Financial planning for a Hollywood strike

For actors and screenwriters affected by the recent strikes against film and television studios, having a spending plan and an advisor could be the difference between survival and financial calamity.

They’ve already had a test run of an industrywide shutdown as a result of Covid, which clearly showed the importance of having several months’ to years’ worth of emergency savings.

“As terrible as Covid was, it was a little bit of a wake-up call for people who are in the performing and writing space,” said Julian Schubach, an advisor specializing in the entertainment industry, who works with about 100 households. Having peaks and valleys in their income is a reality for many writers and actors, just as with gig workers, and that requires different financial planning strategies than for folks with steady paychecks.

“We always work to try to come up with intelligent planning strategies, which are very different from the strategies used by people working in offices,” said Schubach, senior vice president of wealth management at ODI Financial. “Plan for tomorrow, today. We know what your income is today, but we don’t know what it will be in six months.”

The rates of 4.5% to 5% available recently in high-yield savings accounts have been an opportunity for clients to build up emergency funds, he noted.

HARDEST HIT

Household names in Hollywood who are SAG-AFTRA union members, who went on strike starting Friday in support of a longer campaign by the Writers Guild of America, generally have big financial cushions, and less to worry about. But most writers, actors and support workers don’t have high levels of income.

Less than a third of WGA members report income in a given year, as most are usually between jobs, said Nick Jack Pappas, a TV writer who previously worked for Fidelity Brokerage Services and resigned from the company in 2014. Additionally, only about one in 10 SAG-AFTRA members earns more than the minimum of just over $26,000 threshold for health insurance eligibility, Pappas noted in an email.

“These are working-class people who could make great income in one year and then go years looking for their next job,” he said.

“I have friends with stable jobs in late night TV who've bought homes, who are starting families. They have to pay their mortgages. They have to buy diapers," Pappas said. "Months without a paycheck is a heavy burden. In California, you can't get unemployment when you're on strike because you're still considered employed, and the strike fund can't come close to covering everyone's lost wages.”

Financial planning is a distant consideration for those struggling to pay regular expenses, Pappas said.

“Some have financial planners, but most don't. They simply don't have enough in the bank to warrant having investments. If you're waiting for your next paycheck, the last thing you're thinking about is a stock portfolio,” he said. “I'm one of the writers between gigs who was looking for my next opportunity, but, in the meantime, I'm lucky enough to have a full-time job and skills I can fall back on. I want to write for a living, but doing so is becoming more and more unsustainable.”

INDUSTRY CONCERNS

“When a lot of people hear about things like SAG or WGA going on strike, people who aren’t familiar with that space think it’s rich people being greedy,” Schubach said. But “the top 5% are making most of the money.”

While the equitable distribution of revenues and royalties is one issue, others include concerns about studios eventually replacing writers with AI, he noted.

“It’s working conditions, safety on set, making sure that everyone is being treated fairly,” Schubach said, adding that the issues and the strike also affect other workers in the industry — food service staff, teamsters and janitors, for example. “These aren’t rich actors.”

Similar issues apply to other industries – which could be something for advisors with clients with unpredictable income to consider.

“We're mainly dealing with publicly traded companies that have a fiduciary responsibility to their shareholders. They are incentivized to exploit our labor,” Pappas said. “So many jobs have moved away from small private businesses to large publicly traded companies. They've reduced workers to numbers on a page.”

Schubach works with clients who range from entertainers early in their careers to well-established faces that pull in seven to eight figures a year.

For those who are in their early earning years, most “haven’t really had the time to build up emergency savings,” he said. An interim strategy that he and business managers for those professionals are using is to help them look for branding deals or similar arrangements, Schubach said.

PAYING THE BILLS

But even those with larger incomes may be on precarious footing because the cost of living in entertainment hubs is high, he said. “We know about lifestyle creep.”

Another advisor serving the entertainment industry, Adam Scott, CEO of WellAcre Global Wealth Advisors, said most of his clients will be able to weather the uncertainty of the strikes. Scott, whose firm charges a minimum fee of $7,000 a year, works with 40 households, representing about $65 million. Those clients tend to be late career and successful, he noted.

“Anytime you’re in entertainment and you’re working in the freelance world, you have to be prepared to be out of work for a year or two. You should have a rainy-day fund,” Scott said.

But for freelancers or full-time workers who are heavily affected by the strikes, some financial strategies are better than others, he said.

While it’s not ideal to pull money out of retirement accounts early, those assets can be a lifeline, Scott said. Some workers can take hardship distributions from 401(k)s — if they have those accounts. Those who have had Roth IRAs for more than five years can also potentially take penalty-free early withdrawals on contributions, he noted.

“The alternative is to run up their credit cards or foreclose on their homes,” Scott said. Tapping into retirement assets “might be the least worst option.”

But he cautions people to avoid raiding their retirement accounts to pay mortgages. “I’m not in favor of people destroying their retirement savings to save their house, because I’ve seen situations where people lose both.”

IN THE MEANTIME

Since the writers’ strike began in early May, business managers whom Schubach partners with have been reaching out, he said.

With current and prospective clients now more available, it’s brought them to the table to consider investing and planning strategies, he said.

In working with entertainment-industry clients, new or old, understanding and sympathy about what they are going through is essential, Schubach said. “These are all human beings who are fighting for their rights to receive what they feel is fair, to work in safe conditions and make sure their intellectual property is not being diminished by emerging technologies.”