What do showbiz figures want from investments and finance? This publication spoke to bankers to find out.
The movie awards season, rounded out by the Oscars, has once again reminded financial industry pros that for all the controversies that showbiz kicks up, there's plenty of money to be managed.
The world of film can certainly be lucrative for performers directors and producers who hit the box office jackpot. According to Forbes, actor Mark Walhberg was the highest paid actor in 2017, earning a cool $68 million, and Emma Stone was the highest paid actress, earning $27 million. In Februrary 2017, CNBC said that Hollywood’s richest movie mogul was George Lucas ($5.4 billion net worth), who created his wealth from the Star Wars franchise and the sale of his production firm LucasFilm to Disney for $4 billion in 2012.
It is therefore no surprise that with these large numbers in mind financial institutions such as including Coutts, Investec and RBC Wealth Management, have built business segments aimed at media and entertainment clients. Specialists can grasp clients’ situations, such as how actors and agents have irregular patterns of income. There are cashflo-income mismatches that banks are almost born to deal with. To illustrate the issue, in 2009, the Guardian said the average number of weeks per year that UK actors work professionally is 11.3, and in the same report, it said just eight per cent of UK-based actors are reckoned to be in work at any given moment.
So what are banks doing in this space? To find out, this publication recently interviewed Judith Chan, executive director of media banking (commercial) and Simon Hopes, managing director of sport, media and entertainment (private client) at Coutts, alongside Charles Newsome, divisional director at Investec Wealth & Investments, to discuss the media client segmentation.
“A commonality that we see between media personalities and sports stars alike is that there is very often little knowledge of the investment world and in some cases this is blighted by unfortunate past experiences,” said Newsome. “Our approach at Investec Wealth & Investment is to spend a good deal of time understanding the client’s needs and their likely income pattern and spending requirements. Once we know this, we structure an investment solution that the client understands and fits their needs. Every client’s needs are different and peculiar to them and media personalities have specific requirements. Chief amongst this is usually the need for a very discrete service.”
Hopes and Chan also discussed why Coutts, like Investec, decides to segment its clients, especially so with the lack of regular wealth for media stars.
“We recognise that our clients income can be very lumpy, a bit `feast or famine',” said Hopes. “For example, a musician may be in the studio for two years and not be generating any income. On the other hand, when they release a record and tour, income can be substantial. If you walk into a high street bank to request a mortgage, there can be issues around securing finance. Similarly, banks can often baulk at irregular earnings such as prize money or short term contracts. This is where our sector knowledge and expertise becomes invaluable as we are able to look at the wider picture and agree borrowing that might otherwise be out of reach.”
Chan added: “What is really important is that the media is very niche. It is about understanding how to look after these companies, and how to lend them money. There are not many financial institutions that can actually do that. About 90 per cent of the time, you are actually lending against intellectual property. It is how we understand the sector, and its financial risks that help us serve our clients.”
While entertainment industry clients make challenging clients at times, there is also the issue of investing in movies and other productions. This has been a turbulent area in recent times in the UK, as media and sports personalities have been burned by schemes in pursuit of tax breaks. In January, for example, WealthBriefing reported that 83 celebrities had lost a battle to claim back £480 million ($670 million) in taxes.
Ironically, as much the outsider would think a film star is likely to invest in their own sector, Coutts' Chen said its clients steer away from film investing.
“My answer would be absolutely not because they know how it works,” said Chan. “It is very rare that they would unless it is a passion project, then they might do. They have probably learned from their advisors to not put their own money in. The first rule of thumb is to not put your own money in film. The way they could contribute if they were entrepreneurial, like big stars are, is to take a small fee for acting and a gross position at the end. So it is in their interest to do the best job, and promote the film at the end to get money from the box office. The best example would be someone like Tom Cruise he takes a very small production fee and acting fee, but also has a huge gross position. I am glad that it is rare to be honest," Chen said.
