The Perils of Public Windfalls

While the experience was both dizzying and exhilarating there was one aspect of it he wishes he avoided: The monthlong onslaught of sales pitches from hungry stock brokers and insurance salesmen. As soon as the press release announcing the sale hit the newswires he was blanketed with phone calls, emails and hand-delivered letters trying to sell everything from short-term municipal bonds to personal banking services. "The phone calls started at 6:00 a.m. and didn't stop until 10:00 p.m.," Siegel says. "The investment bankers [who closed the deal] said I would need a good accountant but no one warned me about the aggressive cold calls," he says.

Siegel's experience is not usual. Whenever people come into a public windfall the opportunists are waiting to pounce, says Eric Solis, a certified financial planner and chief executive of Ark 252, a financial-services-software company based in Irvine, Calif. "It's like sharks smelling rich blood," he says. Indeed, in some ways these folks aren't very different from the ambulance chasers of the legal world. Young stock brokers, for example, are taught that they can generate new business by monitoring the "money in motion." This is the industry term for exploiting deaths, divorces and executive announcements, including sales of companies and promotions.

While networking may be a more dignified way to generate business, it's also time consuming. A newly hired financial advisor at one of New York's most prestigious brokerage firms told SmartMoney.com that during her first year she had just eight months to gather $4 million under management. During her second year, she had to acquire $12 million more. If she failed, she'd be fired. That's why it's not unusual for ambitious trainees to spend a Saturday glued to a Bloomberg terminal picking through recent press releases and SEC filings for potential clients.

David Diamond, a 47-year-old marketing and strategy consultant based in New York, saw this first hand. He received an annual barrage of cold calls from financial advisors every time his former employer, Catalina Marketing, filed its 10-K with the SEC. As the president of an emerging business, he was one of the top five highest-paid employees and his salary was there for the public to see.

Think you're not part of the elite and won't be pursued? Even a relatively modest windfall will catch an insurance broker's or real-estate agent's eye. Earlier this year, Shirley Wicker, a 71-year-old widow living in Penrose, Colo., won $10,000 playing Bingo at the Mirage Casino. For three months she received unwanted solicitations for everything from time shares to life insurance, she says.

Whether you've just sold your company for $10 million or expect to inherit $100,000, you better prepare yourself for an ambush of salesmen trying to separate you from your money. Remember, even a will is public domain once the money enters the probate process. Here is some advice on how to manage your new wealth and avoid all those pesky phone calls.

Start Planning Early
Winning the lottery is the exception, not the rule: Most of us know when a windfall is coming our way. Better to develop a game plan before you receive the money and are still thinking rationally, says Patricia Powell, a certified financial planner in Martinsville, N.J. Your first move? Gather a team of experts including an accountant, estate-planning attorney, and financial planner to advise you. Discuss how to minimize your immediate tax hit, your future estate taxes, and develop a long-term investment plan for your newfound wealth. (For more ways to save on taxes, see our tax planning section.)

Don't Answer the Phone
Register your home number with the Do Not Call Registry and sign up for caller ID. Your one sanctuary should be your cellphone: These numbers simply aren't available in any registries, so it should be immune from cold calls.

At the office, forward any unknown calls straight to voicemail. Inevitably, some persistent broker will get through. Tell him to mail materials to your company address and if anything looks interesting forward the package to your financial advisor for review, suggests Robert Hockensmith, a certified financial planner based in Phoenix, Ariz.

Get Your Affairs in Order
Wait at least six months to a year before making any major investment decisions, recommends Hockensmith. In the meantime, draft or update your will and estate plan, including creating a trust for the kids or grandchildren so the money doesn't get hit with taxes multiple times, says Joanne Sternlieb, an estate attorney based in New York. (Click here for more on estate planning.)

If you were previously a struggling entrepreneur like Siegel, chances are you've neglected to set aside much for retirement. Now is the time to max out your IRA or fund an SEP account. (For more on retirement, click here.)

Develop a Sound Financial Plan
Seventy percent of people who come into a large sum of money squander it in a few years, according to the National Endowment for Financial Education. Make sure you're in the other 30%. Develop a long-term financial plan that preserves your wealth and secures your retirement, says Powell. This means living off the income stream from the investments and not dipping into the principal. Windfalls don't happen every day. Plan accordingly.