Wealth managers are keen to gain sports and entertainment clients, and many firms have set up teams or even whole divisions to serve this segment of the market. WealthBriefing lifts the lid on advising “the talent” and how this type of client differs from the norm.

In recent years a number of firms have set up specialist teams, or even entire divisions, to target sportspeople and entertainers as a distinct category of client. The huge earning potential of those in the upper echelons of entertainment and professional sports is well documented – footballers, actors and musicians alike have been able to command contracts running to tens of millions of dollars for many years now – and so this is a client segment private banks are naturally keen to tap.

What is perhaps less known however are the challenges that face financial advisors in managing the wealth of the sports and entertainment elite.

“A long time retired”

The first point that differentiates sports and entertainment clients is that where entrepreneurs or executives can reasonably expect to see their earnings increase as their careers progress, sportspeople and entertainers will often reach the peak of their earning power earlier in life and, moreover, will likely enjoy this level of income for a relatively short period.

Sportspeople are “a long time retired”, in the words of Andy Sutton, managing director of Conforto, a UK advisory firm specialising in sports clients.  Therefore one of the primary challenges facing the advisors of sportspeople - and indeed entertainers, who are subject to the fickleness of public taste - is planning to make their clients’ wealth last a lifetime.

“Rags to riches” fairytales abound in the sports and entertainment industries, with a “big break” bringing success - and phenomenal earning power - seemingly overnight. This heady mixture of adulation and wealth is however usually the product of years of preparation and sacrifice and so it is little wonder that the “the talent” may be unwilling to contemplate the end of their career.

But this reality, however unpalatable, must be impressed upon clients, says David Highmark, managing director of the Professional Athletes division within Northern Trust. “Once they [clients] have this newfound wealth, most think they will play/act forever and that their multi-million per year salary will last a lifetime. They often establish a spending habit early on which becomes very hard to break,” he said.

For the fortunate, some sportspeople and entertainers see their earnings drop gradually as their career winds up, and they are then able to make gradual adjustments to their budgets. But it is a sad fact that the sports and entertainment careers can, and do, implode just as unpredictably as they take off. This harsh reality is one that Mr Highmark knows only too well as his own professional baseball career was cut short by what was then an inoperable injury. “Whether an athlete client is 22 or 35 years old and still playing, he or she can be one injury away from retirement… we make sure our clients would be prepared for this to be the last dollar they make from their athletic career,” he said.

Planning and prudence are key

Effective wealth planning for sports and entertainment clients calls for a special degree of flexibility and foresight – it hardly needs pointing out, for example, that wildly fluctuating income flows can throw up a range of tax issues. “It is about helping clients plan for all eventualities and then refining the plan on a regular basis in the light of their changing circumstances,” said Martin Thurnham, head of Sports and Entertainment at Coutts & Co.

While the circumstances of sports and entertainment clients might change in terms of income, those that have benefited from good financial advice will not have to retrench in terms of their lifestyle. “The more the client listens and saves for the future, the better their retirement or ‘off years’ can be,” said Danielle Lares-Bouharoun, head of the Nashville entertainment group recently launched by Wachovia Wealth Management. “Teaching the importance of prudent investments and lifestyle spending adjustments is key,” she said.

The power of recommendations

Unfortunately, sportspeople and entertainers receive bad financial advice all too often and history is littered with examples of stars who have crashed from multi-millionaire status to bankruptcy. There are, of course, many examples of sportspeople and entertainers who are extremely astute investors in their own right, but the fact remains that these individuals are particularly vulnerable to receiving poor advice, if only due to the fact that staying at the top of their chosen field takes up so much of their time and energy.

The seriousness of this issue is startlingly illustrated by Changing the Game Plan, a report on the finances of sportspeople published by US accountants Rothstein Kass at the end of last year. Among the professional athletes surveyed by the firm, 78 per cent said they had been taken advantage of by friends and family and 72 per cent felt they had been exploited by advisors.

In light of this, word of mouth recommendation is arguably wealth management firms’ most potent driver of new business - particularly as sports and entertainment are such tight knit industries. “If a client feels good about how we have managed their money, they recommend us to their professional friends, who they can spend hours with on the field or during a shoot,” said Northern Trust’s Mr Highmark. It is also often the case, he says, that veteran athletes will take their younger teammates “under their wing” referring them to their preferred firm.

The wealth managers who spoke to WealthBriefing also emphasised the need to cultivate strong links to other professionals in order to gain new clients. “We have very good relationships with the major lawyers and accountants in the industry who refer clients to us,” said Coutts’ Mr Thurnham, adding that the private bank also has relationships with clubs and agents in the football market.

Another advantage of forging strong links to the sports and entertainment industries is that wealth managers can get clients on board at an early stage in their career, allowing more effective long-term financial planning and an enhanced client-advisor relationship to develop. “We recognise that if you start with a client on the ground level, it is much easier to be their trusted advisor when they ‘make it’,” said Wachovia’s Ms Lares-Bouharoun.

Cultivating client relationships

As with all areas of private banking, developing a good relationship with the client is paramount for the advisors of sportspeople and entertainers. However, these clients undeniably occupy a very different world to those in the normal walks of life and it is to be expected that advisors must take special pains to understand the needs, aspirations and values of those whose lives are played out on the field, screen or stage.

Conforto’s Andy Sutton said: “You have to be able to relate to the client personally, understand what makes sports professionals tick and you have to fit into their world rather than expecting them to fit into yours. The nature of our relationships with our sports clients is that we get very close to them personally and engage at all levels, not just on a financial level.”

Wachovia’s Ms Lares-Bouharoun agrees that it is very important to be able to relate to your clients on a personal level. “A client does not want to be dealing professionally with someone who cannot relate to them and their unique backgrounds,” she said. It comes as no surprise then that the advisors to sportspeople and entertainers often have a background in these industries themselves, and there are cases where high-profile sportspeople have made the crossover to wealth management. In one particularly apposite example, Austin Healey, the former England rugby player, was hired as a private banker by Credit Suisse in 2006.

But while direct industry experience is no doubt advantageous, it is people skills and the ability to take an holistic approach which are key. Sports and entertainment clients have unique wealth management needs and advising them often extends beyond the purely financial. As Northern Trust’s Mr Highmark put it: “My financial planning recommendations revolve around the need to prepare these clients financially, emotionally and professionally for life after sports. This approach is exactly the same in the entertainment and media industry. In each of these fields, one day you can be a star and the next day you can be out of a job, sometimes permanently.”

Clearly, advising sports and entertainment clients has its challenges, but the advisors who spoke to WealthBriefing were also keen to emphasise its rewards. Sportspeople and entertainers may have short “shelf-lives” but the right financial advice not only preserves their wealth, but can build it for the security of generations to come – an undeniably satisfying undertaking. Moreover, by creating financial peace of mind, advisors allow the stars to get on with what they do best, unencumbered by financial concerns: “The financial security we provide helps them stay focused on what’s most important to them – playing the game,” said Mr Highmark.