I’ve been thinking about financial advisers with clients holding significant assets. Say, $8 to $10 million. Apart from thinking about the asset-based fees they’d be likely to be charging (wow!) and how a single basis point in fees represents $1,000 a year, it got me thinking about what I would do if I had a windfall of $10 million.

What would I do if I had a $10 million windfall?

From a financial perspective:

  • I’d pay off my mortgage (and any similar debts, if I had any). The interest savings would represent a risk-free, guaranteed, untaxed return I couldn’t get anywhere else.
  • I would cancel my personal insurances. With a net worth exceeding $10 million, if something were to happen me, my family would be fine financially. In other words, I can self-insure against premature death or incapacity. There’s no point paying premiums to an insurance company for them to take that risk. (There may be some types of insurance I’d consider keeping, including house insurance, third party car insurance, and professional indemnity insurance.) 
  • I’d take my time before making any decisions about purchases or gifts. In terms of gifts, instead of making capital distributions to some of my loved ones, I’m certain that I would settle funds into trusts, with the primary purpose of generating an income stream for them over the courses of their lives. (Even if I were not a beneficiary, I would appoint an independent trustee but would retain the power to appoint and remove trustees to keep them honest.) 
  • With respect to the remainder, much of it would end up in discretionary family trust (primarily for family protection purposes). At least initially, I would keep a couple of hundred thousand in cash or cash-equivalent assets (for living costs, initial treats, and, of course, to buy my second-hand Porsche Cayman), and probably invest in a low-cost, index-based managed fund, with a balanced asset allocation.

As time went on and my wife and I adjusted to our new situation, we would update our goals and this would influence the asset allocation we make.

Apart from the mortgage and the insurance, in all instances we would seek professional advice. Whether that be legal or accounting advice or even financial advice. I’m an AFA, but I would look for an independent pair of eyes to provide objectivity to our situation and act as a devil’s advocate, particularly with respect to any major decisions we make. 

Boring? Maybe the financial side of it is. That’s often the sign of a good financial strategy. It’s far better for other areas of life to be interesting! 

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Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.