Not every financial adviser can deal with high net worth entertainment and sports clients, according to wealth manager London & Capital.
Executive director Jonathan Gold told International Adviser, when handling the financial affairs of a celebrity, there is a need to know the ins and outs of the market.
“I think you have to have the right tools at your disposal to handle clients like these. You need a global platform, experience in the industry, knowledge of wealth planning, and also knowing the other advisers in this community,” Gold said.
“There are rules around foreign tax and how it is applied to sports people or actors or musicians. You need specialist accounting around these areas or often you need business management services.
“It is not just what I do in isolation or what other individuals do, but you need access to the whole of a clients’ advisory team.
“Wealth managers need to be flexible to deal with clients moving suddenly, liquidity issues, currency issues and tax issues. No one individual does everything, which is why you need a team.”
The firm has been working with the media and entertainment sector, especially US expats in the UK, for several years.
Being a celebrities’ financial adviser can involve managing a mass amount of wealth, according to Forbes:
- Actor George Clooney earned $239m (£184m, €214m) before tax last year;
- Actress Scarlett Johansson earned $40m before tax in 2018; and
- Boxer Floyd Mayweather earned $240m and was the highest paid sportsperson in 2018.
Differences
London & Capital is not the only wealth management firm to tap into the large quantities of money in media and sport today.
RBC Wealth Management, Investec Wealth & Investments, Brown Shipley, Sanlam, Kleinwort Hambros and UK financial planner Sedulo are just some of many names that offer financial planning services for celebrities around the world.
But these companies have to differ their offering compared to when helping typical HNW clients.
Gold added: “The biggest difference is if one is dealing with a typical high net worth client rather than a celebrity, is that typically you are dealing with that client directly.
“The HNW client will be involved and engaged, talking about goals and aspirations.
“When you are talking about a high-profile client, pretty much in every instance you will be talking to someone else about that person.
“You might meet the celebrity somewhere in the journey, but not always, often after the decisions have been made.
“The process to get to a point of talking about long-term investing for a sportsperson or celebrity can be challenging and cumbersome.
“Whereas, the HNW individual makes the decision on their own behalf, the high-profile client is outsourcing that to somebody else, trusting them to make the right decision for them.”
Global clients
One of the key differences about these types of clients is that have to be handled from various places across the world.
Rockstars may be on a worldwide tour, an actor could want to break Hollywood and sportspeople could want to play in a variety of different countries, which means they could all potentially become tax resident in various jurisdictions.
Gold added: “From a wealth planning perspective, you have to deal with these types of clients on a global basis and open accounts in various jurisdictions, what we need to do is have flexibility without trying to trigger any adverse tax consequences around being able to manage assets in those jurisdictions.
“The US is probably the most onerous because once you become a green card holder or are tax resident you can be subject to tax on your worldwide assets.
“The US doesn’t view international funds very favourably.
“So, clients who are in the sports arena and move to the states have needed to have single line securities on the basis that they didn’t want to hold funds or passive foreign investment companies, which would be tax penalised.
“Such a portfolio gives them flexibility because their jobs have uncertainty of where they are going to be at a certain time.
“A bit of careful planning from the outset, for where the client may end up and what their aspirations are, is the approach to take.”
Being frugal
Predicting the careers and the level of income can be hard to gauge when it comes to entertainment clients, especially footballers.
The average length of a professional football player’s career is eight years, according to UK newspaper the Guardian (20 March 2010).
With limited time to accumulate wealth, specialist planners are needed to make sure sports people are set for life.
“What talent needs to understand is that it is only a finite period that they are earning for,” said Gold. “I think the biggest challenge is getting them to understand that they are not going to earn that level for the rest of their lives.
“Another important consideration is that they should be thinking about the money they are earning in gross terms.
“The footballer may think they are earning three or four million a year but when you take off taxes, expenses and other fees, whilst they make big money, they also lose a huge amount to these costs and taxes.
“These big early earnings may have to last them, like a pension fund, for the rest of their lives. As far as investing goes, they shouldn’t be taking too much risk because, ultimately, they are taking risk in their career.
“However, as these funds potentially need to last them a long time, they also can’t just have cash and need to take a moderate amount of risk to enable the assets to grow.”
Stick to what you know
Understanding their own wealth is just one area that media clients need to get their head around.
There have been many instances of celebrities being conned or tricked into investing into scams.
Gold believes that getting best success with high profile stars is when “they take an interest and understand what investments they are holding”.
He added that helping celebs invest in firms they know can be “clear” and “easy” for them to understand.
“They can therefore invest into companies where we can demonstrate they might resonate with their brand values.
“By investing into individual companies, you can also tailor currency more closely.
“Depending on where they might end, it means you can manage the yield more effectively and potentially invest in more slightly higher yielding bonds with greater risk profiles too.”
