Financial planning for an international pop star: Real life case studies
With new found fame and fortune, an international pop star needed our financial advice
After love, money is arguably the second most popular theme in song writing. Whether the lyrics are about wanting money, as in Barrett Strong’s “Money (That’s What I Want)”, needing more money, like ABBA’s hit of 1976 “Money, Money Money”, or having too much money (as seems to be the predominant theme of the entire hip hop genre) singing about money is nothing new.
But what do all of these artists have in common? Fame, fortune and talent – yes, but also a career filled with inconsistencies, irregularity and uncertainty. A nightmare combination when trying to manage ones finances. Or to put it another way, a real challenge for the new model financial planner.
In this, our second blog from our series about real life case studies from clients past and present, we look at the international pop star.
The price of fame
Many of us would feel we have little in common with an international pop star. Staying in a different world class hotel every week (throwing the TV out of the window optional), having our private lives made public fodder and appearing in countless different magazines every week, is not something one can relate to easily. But something we do have in common is a need for sound financial planning, much like the national lottery winners in our previous blog.
Take our client. At the time she was introduced to us, she was literally on the verge of hitting the ‘big time’. Having enjoyed several years as a member of a band, she was now establishing herself as an artist in her own right, as well as a TV personality. Her earnings were increasing dramatically and coming from a variety of sources. But given the fickle and unpredictable nature of the music industry, in which stars can disappear as often and as quickly as they appear, she had chosen the perfect time to briefly step out of the limelight and consider her financial plan.
Time to face the music
With lump sums coming from music royalties, TV work, promotional work and advertising campaigns, it is easy to imagine why managing her finances was going to be tricky. Offers were coming in from all over the globe, meaning she was being paid in a variety of currencies, making it even harder to track her cash flow and help her establish a spending pattern. After lengthy discussions about her goals and financial aspirations, and using cash flow modelling, we were able to create a sound financial plan appropriate for her circumstances for the medium term.
Or so we thought.
A sudden move abroad for a TV deal (did we mention this industry was unpredictable?) meant we had to revise our initial investment advice from a tax perspective. The move would also involve purchasing a new home and of course, as with many of our private expat clients, new banking arrangements. Working with her accountant, we were able to ensure that all our existing financial planning remained appropriate.
Plan for the worst, hope for the best
Unlike our National Lottery Winners, it seemed unlikely that our pop star was going to run out of money any time soon. A steady income flow, albeit from a complex mix of sources, as well as her popularity both in the UK and abroad, seemed to suggest some longevity for her career. But, like our previous millionaires, certain steps had to be put in place at this key time.
Here are the actual financial steps we took to ensure her wealth was protected:
1. Set up multi-currency accounts
This seems an obvious action to take, but requires financial expertise to execute correctly. Our client was spending in US dollars, UK pounds and Euros, so this first step was essential.
2. Provide a mortgage
Yes, even millionaire celebrities have mortgages! In this case, we set up her mortgage to fund a new multi-million dollar property.
3. Set aside some cash for an emergency fund
This is a fundamental piece of advice for anyone, in any situation (even millionaire pop stars), with 6 months wages being the usual recommended amount to have available at any time. In this case, we put aside a large sum from an upfront royalty deal and deposited it in a high interest earning account for a rainy day (unlikely to happen where she was moving to).
4. Mitigate tax before moving abroad
Before she left the UK, we set up a tax-efficient structure to hold her investment assets, which would shelter them from overseas tax before she moved abroad. Why? Because she was about to become a UK non-resident for tax purposes. Global tax was an important consideration and keeping up with which jurisdictions she should pay tax in and when, was a major issue. We worked with her accountant to remain vigilant about these issues.
5. Agree to meet up quarterly
With such constantly changing circumstances, we agreed to a regular and frequent financial planning meeting no matter what, to ensure that all the existing measures remained appropriate.
A lesson to learn from this case study?
Most may not admit it, but many are probably secretly envious of this lifestyle, which seems so glamorous and pretty care-free, on the face of it. But the wealth of an international pop star is as erratic and unreliable as the industry itself. Our client’s career could have lasted a matter of years or many decades, or been cut short without warning: with no real certainty either way, setting up all the necessary financial plans in a timely fashion was paramount.
Even those with apparently substantial wealth need to have financial protection and a plan.