The problem with star power is its
lack of staying power. Celebrities can be successful one day and
unsuccessful the next. That unpredictability creates a challenge for
the financial advisors and wealth planners who are charged with helping
famous people achieve their financial goals.
It takes highly trained financial professionals with special expertise to help celebrities overcome the unique financial challenges they face. While there are thousands of private wealth practices that potentially have the capability to serve the financial needs of wealthy celebrities, a differentiated service offering that is solely focused on the sports and entertainment industry can make all the difference. Here are six elements that we have found to be critical when building a niche wealth management practice that serves the diverse and complex financial needs of celebrities.
1. Build a knowledge base around the celebrity's career-know your client
One
of the best ways to earn the trust of this client base is to "speak the
language" of the celebrity. Financial advisors need to be well versed
in the contracts relating to a client's career. With each new contract,
salaries can change drastically. A musical artist may face different
financing needs before every concert tour. A pro athlete whose income
is dependent on the excellent physical condition of his body may need
changes in insurance coverage. By fully understanding such clients'
financial circumstances and lifestyle, an advisor can anticipate and
recommend solutions to their issues and challenges even before a
problem occurs. Building this knowledge base-and continuing to stay
abreast of the changes in the entertainment industry-is the first step
to establishing trust and credibility with the client.
2. Offer unique financing options that meet the unpredictability of a celebrity's cash flow
Depending
on your client's career path and specific contractual arrangements,
have the flexibility to offer creative financing solutions. Celebrities
often work in a feast or famine situation, and customized financing is
frequently necessary to bridge the gap between payment cycles.
Entertainment professionals may rely on your ability to lend against
intellectual property and royalties-or to provide a short-term loan for
an upcoming concert tour.
Established celebrities may require creative financing to support a lavish lifestyle. They often need a financial institution that will structure custom loans to finance a host of luxury items such as yachts, airplanes, race cars-maybe even a private island. When it comes to lending to these clients, know how to formulate effective strategies, negotiate terms on their behalf and structure the financing within the context of a sound financial plan.
3.
Develop customized wealth management solutions that are designed to let
today's income last beyond the lucrative earning years
Multi-million-dollar
signing bonuses, hefty salaries and other lucrative financial
incentives add up to a massive and sudden inflow of wealth for many
young men and women who often have little or no financial experience.
With highly profitable yet frequently short-lived careers, they face
unique challenges when it comes to wealth management. For example,
insurance needs abound, especially in the sports industry and tax bills
can be daunting. Overspending is a common mistake many celebrities
make, so debt must be carefully managed. As a financial advisor to
wealthy celebrities, you can help them "survive" this burst of fame and
fortune and emerge with a comfortable financial cushion that supports
them throughout their working lives.
All too often, celebrities "live for the moment" and burn through their cash during their peak earning years. Instead of enjoying a long, comfortable retirement at a relatively young age, these shortsighted stars are forced to work well into their golden years just to manage their accumulated debt. Judicious trust and estate planning,* investment management and financial planning early in the celebrity's career can support a lavish lifestyle during peak earning years while offering the potential for a secure financial future later on.
* References to the term "estate planning" in this material may include:
(i) financial planning, multigenerational wealth planning, investment strategy
(ii) management of trust assets, investment management and trust administration
(iii)
working with the client's legal and tax advisors in the implementation
of an estate plan While clients' individual needs vary greatly, a few
financial tips for nearly every highly paid celebrity may include:
Security measures also contribute to building trust and long-term loyalty with privacy- sensitive celebrities. |
Insure their biggest asset (themselves):
Disability insurance is crucial for celebrities whose income depends on their physical health. It can prevent financial ruin in the event of an injury or untimely illness. If the unthinkable occurs, the insurance policy serves as a welcome safety cushion, enabling the client to transition to another career without loss of income.
Regardless of the client's youth, have an up-to-date estate plan.
Extensive
travel combined with extensive physical activity exposes
celebrities-particularly pro athletes-to a fair amount of risk. It's
important for these professionals to have an estate plan that not only
helps to reduce their heirs' tax burden, but also takes care of loved
ones in the event of an unforeseen tragedy.
Maintain a sizable cash position.
Normally,
it would be considered unusual (and perhaps unwise) for a person in his
mid-20s to maintain a large cash allocation inside an investment
portfolio. Celebrities, however, often need to remain nimble and
liquid. An allocation of 30%-40% in cash may help to stabilize an
uneven cash flow that often results from the sporadic nature in which
many athletes and entertainers are paid.
Contribute to a retirement plan.
Managing
the extensive tax burden is often one of the greatest financial
challenges highly paid celebrities face. One simple way to help lower
income taxes is to defer as much salary as possible through an
investment in a qualified retirement plan. Of course, having a
retirement savings plan is important for anyone, famous or not.
Build up a balanced investment portfolio.
Every
successful celebrity with income in the multimillions needs an
investment policy. Depending on the client's financial objectives, a
portfolio that is invested in both municipal securities and
growth-oriented taxable investments-a balanced portfolio-often works
well. A well-balanced, actively managed portfolio helps alleviate the
tax burden with less risk than an all growth portfolio, and can help
the celebrity's wealth last well beyond the lucrative earning years.
