Last month’s incredible £148 million ($239 million) EuroMillions lottery win by Suffolk couple Adrian and Gillian Bayford will have prompted wistful “what ifs” and dreams of decadence for most of us. But while a huge lottery payout might be a dream scenario, savvy wealth managers know that there is much to be done to prevent the dream going sour – a scenario which happens all too often.
Becoming fabulously wealthy overnight via a lottery win is a dream chased by millions every day all over the world, and the number of lottery players just keeps going up and up (Camelot, operator of the UK National Lottery, recorded an all-time high sales figure of £5.822 billion for the 2010/2011 financial year, for example). Wealth managers will naturally fall over themselves to win the business of these “instant millionaires”, but there is a lot more to serving such clients than meets the eye, senior executives recently told WealthBriefing.
Although it might initially seem counter-intuitive, one of the first priorities for wealth managers should be helping clients deal with the emotional fallout of a big lottery win, Stuart Cummins, managing director within Barclays’ private bank, told this publication. “You have to recognise that the win is quite a shock and that it can be an emotional time for the client,” he said.
The shock factor
Cummins further explained that this “shock factor” is something that wealth managers should be aware of with any client who has experienced a significant liquidity event, such as in the case of a big inheritance, a divorce or the sale of a business. However, it hardly needs to be said that for lottery winners the shock of coming into such a large sum of money is far greater – they have, after all, beaten odds in the region of 14 million to one. (For the EuroMillions lottery, the odds of winning are even more vanishingly small – in the region of one in 116 million).
George King, head of portfolio strategy and head of portfolio consulting at RBC Wealth Management, agrees that when dealing with lottery winners the element of shock is the first thing relationship managers should bear in mind. “It’s very difficult to generalise, but an over-arching lesson is that this group is the most unprepared of any group experiencing a sudden liquidity event,” he said. While someone who was expecting an inheritance or who was planning to sell their business may have an inkling of what they want to do with their new-found wealth, this is often not the case with lottery winners, King continued. Big-winners may be high on their good luck, but even while the champagne corks are still popping relationship managers need to quickly get down to the fundamentals of what the win means for the client and their lifestyle.
For King, the first question to be addressed is “will this win change your life fundamentally?”, and he rightly points out that “by volume most winners don’t actually win that much”. The average Saturday UK lottery jackpot payout per person is £2.1 million, meaning that in actuality most lottery winners would not qualify as high net worth individuals by the reckoning of most wealth managers. “As a category of new wealth-holder, lottery winners are actually a very retail class,” said King.
But even those who are lucky enough to win far more than the couple of million average payout will need a lot of help to ensure that their lifestyle changes for the better permanently – if indeed that is what they want.