‘I've seen lottery winners lose their fortune’: tips from a financial adviser to the super-rich

Instant millionaires are made all the time. Over the past 26 years the National Lottery alone has made 5,500 of them at a rate of more than one every two days.

But according to Camelot, the lottery’s organiser, one in 20 of the winners surveyed every year now has less money than they won, while one in five says the money has not made them happier.

Sudden wealth brings life-changing opportunities but it can also lead to new problems.  Con artists who offer unrealistic returns often turn the heads of unsuspecting people not equipped to deal with vast sums.

Paul Gibson is one of those attempting to protect these newly wealthy people from losing it all. The independent financial adviser said all too often the newly rich get taken down a losing path.

He runs Active Chartered Financial Planners in Stockton and specialises in helping wealthy individuals in the north of England. Formerly a panel member for Camelot, which means he was trusted to deal with winners’ money, he said people were at their most vulnerable when they had just won a large sum.

Camelot | By the numbers

There are many ways in which people lose their fortune. Some simply want to go out and spend it and have a good time without a care in the world, never expecting to run out of cash.

“I have seen people run out of money and it is so disappointing because they had a one-off opportunity of generational wealth and wasted it,” said Mr Gibson. But most of the losses come about when unscrupulous souls prey on people at their mentally weakest but financially strongest point.

Footballers are among the victims. Young stars are often paid vast sums up front but are too immature to handle the money. Mr Gibson set up a registered football agency last year but soon withdrew from the market as he saw footballers being “ripped off left, right and centre” and was unable to stop it.

He remains the financial adviser to a number of young players in the Premier League and Championship, England’s second-tier league, helping them manage their newfound wealth. But despite his best efforts, the naivety of youth can cause some to make poor investment decisions, he said.

“One player I advise took money from an investment portfolio to buy into a Spanish property project in the hope of greater returns,” he said. Promised it would double his money, the player and a number of team-mates went ahead despite Mr Gibson’s protests and lost their money.

“This happens a lot in the sports industry with promises of high returns,” he added. “But the only winners are the people who sell the products, who generally receive huge upfront commissions.”

Unregulated investments have been under the spotlight in recent months and the City watchdog, the Financial Conduct Authority, has faced increasing calls for an outright ban.

In August Telegraph Money reported that regulated firms and advisers could sell unregulated schemes to private investors because of gaps in the rules.

The most extreme example of this was in the case of London Capital & Finance (LCF), where ordinary investors were encouraged to put their money into unregulated “mini bonds”, despite the firm boasting of its authorisation from the FCA.

“There is never a need to take undue risk and go into anything unregulated,” said Mr Gibson. The point is a sore one for him: one lottery winner decided to go rogue and move their cash from his carefully constructed portfolio to another adviser who drew them in under the promise of higher returns. It did not work.

He said: “Usually people do this to avoid tax but you have seen with high-profile cases in the past that either the schemes don’t work and they get caught or the investments go pop and the customers get no money back.”

There is also the danger of being too cautious. Some investors do not take enough risk and lose money slowly to inflation over time, meaning that the intergenerational wealth that should have lasted for decades is eroded away.

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“These are life-changing sums, particularly in the North,” Mr Gibson said. “A £5m win goes a lot further here than in the South and advisers should ensure it lasts for generations.”