Hopes, who joined Coutts from RBS in September 2013, added: “We currently don’t have any film associated investments within our portfolio of products and services, and are likely to not change this stance. We are in the business of wealth preservation and enhancement, so we focus on placing our clients’ money into a well-diversified portfolio of assets – property, stocks and shares and cash according to our clients’ objectives and risk profile. We divert our clients away from film investment as they generally have plenty of exposure to that market within their professional lives and most appreciate that film related investments are generally high risk and speculative in nature.”
Being knowledgeable about the next up and coming stars of tomorrow is vital in the media wealth management sector for bankers and relationship managers.
Recent Oscar best actor nominee Daniel Kaluuya, who is tipped for future success, has a net worth of around $1 million, according to Spear’s. But prior to his nomination for Get Out, he had only featured in British television.
When asked about how firms gain clients for this segment, Newsome said Investec regularly increases its net of clients through referrals and relationships. Hopes and Chan at Coutts said networking is key to client attraction.
“We end up making advisors as clients, and knowing how we operate, they tend to send clients are way,” said Chan, who joined Coutts for a second spell from Ingenious Media in 2007. “Introductions vary in how we get business. Our own network we have clients and advisors. We keep ourselves connected with the media sector. We attend festivals and markets which to keep us relevant and in the loop. We need to keep ourselves knowledgeable about what is going on in the industry, which gives us an edge on our competitors.”
Hopes said: “From a private banking perspective, it is often important that you show that you’re actively engaged in the client’s world. I don’t think people to expect us to be producers or writers in our spare time, but by actually having an active interest and being seen in our industry is quite important. We run a number of industry related initiatives. For example, we regularly hold a film forum for those in the industry which helps both us and our clients network and form new relationships. We have also hosted screenings of films, held press nights to support the launch of our clients work and sponsored industry events that align with our clients interests. I think private banking needs to provide clients with something extra, rather like a members club – it’s not open to everyone and you should be well established in your field.”
Agents are rather influential people in the world of sport, and representatives can also be a vital part of a media star’s life.
According to the Hollywood Reporter in 2014, starting agents can expect to earn $50,000 to $65,000, more senior agents make around $200,000;partners make $400,000 to $700,000 and board members can earn as much as $10 million.
Due to their influence on the industry, financial institutions have to learn to work with advisors for the best interests of their clients. Hopes said participants have to work as team, even if some representatives have friction with the banker.
“The answer on that depends on who you are dealing with,” said Hopes. “There is definitely the potential to clash with different advisors as there can be competing interests at play. The best relationships I have is where a set of advisors collaborate together. For example, at the table would be the client’s agent, accountant, lawyer and banker, all working in the best interests of the client. This ensures a good degree of openness and transparency around the client’s circumstances. That’s when you get the best outcomes because you get good quality thinking. Understanding the momentum of a client’s brand and business really helps plan for the future from a private banking perspective. Applying this knowledge to ensure structures are as tax efficient as possible whilst also meeting legal, accounting and more general ethical standards provides peace of mind to clients”
Newsome said: “In our experience, agents are very much part of the scenery with both media stars and sports personalities. On the whole, this can be immensely helpful as the agents work with their clients to build viable solutions. However, the key focus in any case is ensuring that the investment strategy fit the needs of the client, which must be clearly defined and coherent in order to achieve a successful long-term investment.”
Lastly, media stars have rather particular banking needs, as celebrities may need to sort out their financial affairs in different quarters of the world, whilst working on television shows and films. The latest Star Wars film – The Last Jedi – filmed in several locations around the world including UK, Ireland, Bolivia, Mexico and Croatia, which highlights the global aspect to a film star’s career.
Hopes spoke about the global services that Coutts offers its media and entertainment clients.
“You have a branded card that has multi-currency functionality – if you are in the US, your spending will automatically debit your US dollar account, if you are in Paris, it will debit your Euro account, which is pretty smart,” said Hopes. “There are also no transaction fees on overseas spending which is great for our client base who is particularly mobile. And then you have our foreign exchange capabilities, the concierge service and access to an experienced professional for any complex needs such as borrowing or investment.”