4. Offer sound advice even before the wealth accumulates-become a trusted partner
Unlike
the typical wealth management client, those in the sports and
entertainment businesses often begin accumulating significant wealth at
a very young age-and most of them have limited financial experience. As
a trusted financial partner, take responsibility to educate your
clients on financial matters early in their careers. Advise them on how
to establish good spending, saving and borrowing habits-before their
peak earning years begin. Help them get their first credit card. If you
establish a trusting relationship early in a budding star's career, she
is more likely to remember your firm when she needs professional wealth
management services later on. If a celebrity credits your firm with the
launch of his career because you were willing to take a chance on him,
you have probably won his loyalty for life.
5. Offer complete confidentiality to shield private matters from the public eye
While
celebrities typically enjoy the limelight, it is crucial to protect
them from unwanted publicity when it comes to their financial matters.
Confidentiality must be a top priority for any financial institution
that serves this client base. Tight security measures also contribute
to building trust and long-term loyalty with privacy sensitive
celebrities.
6. Offer total access and availability to accommodate the celebrity's unpredictable lifestyle
Finally,
make it easy to do business with your firm. Recognize the heavy demands
of a celebrity's career and the unpredictable hours they keep. Service
must be accessible at all times, whether via cell phone, e-mail, or in
person. If your doors are always open, clients are more likely to walk
through them
Conclusion
A
star today is not necessarily a star tomorrow. Indeed, all A star today
is not necessarily a star tomorrow. Indeed, all celebrities should have
a financial plan to help set a course for managing and building wealth
over a lifetime. Often, a professional financial advisor that
understands the challenges faced by today's celebrities serves as a
helpful resource throughout a star's career. Financial advisors who
focus solely on celebrities can help these clients wisely manage daily
cash flow and expenses, adequately save and invest for a comfortable
retirement and appropriately protect their income earning potential.
With intelligent planning that begins early on, celebrities can enjoy
both a comfortable lifestyle throughout their working years, along with
a secure financial future upon retirement.
1. Build a knowledge base around the celebrity's career-know your client
One
of the best ways to earn the trust of this client base is to "speak the
language" of the celebrity. Financial advisors need to be well versed
in the contracts relating to a client's career. With each new contract,
salaries can change drastically. A musical artist may face different
financing needs before every concert tour. A pro athlete whose income
is dependent on the excellent physical condition of his body may need
changes in insurance coverage. By fully understanding such clients'
financial circumstances and lifestyle, an advisor can anticipate and
recommend solutions to their issues and challenges even before a
problem occurs. Building this knowledge base-and continuing to stay
abreast of the changes in the entertainment industry-is the first step
to establishing trust and credibility with the client.
2. Offer unique financing options that meet the unpredictability of a celebrity's cash flow
Depending
on your client's career path and specific contractual arrangements,
have the flexibility to offer creative financing solutions. Celebrities
often work in a feast or famine situation, and customized financing is
frequently necessary to bridge the gap between payment cycles.
Entertainment professionals may rely on your ability to lend against
intellectual property and royalties-or to provide a short-term loan for
an upcoming concert tour.
Established celebrities may require creative financing to support a lavish lifestyle. They often need a financial institution that will structure custom loans to finance a host of luxury items such as yachts, airplanes, race cars-maybe even a private island. When it comes to lending to these clients, know how to formulate effective strategies, negotiate terms on their behalf and structure the financing within the context of a sound financial plan.
3.
Develop customized wealth management solutions that are designed to let
today's income last beyond the lucrative earning years
Multi-million-dollar
signing bonuses, hefty salaries and other lucrative financial
incentives add up to a massive and sudden inflow of wealth for many
young men and women who often have little or no financial experience.
With highly profitable yet frequently short-lived careers, they face
unique challenges when it comes to wealth management. For example,
insurance needs abound, especially in the sports industry and tax bills
can be daunting. Overspending is a common mistake many celebrities
make, so debt must be carefully managed. As a financial advisor to
wealthy celebrities, you can help them "survive" this burst of fame and
fortune and emerge with a comfortable financial cushion that supports
them throughout their working lives.
All too often, celebrities "live for the moment" and burn through their cash during their peak earning years. Instead of enjoying a long, comfortable retirement at a relatively young age, these shortsighted stars are forced to work well into their golden years just to manage their accumulated debt. Judicious trust and estate planning,* investment management and financial planning early in the celebrity's career can support a lavish lifestyle during peak earning years while offering the potential for a secure financial future later on.
* References to the term "estate planning" in this material may include:
(i) financial planning, multigenerational wealth planning, investment strategy
(ii) management of trust assets, investment management and trust administration
(iii)
working with the client's legal and tax advisors in the implementation
of an estate plan While clients' individual needs vary greatly, a few
financial tips for nearly every highly paid celebrity may include:
Security measures also contribute to building trust and long-term loyalty with privacy- sensitive celebrities. |
Insure their biggest asset (themselves):
Disability insurance is crucial for celebrities whose income depends on their physical health. It can prevent financial ruin in the event of an injury or untimely illness. If the unthinkable occurs, the insurance policy serves as a welcome safety cushion, enabling the client to transition to another career without loss of income.
Regardless of the client's youth, have an up-to-date estate plan.
Extensive
travel combined with extensive physical activity exposes
celebrities-particularly pro athletes-to a fair amount of risk. It's
important for these professionals to have an estate plan that not only
helps to reduce their heirs' tax burden, but also takes care of loved
ones in the event of an unforeseen tragedy.