs of home health workers and other day-to-day expenses if they can no longer manage their day-to-day care. A person newly diagnosed with dementia or Parkinson’s disease, for example, may face a decade or more of personal care bills.
Prem G. Hira, founder of Investry in Scarsdale, NY, has advised clients who have faced what he calls “accelerated resource drain.”
In one case, a family established a trust with funds that were once sufficient to cover the education of their grandchildren. But unforeseen medical and long-term care expenses led to a significant drain on trust.
“Now they’re in panic mode and feeling defeated,” Hira said. It doubled as a sort of financial therapist. “It’s important not to be judgmental,” he said. “I let them know that they are not alone, that many families have had their long-term plans derailed over the past few years.”
He also shares strategic advice. He helped reset their financial plan and designate wallet “baskets” to save for the grandkids’ tuition while the family replenishes their college fund.
“Some people are not heard in a family and should be,” Hira said. Part of its role, therefore, is to honor everyone’s ideas and ideas and to forge stronger communication between family members.
For some people, a sudden loss of wealth comes with a warning. Yet the impact is invigorating. “When a client goes through a divorce and the judgment is settled, their net worth can be cut in half in a day,” said Nicole Gopoian Wirick, certified financial planner at Prosperity Wealth Strategies in Birmingham, Michigan. “It can be emotionally difficult.”
To help divorced clients cope, Wirick reframes the situation in positive terms. She begins by urging them to adopt a new attitude and start over. “It’s a chance to reset the narrative and turn it into an opportunity to move on to a new stage in life,” she said.
She asks two questions to guide the client on this new path:
1) What are your values?
2) How do we build a financial plan that aligns with your values so that you live a lifestyle that reflects your values?
This exercise tends to boost morale despite the loss of wealth. She drafts a written plan with steps they can take to make progress toward their goals.
“Looking at the big picture can seem so impossible and daunting,” she said. “Achieving small steps can boost their confidence.”
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