It might be true that a person can never be too rich, but, as David Carmichael can attest, a person can get too rich too quickly.

Four years ago, Carmichael, president of Rowland Carmichael Advisors in Scottsdale, Ariz., took on a new client who had sold his share of a technology company to Intel for $3.8 million in stock. As was his custom in such situations, Carmichael met with the client soon after the sale and drew up a financial plan for investing the money in a way that would let him live on the proceeds without touching the principle.

Trouble was, the client, who planned to stay on with Intel, promptly started living the high life, moving from his $300,000 house to a $1.5 million mansion and spending $700,000 on landscaping. He also dropped big coin on private schools for his kids, horseback riding lessons and cruises.

“I had told him, you can do some of these things, but not all of them,” says Carmichael. “But he felt he was rich now and could do anything he wanted.”

When the client left Intel two years later and bought a business, he continued to live as lavishly as before, chipping steadily away at his windfall all the while. When the client's account inevitably dipped below the firm's $1 million minimum, Carmichael did the only thing he could: He asked his client to find another advisor.

WHEN GOOD LUCK IS BAD

When a small-business client comes into a sudden windfall, it ought to be an overwhelmingly positive event. Unfortunately some clients get overwhelmed in the wrong way — and end up making silly decisions, such as entering into lousy business deals or getting caught up in searches for something to fill the void their departed job left behind.

Play your cards right, though, and your client's good fortune can be both his and yours. The positives of a windfall-laden client are pretty obvious: Not only does it bring you assets you didn't have before, but the services you provide the client could very well end up cementing your position as the go-to financial advisor for his clan.

“If you build the relationship, you can become a trusted consigliore for multiple generations,” says Stephen Goldbart, a psychologist and co-founder of Money Meaning & Choices Institute in Kentfield, Calif. (He also runs workshops for financial advisors on how to deal with newly wealthy clients.) Harlan Kappel agrees: “For the financial advisor working with businesses, this is the most rewarding and exciting thing that happens,” says the financial advisor with American Express in Dallas.

It all starts with helping the client avoid serious missteps. Sunny Kobe Murphy, who sold her Seattle-based furniture business in 2000 for about $30 million, now relies on her financial advisor to make calls on real estate and business investments. Then there's Bill Wright, president of Guidance Financial Consultants in Wichita, Kan. Three years ago, he was handling the 401(k) business for a local industrial manufacturing company, as well as the personal investments for one of the three owners. When he advised them to sell the business, they decided to take his advice and wound up getting about $4.5 million in the deal. Thanks to that success, another one of the owners asked Wright to become his advisor — giving Wright a seven-figure account.

FROZEN BY MONEY

Convincing newly rich clients to do the right thing is often not difficult, for one very important reason: “Most small-business owners have worked hard and they don't want to blow it on poor decision-making,” says Robert Smith, president of Spiro Smith Investment Advisors in Cleveland.

What is more common is that they become paralyzed by the prospect of handling the dough. Or perhaps they fear their new wealth will alienate old friends. Goldbart recalls a husband and wife who sold their business and seemed oddly reluctant to make any decisions. Turned out, “She was concerned about destroying the social fabric of their relationships with friends and the community,” he says. After she was able to discuss her concerns, they found it easier to come up with a plan.

Guilt surrounding newfound wealth can be another frequent complicating factor. Clients sometimes feel unworthy of their windfall, even if they worked hard to get it — a syndrome Goldbart compares to survivor guilt. Or, the clients might find themselves guilt-tripped by family members who want a piece of the action. This is particularly true if the sale involved a family business. Smith recalls the case of one of six siblings who took over and worked alone in his father's automotive supply company. After about five years, he sold it for about $22 million, and the rest of the clan promptly started clamoring for what they thought should be their share of the money. “We talked and made sure he didn't do anything out of guilt, but out of a more-reasoned analysis,” says Smith. The client ended up helping out two siblings who were having financial difficulties and helped to pay for their children's college tuition.

The best approach, business experts agree, is to avoid rushing into momentous decisions. Advisors should have a long conversation with the client about what the new money means and what he sees himself doing in the future. It's best to have this discussion before the money changes hands. Go over expenses and plans, and test different interest rates and lifestyles to see how they would affect the nest egg. But also talk about not taking any significant action for six months.

“You need to stop the action until you speak to them about their hopes and dreams,” says Goldbart. “If you offer too much advice, you overwhelm them.” Be prepared to invest a lot of upfront time in the process. Murphy, who sold the furniture company, met with her financial advisor perhaps four times in a year to discuss her plans and tinker with her investment portfolio.

