The first thing the 1,000 or so new post-IPO Facebook millionaire employees might need: a reality check.
Financial advisers who cater to entrepreneurs and others who find themselves trading Chinese takeout for caviar say new millionaires rarely think rationally early on.
"It will probably take three to five years to absorb the full impact," said Susan Bradley, founder of the Sudden Money Institute, a Florida-based organization that coaches the newly wealthy and their advisers.
Advisers say new millionaires are prone to mistakes, like making extravagant purchases or risky deals with friends. Others get so overwhelmed they leave the fortune sitting in the company stock. And some — troubled by the idea of letting even a trusted adviser take the reins — make outlandish investment decisions, often against the advice of a professional.
Many financial advisers have one piece of advice for soon-to-be-rich employees of Facebook, which filed regulatory documents Wednesday for a $5 billion public offering: sit tight.
But financial advisers say those rules could apply to anyone facing a sudden windfall. It's best, they say, to take some time to make a list of goals, decide how aggressively to spend and plan out with an adviser how to invest.
Of course, there is room for some fun with the money.
It isn't exactly pleasant to tell a client with multiple millions of dollars that one should, say, sock a chunk of that new money away for the future and, no, that $150,000 ring isn't a good investment.
Greg Friedman, founder and president of the wealth management company Private Ocean in San Rafael, Calif., had a client who had been a $250,000-per-year earner — and then made $20 million through the sale of his company.
The client said he wanted to maintain his upper middle-class life, with a few extra frills. But before long, he bought a $5 million house, a horse for his daughter and took his family on a number of very lavish vacations. And, he was eyeing a bigger, $10 million house.
Friedman talked with the client about his spending at meetings that became more contentious. But several years and several million more dollars later, the man accepted that he had to pull back. He gave up on the $10 million house and budgeted his remaining money so he didn't have to go back to work.
Caroline Delaney, an adviser and executive vice president with Hillis Financial Services in San Jose, had a client who got rich from a tech initial public offering and called Delaney for help getting a fraud alert on his credit card lifted. He wanted to buy a $20,000 watch.
Delaney knew the down-to-earth guy would not want the watch and cajoled him to hold off on the purchase. "He wasn't happy with me (then)," she said. "He did thank me the following week."