Lessons can be learned from strategies for the super high-net-worth for clients right across the board
As every adviser knows, no two clients are ever the same. Faced with a plethora of different assets, attitudes to risk, desired outcomes and personal situations, advising on how best to manage a portfolio is often a complicated jigsaw.
Add to this list an individual who is perhaps squarely in the public eye, frequently based across different locations and with a distinctly unusual earnings pattern, and wealth management can seem a convoluted puzzle.
Our focus on clients in the entertainment and sporting industries involves careful investment planning from the get-go. Unlike “normal” careers spanning well over 40 years, the careers of those in the sports industry can be well-remunerated but short-lived.
As an example, the average salary of a Premier League footballer is £50,817 a week, putting them on £2.6m a year (pre-endorsements), but the average length of a career is just eight years. Similarly, those in the acting industry often face sporadic work, unsure where the next job may come from, or indeed how much it will pay.
An adviser’s responsibility is to bear all these factors in mind, working closely with the relevant tax advisers, legal counsel and estate planners (among others) to manage the client’s assets with the minimal risk in any situation.
With the possibility of shorter career spans, it is essential to focus on liquidity of investments. Many clients may need to access their investments after a reasonably short time, so their assets have to be flexible to accommodate this.
While private equity investment opportunities may seem like an attractive option, these can prove to be unsuitable for those not in a position to lock their assets away for a substantial amount of time.
We also need to consider a client’s location. Individuals in the entertainment industry can find themselves flying from one country to another for different opportunities. This lifestyle has far-reaching implications when it comes to considering their finances.
Foreign currency exchange rates can come into play with clients being paid in different currencies, while varying tax laws also need to be considered. Clients based out of different jurisdictions can be affected by conflicting tax laws – the rules in the UK, US and elsewhere are vastly varied – and incorrect management of this could leave them with a hefty bill.
As an example, some clients who take up temporary residency in the US for a period may use a private placement life insurance wrapper, otherwise known as a deferred variable annuity.
This serves as a good planning tool for people moving to the US, especially those with intentions to leave again in the near to mid term, such as up to seven years.
PPLI is essentially like an offshore bond, with growth inside free of income tax and capital gains tax, unless it is encashed or surrendered.
It is compliant for the US, unlike a traditional offshore bond wrapper, and once the person leaves the US, there would only be UK income tax to pay for the period they were UK-resident, which may be nothing.
Tax is, of course, a major consideration when it comes to wealth management.
There have been many scandals over the past few years involving high-profile celebrities that may have been ill-advised when considering tax structures.
It is essential to recognise that there are fundamental differences between tax avoidance and tax evasion. One is a legitimate vehicle for tax management; the other is simply illegal. However, it seems that more and more frequently, these two terms are seen as synonymous in the media.
The film scheme partnerships that have been well-documented are a case in point. These schemes started as legitimate offerings but were pushed too far.
Unfortunately, the person who ends up suffering is the client.
When one considers that the nature of a client’s work means many might retire early, a retrospective tax bill due to bad planning can lead to financial hardship. It is imperative to work closely with tax advisers to ensure a focus on tax awareness does not get missed, and that all investments are fully transparent and well-understood.
While there are many more aspects to consider, one further point to mention is marriages between UK and US individuals. As I have noted, the tax rules within these two jurisdictions are hugely different and so full understanding around individuals’ ownership of assets, even when in a relationship, is incredibly important.
Consider inheritance tax. The US rules are far more generous in their allowance than those in the UK. Indeed, on death, the UK tax threshold is £325,000 but this leaps to around $11.4m (£8.8m) in the US.
How a couple are splitting their assets upon death needs to be seriously considered.
Essentially, famous faces are no different to any other clients. While the transatlantic and often unusual earnings pattern of an individual with a career in the sports or entertainment world obviously needs to be considered, good management always takes the same approach across the board.
It needs to be investment planning led, with a focus on protecting for the future and taking a fully holistic approach to all elements of a client’s situation. It is really just a case of completing a jigsaw which has a few extra corners.
Jonathan Gold is executive director at London & Capital