While it might seem like a ‘good’ problem to have, Sudden Wealth Syndrome is a real psychological condition with serious consequences. The disorder, which, as the name suggests, can cause behavioral issues when a person suddenly comes into a financial fortune, stems from the abrupt change in their circumstances.

SWS was coined in the 1990s, but it arguably has more relevance today as sudden wealth is more common. The volatility of cryptocurrency investment, for example, has made overnight millionaires. Access to online lottery draws, sports betting, and other forms of gambling can lead to sudden windfalls. SWS has even been linked to the rise of wealthy individuals during Silicon Valley’s tech boom. In short, there are more ways than ever before to suddenly become rich.

As you might expect, the most commonly cited advice for dealing with a sudden change in financial circumstances is to speak with a professional wealth manager. Yet, there has been a decline in the number of affluent people using these services in both North America and Europe. The decline is particularly stark among affluent young people.

A move away from Trad-Fi

The reasons for the shunning of wealth managers are varied. For a start, there is the allure of cutting out the middleman; why pay a fee to someone to advise you on your money? There are also trust issues. Not just the specter of calamities like the Bernie Madoff Ponzi scheme, but a general mistrust of experts that taps into the wider unease with mainstream media.

Indeed, if you take cryptocurrencies as an example. Crypto is strongly linked to anti-establishment sentiment. Banks and traditional financial institutions (Trad-Fi) are often held in deep suspicion by crypto proponents. Certainly not all of them, of course, but it is part of the crypto ‘ethos’. Traditional financial planners are seen as part of the system.

One of the risks, however, is the current prevalence of amateur investment advice online. Go to YouTube or “FinTwit” (the financial community on Twitter/X), and you’ll find no end of content purporting to offer the keys to long-term financial success. It’s not just crypto investment, either; there are stocks and commodities, and even savings plan strategies.

It’s not that all of this content is wrong, nor even unbeneficial; it’s rather that there is so much of it that it inevitably leads to confirmation biases. Overall, there is a pervasiveness that all investment is easy and that, over time, the winners are simply those who invested. It may be broadly true that markets go up steadily over time in the case of the S&P 500, thus you can ride out bear markets and recessions until the sun shines again.

A lack of caution in investment

Yet, there is often a willingness to overlook individual losers in the stock market. We know, for example, that the S&P 500, or a variation of it, will be around in 50 years, but can we say the same for the Magnificent Seven? Or individual companies like Nvidia? Indeed, many have pointed out that there are similarities between the current AI boom and the Dot.com Bubble of the turn of the century. While it’s not clear if the crash will be the same, there will likely be AI winners and losers in the same manner as there were winners and losers emerging in the early 2000s.

Nobody is saying that you have to go down to Main Street and access the same wealth manager that your grandparents used, but there is a lot of “new money” out there today, and the DIY spirit of investment is fraught with many dangers.

Many people who receive sudden wealth are not prepared for the emotional, practical, and administrative responsibilities that come with it. So, it is worth talking with someone who has experience in advising on these matters. What you will find, and what is perhaps most important overall, is that an experienced financial advisor will make you feel less emotional than the amateur advice that you will encounter online. You will gain perspective.

We have to accept, of course, that wealth management has changed. Fintech opened the doors to retail trading in investment, then newer innovations like crypto cast doubt over the role of financial institutions. But in this era, where so many individuals are taking control of wealth and, dare we say it, entering into a period of extreme overconfidence in financial markets, the role of experts is perhaps more valuable than ever.