Sudden wealth: life after a business exit
Selling a business is a triumph. It's also a leap into the unknown and in a flash, everything is different. John Caudwell had a difficult childhood. Aged 34 he started a mobile phone shop, selling one a week if he was lucky. Then he hit his stride, and for twenty years lived and breathed the business.
Selling his company, Phones4U hit him hard. His reaction to hearing his bank account held a ten figure sum? “Relieved more than anything else,” he said. “Just relieved that the sale process is over, rather than joy.”
Then he reflected. “There’s a sense of loss as well. I drove past one of my shops today – no, sorry – I drove past one of their shops today and I wondered how the sales were performing and I had to correct myself. It isn’t mine now. It doesn’t belong to me.” His diary, he said, was empty. It's a common feeling. A loss of purpose. A melancholy.
“Sudden wealth is a massive shock,” says Neil Lewis, Director at Barclays Private Bank. “The business is your baby. You've nurtured it and helped it stand on its own two feet. Then it's gone. That's emotional. It gets likened to losing a member of the family or a divorce.”
Sudden wealth is a massive shock
Director at Barclays Private Bank
Unprepared recipients can struggle. Sudden Wealth Syndrome (SWS) is a recognised psychological condition, characterised by feelings of loss, isolation and guilt, that can stem from a financial windfall. Entrepreneurs who sell their companies can share similarities to lottery winners. The influx of wealth can change their life, and not always for the better.
The fragrance entrepreneur Jo Malone1 is outspoken about the impact of selling her business. She revealed: “I lost my identity. I didn’t know who I was, I couldn’t find anything with potential to build on, and I didn’t know where I was going. Creatively, I hungered. I remember sitting downstairs and putting together a resume. I looked at it and thought, “No one’s ever going to give me a job.” She spent five years thinking about her next move, calling this fallow period 'the wilderness years.'
Part of the feeling can be wondering whether the money will last. It's a good question. “We see very strong minded entrepreneurs have a liquidity event, and realise that's it,” says Lewis. “They are not going to go back and make more money. They need to make their pot last.”
How a private bank can help
Amidst the maelstrom of sudden wealth, private bankers can offer assured advice. Time and time again bankers help entrepreneurs find their bearings.
“Clients may lose their sense of purpose,” says Andy Taylor, Private Banker at Barclays Private Bank. “They wonder if they can approach us to talk through what to do next. Of course they can - that's the beauty of the job. It's akin to being a GP, we can provide advice on a visceral level.”
Conversations start with what the entrepreneur plans to do. If they are struggling for clarity, advisors can talk through ideas as a sounding board.
Philanthropy is a common topic. “We can talk about the options,” says Taylor. “We can vet organisations for potential donations. And we can model how giving affects your wealth over the long run. How much money do you need to live on? Do you plan on giving in a lump sum or annual amounts? What is the best tax structure for your philanthropy?”
Investment advice is critical. A growing trend is for clients to want information regarding the sustainability aspect of their investments. “Sustainable and impact investing is important for many clients,” says Taylor. “Our clients love being able to say to their children that the family money is having a positive impact, in a sustainable way.”
If clients are struggling for clarity, advisors can talk through ideas as a sounding board.
An experienced advisor can identify pitfalls. Tax, for example, “We preach diversification,” says Taylor. “That includes tax planning. Changes can come in at any time. What happens when the rules change and your structure leaves you exposed? We guide you through your potential exposure.”
The more sophisticated private banks will offer a variety of extra services. For example, educating the children of wealthy clients in wealth management so they are prepared for the future. “We regularly talk to the teenage children of clients about money,” says Taylor. “I've helped them understand what is a bond? What are equities? What is inflation? We've talked for hours about economics. Clients say they can't really do it as parents. Children won't listen to them. But when we do it, it seems to work.”
Larger private banks are able to offer a full range of services. These include sector experts, economists, tax experts, investment and corporate banking services, property specialists, and private equity experts. “Having all these services under one roof is a huge advantage for the client,” says Taylor. “They know any query can be handled by their normal contact; it avoids the need to ring round advisors looking to cover the gaps.”
Following a sudden wealth event, it's important to understand how to choose advisers. Painfully, it can be hard to persuade entrepreneurs to make a decision before a sale. “A client may tell us they don't want to jinx the deal,” says Edward Docherty, Director at Barclays Private Bank. “They want to focus on it, complete the exit, and then think about what to do. Then it happens and they are bombarded with phone calls and emails.
There are people out there, including bankers, who set up Google Alerts to advise them when an entrepreneur sells so they can make cold calls. How does the entrepreneur know who to trust?”
There are good rules for who to turn to. Advisers must be able to focus on the needs of a client with few distractions. “At Barclays Private Bank our bankers are capped on the number of clients they look after,” says Docherty. “I personally look after 25 of the UK's largest entrepreneurs with my team. There's no limit on how much time we can spend together.”
At Barclays Private Bank, our bankers are capped on the number of clients they look after.
An investment track record should be carefully researched. The reliable indicators are from independent monitors, such as Asset Risk Consultants. In 2020, the agency ranked Barclays Private Bank as one of the top in the UK for long-term investment performance across the industry.
“Do your due diligence,” says Docherty. Spend the same energy researching a private bank as you would when be hiring a CFO for your business.”
The most elusive qualities are trust and comfort, he says. “Trust is critical. Many clients end up not trusting anyone, and that costs them a lot of money as they do nothing with their capital or make mistakes. The essential thing is to feel in control of your wealth so you can relax.”
“After all,” says Docherty. “Money is a good thing. With the right advisers, sudden wealth can be the start of the next fantastic chapter of your life.”
To find out more about how Barclays could help you plan for life after exit, please contact your Private Banker or request a call back.
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