HCR Wealth Advisors Gives Views On The Creator Economy And The Mindset, Challenges And Needs Of Clients With High Earnings Early In Their Careers
The triple Oscar-winning 2008 film “The Curious Case of Benjamin Button” tells the story of a man who is born old and ages backwards over a long and storied life. While the movie is a thought-provoking work of fiction, there are real situations in which a career doesn’t follow the standard path of starting low, working your way up the corporate ladder and retiring with excess wealth.
For athletes, entertainers, creators and others working in related fields, a lifetime of earnings may proceed in reverse – starting with high earnings at a young age but facing fading prospects and early retirement when others in standard careers are just starting to flourish.
When your client is an athlete, entertainer or creator, they need advice tailored to this different set of circumstances. With almost $1.5 billion in client assets, Los Angeles-based HCR Wealth Advisors specializes in advising these clients, among others, and grew its team by 18% in 2021 to serve the needs of this growing clientele.
We spoke withSteve Weinberger, Senior Managing Director at HCR, to understand the needs, challenges and issues of these clients, and what financial advisors can learn from the rise of the creator economy.
WSR: What unique needs do athletes, entertainers, creators and figures working in the entertainment industry or creator economy have? What financial planning challenges do they face?
Weinberger: For athletes, entertainers and creators, everything is intensified and happens under a spotlight. They receive very high earnings during a short period of time that must be stretched out over a lifetime.
Many of them enter the height of their careers and earning potential at a relatively young age, when they are not thinking about retirement – let alone how to prepare for it – which makes the process of engaging in financial planning with them a bit difficult.
For starters, their high earning careers provide a false sense of security. They tend to think that there is always another (often bigger) contract or deal coming next, which causes them to think of their immediate financial future, but not long-term. There is also much more uncertainty in these industries, and we can’t use their current income as an anchor for long-term financial planning (since there will be fluctuations to come).
To help mitigate these challenges, we start our client relationships by educating them on the financial planning process and show them case studies for other athletes, entertainers and creators we have helped, in order to highlight strategies that they can employ now that will help secure their future.
WSR: Has the creator economy seen significant growth? How does this change the way advisors should think about wealth creation and accumulation?
Weinberger: The creator economy has grown exponentially in recent years and will continue to grow at a rapid pace, especially with continued advances in technology on the horizon. This rapid growth has given creators a bigger voice and has led professionals to specialize in order to serve this community well.
Creators experience some differences from athletes and entertainers, namely the need for proof of concept for their industry, that has recently been established. Unlike sports and entertainment industries that have thrived for years, the creator industry is relatively new.
Creators were originally viewed as young people who were having fun on social platforms, but make no mistake, the creator economy is a real business and should be treated as such. We’ve seen creators branch out from only participating on social media platforms to doing branding deals and establishing multiple product and services lines that they own or are affiliated with.
The creator economy is just a recent example of how important it is for financial advisors to not only be aware of emerging sectors, but to expect them and do their best to adjust when necessary so they can properly service them.
WSR: What special issues do these clients face in areas such as retirement, tax planning and giving loans and gifts to friends and family?
Weinberger: The emotional element of retirement is intensified for these clients. To reach the pinnacle of an industry is no easy feat, so it is no surprise that their career becomes a huge part of their identity, which can lead to complications when it comes time to retire. We encourage our clients to think about what they are retiring to (philanthropic efforts, community initiatives, extracurricular activities and hobbies), rather than what they are retiring from, to help ease the transition.
As it pertains to taxes, these clients must pay withholding tax in every state where they earn money, which can lead to higher-than-expected tax obligations down the line. The state in which these clients are domiciled also has a huge impact. Any taxes for bonuses are allocated to their state of domicile, so if these clients can domicile in a state that does not levy income tax, that can lead to huge savings.
Many of these clients want to help friends and family via loans and gifts. We advise our clients to treat loans like a business transaction and paper the deal accordingly, and if they are uncomfortable with setting that boundary, to involve their financial advisor to assist.
Michael Madden, Contributing Editor & Research Analyst at Wealth Solutions Report, can be reached at email@example.com