BUDGET: LOVE IT

The process of hammering out a budget is especially important, since clients often don't wind up with as much money as they thought they would. The small businessmen among them might have had many previous expenses — cars, entertainment, benefits — paid for by the company. And taxes inevitably subtract a sizeable chunk from their take. Susan Bradley, co-founder of the Sudden Money Institute in Palm Beach Gardens, Fla., and, until recently, a financial advisor, recalls a couple in their 50s who sold a financial services business for $5 million, only to discover it wasn't enough to pay for “their dream lifestyle,” she says. They ultimately bought a condo in a golf community, but one that was less top-of-the-line than what they had wanted.

When handled correctly, a budget helps an advisor handle the inevitable client freak out. When the paycheck suddenly disappears and the reality of having to rely on the lump sum of money hits home, many clients enter a state of near-hysteria. Murphy remembers calling her advisor in a panic soon after the sale of her company. She and her advisor came up with a monthly budget and how much income she needed and then set up a system in which money from her brokerage account was deposited in a checking account every month. The arrangement settled her down.

“It feels like I'm still getting a paycheck,” she says. “It feels normal.”

IT'S A VIRTUE

One thing both the client and advisor must exercise at all costs: patience. According to Goldbart, there are several stages a suddenly wealthy client travels through: the honeymoon period, in which they get used to the idea of being rich; the wealth acceptance stage, in which a more complex understanding of the situation emerges; the identity consolidation phase, in which they recognize themselves as wealthy; and the stewardship stage, in which they reach a more mature resolution of what their money means to them. It takes time to travel through all these stages, and an advisor might have a hard time implementing the most important parts of a financial plan until the client gets into the right frame of mind.

That means the advisor needs to spend the first meetings getting the client oriented to the new financial issues. Murphy recalls spending a considerable amount of time at first talking about esoteric bond and real estate vehicles she had never dealt with before.

Clients might prove a lot more confused than expected. Bradley points to couple who sold a business for $25 million after two decades. Their financial advisor, accountant and attorney all immediately started advocating the clients take a variety of complex steps — opening new investments, setting up trusts, taking steps to avoid taxes.

“They were so confused, they were frozen in place,” she says. “They had no idea what to do.” Eventually, the financial advisor called Bradley in to help them figure out what the couple wanted. It turned out that they needed a much simpler plan — and they didn't really care about avoiding taxes since, whatever their final net was, it would be more than they'd ever dreamed of having. They wound up with $19 million and planned to retire to a cottage where they could go fishing and spend time with their children and grandchildren.

INTER-ADVISOR RELATIONS

It's important to be political when it comes to relationships with your client's other professional advisors. “The closest advisor to the small-business owner is usually the accountant or insurance broker,” says Bradley. The client probably has a more intimate rapport with those people — something you should respect, if you know what's good for you. Bradley points to a business owner whose new financial advisor disagreed with the man's insurance broker about what type of estate-planning insurance to buy. What's more he insisted the client turn all the business over to him. Result: The client fired the financial advisor and called in Bradley, who proceeded to use a more collaborative approach. “It was all about trust, not the insurance,” she says.

If clients aren't receiving their money in a lump sum, planning may become more complex. Often, after a sale, business owners get paid in chunks. Or, if it's an IPO, then they may have restrictions on the sale of their stock. Kappel points to a client who recently sold a security company in what he calls a reverse merger, a somewhat unconventional scheme in which a company merges into a publicly traded shell on the over-the-counter exchange. Although the client is worth “eight figures on paper,” he says, he can only sell a small percentage of stock every quarter.

“We're trying to liquidate 100,000 shares a quarter to get him diversified,” says Kappel. “It's going to take us a year.”

One other common problem is when charities start looking for handouts. “They come out of the woodwork,” says Smith. “It's hard to say no.” In some cases, that attention can cause paralysis. Goldbart points to a business owner who became so suspicious about the intentions of anyone he met, he sunk into a depression and rarely even left the house.

Smith recommends sitting down with clients and coming up with a budget specifically for philanthropy, revising it annually and urging them not to make any donations until they're sure it fits their plan. He remembers a client who was deluged with requests after selling a business and unsure of what to do. After putting together a budget, along with a sense of his charitable priorities, it was easier for him to turn people down.

It sounds like a lot of work. But, just keep this mind: Thanks to your client's entrepreneurial spirit, you may find an even bigger payoff down the line. Your client might start another company — and sell that one, too. Or, he or she might do something else you can benefit from. Murphy, for her part, formed her own charitable foundation, and her advisor handles the finances for that organization, as well. “There's a huge potential,” says Kappel. That, as it turns out, may be an understatement.

KEY POINT

Two positives of a windfall-laden client: Not only does he bring in new assets, but the services you provide him could end up cementing your position as the go-to financial advisor for his clan.