One person makes hundreds of millions of dollars on the sale of a business they’ve built over decades. Another person buys a winning lottery ticket.
The sale has been in the works for years. The lottery ticket was bought on a whim. In the wealth management business, both are called liquidity events.
“I think of liquidity events in two different ways — planned and unplanned,” said Elizabeth Flavin Crawford, CEO of Sendero (Wealth Management). “Planned gives you time to prepare for how this change is going to affect your daily life. When it’s unplanned you’re playing catch up.”
That’s not to say an unplanned liquidity event is a bad thing. It can be great when you have someone beside you asking the right questions about what you would like to do now that you have the kind of wealth you may have only dreamed about.
“It’s likely you were in the accumulation phase, putting money away to build wealth, but now you’ve just blown out your balance sheet,” Crawford said. “You need to really look at how you’re allocated. Look beyond public markets into private investments, whether it’s real estate, hedge funds, venture capital, but these are all part of the portfolio. You’re looking at generational wealth.”
When an Event Is Planned
If you’ve spent your life building a successful business, you may want out at some point and that includes selling that business. Crawford said these sales usually take three to five years of planning. That allows plenty of time to create a succession plan, a leadership transition, and review all the financial implications of the sale, along with what’s next.
“You’ve been planning in small ways, and then you start planning in personal ways so it’s a little more controllable when it happens,” she said. “Retirement is a daydream for many of us. We underestimate the need to plan for it outside of finances. We have it drilled into us to save for retirement, but we aren’t trained for what retirement is. I’ve seen people lose their identity because who they were was tied to their professional life. Retirement can be an unwelcomed shock in that scenario. We plan for more than finances with clients. We dig into the daydream to explore reality.”
Crawford said it’s important to revisit those plans because things change. Children you listed as beneficiaries may be successes on their own, so you’re not as worried about leaving them as much. Maybe you have special needs grandkids, and you want to ensure they’re cared for.
“There are all kind of scenarios that evolve as the years go on,” Crawford said. “Being flexible and dynamic about what your legacy looks like is part of the key to living well.”
Having Liquidity Thrust upon You
The needs of those experiencing unplanned liquidity events are the same — taxes, estate planning, financial advice — as those with planned events. However, all these adjustments are made in a compressed timeframe while trying to adjust emotionally to this newfound wealth.
“You can imagine there are a lot of things coming at them in the discovery process,” Crawford said. “The way we’re set up is to really help people focus on things that are important to them now and in the long term. We also make sure they understand things are going to change because this is a transition, so you probably need to recheck what’s important every six months for the next several years.”
The process, she said, is all about identifying the financial and non-financial goals they can now realize with this new-found wealth.
“For some people in these situations, your money is going to outlast you, and the next generation, and there will be money for the next, so what do you want to do,” Crawford said. “You now have money to bond with your grandchildren through fantastic experiences, pay for education, or set up a nest egg for your kids or grandkids. Our job is to help navigate that wealth and not let the idea of administering it, or running it, create fear or anxiety. We want you to enjoy it.”