Through talent and a bit of luck, some entertainers capture fame and fortune. And like other wealthy individuals, these celebrities have a variety of financial needs, from investment management to advanced planning-from administrative services to lifestyle services.

While celebrities do have some of the same generic needs as everybody else, what sets them apart are those issues specific to the entertainment business. These require special expertise and an intimate understanding of the celebrities' world if an advisor is going to get the best results.

Celebrities can especially benefit from he coordinated approach characteristic of a multifamily office. More than ever, there are some tremendous opportunities for advisors in this space to do advanced planning and offer business strategy and support services.

Issues Faced By Celebrities
First, though, let's consider what celebrities' concerns are. To become a financially successful entertainer takes not only a tremendous amount of hard work but the help of providence. This might seem to apply to anybody who has amassed great wealth. But it has likely been a particularly intense ride for celebrities, who might have once been members of the wait staff eager to be discovered. Or who were once members of bands looking for their big break. Or who were once models afraid to eat before a sensational photo shoot.

Even when they have made it, achieving levels of success long sought in our culture, they then find that celebrity status has its drawbacks. For nine out of ten wealthy famous people, the entertainment business is rife with stress (Figure 1). Three of five are plagued by an intense fear of failure. This can lead to psychological problems- from drug and alcohol abuse to anxiety and depression (Figure 2). Complications like these can make their lives more complex and problematic.

The Evolving Multifamily Office
What we find is that celebrities seeking advisors are increasingly attracted to the multifamily office model, which integrates core aspects of a business manager's job with a broad array of financial and legal expertise.

Because of the great amount of personal wealth that's been created in the last couple of decades, the multifamily office model is evolving in a number of different and intersecting directions. Such offices must increasingly be able to handle a variety of interconnected financial situations. They also have to specialize more if they want to serve specific niche groups, celebrities being just one.

Multifamily offices tend to offer four basic categories of service: (1) investment management; (2) advanced planning; (3) administrative services; and (4) lifestyle services. Many of these services are outsourced while the advisors in the office itself focus on working with the clients.

Successful entertainers are turning to such a business model because the multifamily office can help them navigate their financial worlds and be nimble enough to offer business strategy and support services particular to the entertainment field.

To better understand the differences between a traditional multifamily office and the celebrity multifamily office, let's look at a couple of examples of advanced planning with celebrities, as well as an example of how the advisors provide business strategy and support.

Advanced Planning
Advanced planning is a suite of cutting edge services that help wealthy individuals and families structure their assets to be as tax-effective and secure as possible. The three components of advanced planning- wealth enhancement, estate planning and asset protection-can be offered separately or in concert to deliver the right solution for a successful entertainer.

For example, celebrities very much want to reduce the amount of money they pay in taxes. Yet only 20% of them have taken steps to curtail these taxes by taking advantage of their unique sources of income.

Consider just one advanced planning technique that could be used with celebrities: a loan-out corporation.

One actor we worked with had a net worth in excess of $50 million and an annual income of about $5 million, much of which came from his royalties and participation arrangements. He wanted to lower his income tax bill, so several years ago we established a loan-out corporation for him that was domiciled outside the United States in a country known for its favorable tax treaties. We developed a deferred compensation program within the corporation and directed his non-U.S. royalties and participations into that program. The assets in the deferred compensation program were invested in cash and cash equivalents to safeguard the principal. After one year and one day, this loan-out corporation could make interest- and principal-deferred loans. Loans are made to the actor using the assets in the deferred compensation program as funding; no current taxes are owed on the loans. This solution allows the actor to access his current earnings while decreasing his current tax obligations.

Celebrities also tend to have certain types of assets particular to the entertainment business that require advanced planning help. Recently, a composer we worked with divorced her husband of 21 years and she owed him a significant lump sum settlement. Her goal was to retain ownership of her song catalog, her largest and most valuable asset, while at the same time meeting the terms of the divorce judgment. We designed a derivative transaction to "convert" the catalog into a security. We hedged the security to create liquidity and invested 80% of the security's total value (in this case, $24 million) in a guaranteed return investment. A portion of the loan was used to satisfy the composer's obligation in her divorce settlement and pay off the loan. She will retain any residual profits. In five years, we will unwind the structure, at which time the ex-husband will have been paid in full.The composer will have realized $2.2 million in profit, and she will have complete ownership of her catalog.

Business Strategy And Support
Advisors in multifamily offices can also offer business strategy and support, handling licensing agreements or business ventures with the celebrities' names attached and helping them capitalize on their success to generate significant monies. All too often, advisors will let celebrities not well versed in these areas dive into business deals with a very limited chance of success.

When celebrities call on advisors to develop a business model, it means the advisors must go beyond the role of a traditional multifamily office, beyond the role of a business manager or even that of a management consultant, because they're tackling the client's financial and tax issues all along the way. The client's lifestyle also comes into play.

Let's consider a musician we worked with who wanted to build a company that will profit from purchasing song catalogs. The expertise we brought to the table allowed us to:

Develop the business plan with the musician, including the pro formas, and adjust the business plan as circumstances changed;

Arrange preferential financing on an ad hoc and ongoing basis for acquiring music catalogs;

Assist in the catalog acquisition process to create greater value for both parties while avoiding direct monetary outlays;

Structure the business to dampen both corporate and personal income taxes by creating a series of tax-friendly current and deferred revenue streams;

Integrate the business from inception with the celebrity's estate plan to freeze the value of the business's assets and maximize his ability to transfer the value to future generations; and

Protect the ownership rights in the music catalogs from potential litigators and creditors, including ex-spouses.

In this capacity, the celebrity multifamily office is taking on a number of functions simultaneously and seamlessly. What makes it all work so well is the highly integrated nature of the endeavor. In these situations, the objective is not only to have a successful business but to ensure that the wealth of the musician is maximized and protected.

The Multifamily Office Advantage

Can successful entertainers work with advanced planning specialists to mitigate taxes? Can celebrities work with business consultants to develop new initiatives? Can successful entertainers obtain all the expertise of a celebrity multifamily office on an a la carte basis?

The answer to all of these questions is: Of course they can.

There are two critical advantages the celebrity multifamily office will have for successful entertainers. One is an in-depth understanding of the celebrity world. More important, however, is the ability of the office to address the needs and wants of the successful entertainer in a holistic manner.

While a top-notch office will provide solutions to specific issues, problems and needs, it should also be all-encompassing and comprehensive. This will allow it to provide more effective and efficient solutions for the celebrities in lives where the personal and professional are often highly intertwined.