How financial advisors help famous clients plan for retirement

You're probably Vanilla Ice, not Paul McCartney: On helping the famous clients plan for retirement

September 26, 2022 6:51 PM

This month, Tampa Bay Buccaneers quarterback Tom Brady started his improbable 22nd season. Improbable not only because of the wear and tear that can break NFL players down long before they reach a handful of seasons — the average career is just over three years — but also because Brady famously announced his retirement at the end of last season, only to change his mind a few weeks later.

The problem with Brady, from a financial planning perspective, is that while he is what advisors hope their famous clients will become, wealth managers also know that the odds of that happening are slim. And it's incredibly difficult, they say, to convince people who have succeeded at every stage of their lives that they may come to the end of the road much sooner than they hope.

"I ask (famous clients), 'how many Paul McCartneys or Mick Jaggers are there?' Then I give the example of Vanilla Ice. He was a one-hit wonder and he disappeared," said Lee Rawiszer, chief financial officer and managing principal at Paradigm Financial Partners in Westport, Connecticut. "We don't know if you're going to be the next Paul McCartney or the next Vanilla Ice. That's not an insult. But you have to plan for retirement like you're going to be Vanilla Ice."

Rawiszer and Anthony DiValerio, a director in Morgan Stanley's Global Sports and Entertainment Division, said that while it can be deeply rewarding to help famous clients live out their dreams financially, they pose distinct challenges. The two wealth managers talked with Financial Planning on how they guide famous clients toward understanding the uncertainty surrounding their careers and how to build up what they can in the time they have in the spotlight.

Be blunt about career length

Many clients might assume that they can plug in information like current assets, current and projected income, and lifestyle desired to determine when they might be able to retire. And that is true to some extent, though research from Rice University shows that even these clients can miss their retirement marks by nearly five years, forcing them to work on average quite a bit longer than expected.

When it comes to famous clients who are athletes, there's almost no way to even ballpark a retirement date. DiValerio said it's best just to be upfront about how long their careers might last.

"Retirement assumes that you've got this broad compendium of work and career that in most people's minds spans decades. With athletes, that isn't always the case," he said.

Much of that comes because before he turns pro, a football player, for example, has always been the best or one of the best on any team he's ever been on. When he reaches the NFL, however, he might not even be at the top of the depth chart.

"Young men who are phenomenal athletes, who have always overachieved, are now competing with people as good or better than them," DiValerio said.

Add to that the possibility for an injury that can quickly derail even the most promising career.

"It's hard to talk to someone in their 20s," Rawiszer said. "They think they're going to be invincible and play for 10 to 15 years."

Determine — and manage — their lifestyle expectations

Getting drafted or signing a record deal might seem like a windfall, and it very well may be. But how one spends that money in the ensuing years is crucial.

Rawiszer has had clients blow through signing bonuses and early salaries far too fast, requiring some to extend careers in ways they hadn't planned. One, whose playing days in the NBA drew to a close, was forced to play overseas for several years to shore up his finances.

"They thought the gravy train was never going to end and this was going to be their lifestyle forever," Rawiszer said. "He had a decent amount saved, but not enough to support his lifestyle."

DiValerio said he tries to remember that many of these stars have never had to manage their own budgets, let alone budgets that seem so flush that the money will never run out.

"There's athletic expectations and a need for their financial advisor to provide a baseline level of expectation about cash flow, budgeting," he said.

While he's often being interviewed by clients, DiValerio knows that he also has to gather a lot of information that will help him determine just how his clients want to live so he can plan accordingly.

"We need to have candid conversations about what they want out of their careers once they sign a contract," he said. "Part of that discovery process is trying to find a proper match and build a relationship."

Connect with their influencers

The famous exert significant influence through their words and actions — the Kardashians in terms of style and trends, Lebron James when it comes to social issues. But there are many people behind the scenes who have their own influence on the influencers. Financial advisors need to have connections with those people as well.

"Most of the time, we're not speaking with them alone. Most players have a business manager who manages their money and pays their bills," Rawiszer said.

It's important to realize how much sway these people have in a celebrity's life. And how little the celebrity knows about how it all works.

"There's a lot of things that get taken off their plates in terms of what they have to worry about. Someone else is getting their schedules together, their academic calendars," DiValerio said. "It's also important to (determine) where our responsibility begins and ends and where an agent, CPA and real estate planning attorneys all fit in."

Build their brands

While they're likely getting such information from agents, coaches and other sources, financial advisors should remind celebrity clients that their brands and other business moves can be just as lucrative — if not more so — than what they do on a field or stage.

"Tom Brady doesn't consider himself a football player. He would view himself as an enterprise," DiValerio said. "He has multiple channels of income, and all of those are utterly dependent on a reputation he has engendered in 20-plus years of playing football."

Celebrities can use name, image and likeness licensing for good causes, volunteer in their communities and set up foundations that work at solving social issues. But one bar fight, one middle finger to a crowd of opposing fans or one drunken-driving arrest can dismantle all that work quickly.

"We let them know from the outset that their reputation is their currency, and their reputation will follow them wherever they go," DiValerio added. "Think about the person you respect most in the world, the person you'd want to disappoint least. Before you make any decisions, think about how you'd want to explain it to them."

Prepping for the next step

Celebrities are often forced to be caught up in the present, making it difficult to devote energy to life beyond stardom. That's where a financial advisor can add significant value.

"When you think about an athlete, they are focusing on their craft and being the best they can possibly be," DiValerio said.

But an advisor might be able to glean a little info about whether an athlete wants to coach after his or her playing days or go into broadcasting. Having connections, either in the industry or through other clients, can be helpful.

Rawiszer also looks for opportunities to keep money flowing in case a career ends abruptly or there is a lull between gigs. He considers rental properties good opportunities for many of his clients.

"It can provide them with a certain level of income and cash flow while they get through a period of uncertainty," he said.

Those may not allow a client to purchase multiple yachts, like a certain unretired Tampa Bay quarterback, but they'll ensure that the star today doesn't become the example for future generations of what not to do.