Before Ed Butowsky became his financial adviser, former Major League Baseball all-star outfielder Torii Hunter lost $70,000 when he invested in an investor's idea to develop an inflatable raft that rests under furniture in case of flooding.
"These athletes are so trusting, that when it comes to private deals they're very susceptible," said Mr. Butowsky, who serves as a financial adviser to more than 100 athletes, actors and musicians.
Protecting their celebrity clients from bad investments is only one of the services financial advisers like Mr. Butowsky are called on to provide. While serving as a financial adviser to a well-known athlete or entertainer can be exciting, most concede it's a lot of work and very different from advising run-of-the-mill rich clients.
Stars are often plagued by short-lived, unpredictable income streams. They come into huge pots of money very suddenly at an early age and often find themselves without a source of income only a few years later.
"You can have a career where you're red hot, and then you're done in three to five years," according to Lee Rawiszer, managing principal at Paradigm Financial Partners. Average tenure for a professional player in the four major American sports — baseball, basketball, hockey and football — hovers between three and six years. And while there could be endorsement deals or commentator gigs afterward, it's not a given, advisers say.
Musicians make pennies on digital song downloads, relying on concert tours for the bulk of their income, and a few unpopular tours could lead a career to fizzle out, said Mr. Rawiszer, who works with around two dozen celebrity clients, the largest of whom has a $300 million net worth.
(Related read: 4 steps advisers should take to best serve athletes)
CAREER ARCS
These career arcs differ enormously from average full-time employees in the workforce, who have an earning trajectory of maybe 30 to 40 years. In other words, the Kobe Bryants and Paul McCartneys of the celebrity sphere — superstars blessed with extreme career longevity — are
the exception, not the rule.
Therefore, an adviser's approach to managing money for these clients has to be different.
Mr. Rawiszer espouses the concept of treating assets as "irreplaceable capital." Whereas some advisers may paint a picture of youth and a long-term horizon that gives wiggle room for a lot of high-risk investments, Mr. Rawiszer cautions that it's important to invest with an eye toward preserving money to last for a lifetime.
"If you squander this opportunity - this finite window where you're making millions of dollars and you don't invest it properly - you're literally screwed for the rest of your life," he said. Investments are only a small portion of an adviser's value to celebrities. Much of what they provide, advisers say, goes beyond plain-vanilla financial planning and is derived from putting safeguards in place, such as disability; life, property and casualty insurance; and asset protection to shield big pots of money from litigants, creditors and spouses, in case of divorce.
"If you go into this part of the market and you're treating them the same way as another client, you're not doing them any good," said Jordan Waxman, managing partner at HighTower Sports and Entertainment Group New York.
As an example of the level of detail celebrities require, when parties sign pre-nuptial agreements, Mr. Waxman has the proceedings videotaped so spouses can't later claim they signed a document while under duress. Mr. Butowsky will have individuals doing work at the house of a client sign non-disclosure agreements.
Because of this level of sophistication, advisers describe a family-office-type approach as being necessary to the relationship, whereby they quarterback all aspects of the client's financial life.
(More on athletes: 7 athletes who say their advisers duped them)
Mr. Rawiszer, for example, maintains a network of third-party entertainment and asset-protection attorneys, on both the East and West coasts, who he can refer clients when they require such expertise.
"Coordination among all those disciplines is crucial," Mr. Butowsky said. "Anyone who really wants to be in this part of the business needs to be able to provide more services than just the asset management side."
SUPERMAN MENTALITY
Advisers describe how they often have to rein in celebrities' unfettered spending, affirming that many of the stereotypes relative to celebrities buying luxury items at will — cars, boats, planes, houses, art, you name it — are accurate.
"They outspend their way in life; [they] think they're invincible," Mr. Waxman said.
Nearly 16% of players in the National Football League, for example, have filed for bankruptcy 12 years after retirement, according to a recent paper from the National Bureau of Economic Research.
One of Mr. Waxman's clients, an athlete finishing up the term on his first contract and who hadn't saved much of his money, recently insisted on using $330,000 to buy a Bentley. After counseling the athlete against getting the car, Mr. Waxman persuaded him to lease the Bentley rather than buy it outright.
"I may not be able to get them to listen to me all the time, but maybe half the time," Mr. Waxman said.
And therein lies what some advisers see as the frustrating, perhaps not-so-glorious part of the job - the at-times unappreciated or unheeded financial advice.
"You want [clients] who value your opinion, insight, education and work history. I don't know if it's athletes, or age, but more often than not it'll be what they want to do," said Jeremy Office, principal at Maclendon Wealth Management.
Mr. Office has been working with professional athletes for the past 14 years of his career, but he's been winding down that side of his business, as that sort of clientele isn't one that intrigues him much anymore, he said. Now he maintains a handful of athlete clients.
"Everyone wants to be their adviser, because they think it's sexy and interesting," he said. "But it's really not. [Celebrities] are the worst clients, especially athletes." Not everyone is as jaded as Mr. Office.
David Adams, founder of David Adams Wealth Group, works predominantly with musicians and entertainers in the Nashville area, and finds it extremely rewarding.
"I realized it was a niche I really enjoyed. I enjoy the people, the creativity, the mindset," Mr. Adams said. He caters most of his marketing and branding toward musicians and entertainers, and wants to become one of the go-to advisory shops for Nashville musicians.
Musicians tend to be more "coachable" than athletes, and "implement what you say almost to a tee," Mr. Adams said. Athletes are more prone to "march to the beat of their own drum," he added.
DUMB LUCK
Something many advisers operating in this niche seem to have in common is a kind of dumb-luck way of breaking in.
Winfred Tubbs, a former football player on the New Orleans Saints and San Francisco 49ers, happens to be Mr. Butowsky's neighbor in Plano, Texas, a Dallas suburb. Mr. Tubbs became a client and close friend of Mr. Butowsky's.
Mr. Rawiszer got in front of his eventual first client, a young musician, because an existing client's son is that musician's manager. Mr. Office scored a meeting because a friend of his played friendly poker games with a prominent jeweler in athletic circles.
"I don't think you can bulldoze your way into those situations," Mr. Office said.
After landing one, though, there's a ripple effect that leads to others through referrals and word of mouth, advisers say.
Working with celebrities can also come hand in hand with an added level of stress, due to the high-touch nature of the relationship.
"They expect you to be available seven days a week, 24/7. You're always on call," he said. Mr. Rawiszer, for example, once had to fly out to meet an entertainer who was on tour, all for a 15-minute face-to-face conversation.
And clients can potentially prove fickle, if surrounded by other parties constantly trying to steal away business.
"You always know that these entertainers or athletes can be at a cocktail party, and they could say to someone, 'You should be my financial adviser.' With the stroke of a pen you can be replaced," Mr. Rawiszer said.
"It hasn't happened to us," he added. "But I'm cognizant that it could."
