Investing multimillion-dollar accounts for a client that you meet for 15 minutes — if ever — would seem improbable to most advisors, but is not a rare occurrence for Lee Rawiszer.
The principal of Westport, Connecticut-based Paradigm Financial Partners, a 30-year veteran advisor, has developed a niche over the past five to six years catering to entertainment, television, sports and music industry clients, including “some very big household names,” he tells ThinkAdvisor in a phone interview.
Rawiszer’s unique clientele developed with a single engagement that pleased the client’s career manager, causing a “ripple effect” of referrals from a network of about a dozen business managers who pay the bills of mainly L.A.-, New York- and Atlanta-based athletes and entertainers.
It is the entertainers’ complete trust in their business managers — the key relationship managers and referral source — that make it possible, indeed likely, that Rawiszer’s client meetings peter out after just minutes.
“The business mangers tell me to keep it simple, to describe [the investment plan] in layman’s terms,” Rawiszer says. “Some of them don’t have the patience; they sit in the room for 15 to 20 minutes and say ‘I trust you guys; whatever you decide I’m fine with it.’”
But those are the relatively engaged cohort who will even show up to a meeting; about half never even set foot in the door, says Rawiszer, who notes that as much as he recommends in-person meetings, the subject matter may go over the head of a 20-year-old kid from a background lacking financial sophistication.
And therein lies the unique challenge of many celebrity clients, who, at a young age, and often after growing up in poverty, may quite suddenly command an annual income of over $5 million — the average NBA salary, for example.
“When they’re riding high, they never envision that this can end,” Rawiszer says. “Their picture of financial reality gets distorted at that moment because they reach an apex of fame.”
The rather shocking reality they don’t grasp is that “over 70% NBA ballplayers file for bankruptcy 2-3 years after retirement,” Rawiszer says, citing bad marriages, divorces, back taxes and “schemers who put them into bad investments.”
The NFP Advisor Services-affiliated independent, with over $900 million in assets under management, says even the cautionary tales often fail to reach the minds of the young superstars who parlay their sudden wealth into “wild spending sprees.”
Their business managers — whom Rawiszer describes as genuinely caring — ask them: “Do you really need that Lamborghini? You already have 15 cars; do you really need another one?”
It is precisely because these managers are so intimately familiar with the crash and burn scenarios of their celebrity clients that they hew to the appeal of Rawiszer’s investment pitch, which centers on what he terms “irreplaceable capital.”
The idea is simply to acknowledge the on-average quite short careers of these celebrity clients and create a plan that will provide income that can maintain a high living standard for their lifetimes and for their heirs after their period of “extreme earning” is over.
“We prepare our clients for life after sports,” he says.
Rawiszer cites the anomalous example of Paul McCartney, who sold out Yankee Stadium when he was in his late 60s, compared to a one-hit wonder like Vanilla Ice; or Derek Jeter, who played shortstop for the New York Yankees for 20 years, nearly four times the longevity of the average player in that position.
Because the athlete or entertainer will typically significantly outearn in his three- to five-year stint what an ordinary professional will earn in his 35-year career, there is a basis on which to fuel a sound long-term investment portfolio, as long as the star doesn’t blow his opportunity.
“Looking at their assets — you have this finite window,” says Rawiszer, who says his focus is on capital preservation.
“Yes, you have to grow it — I don’t want it sitting in cash — but you really want to create a financial cocoon. You will have financial security for the rest of your life if it’s done right,” he says.
“In their prime working years, we’re looking to preserve yet grow their assets” through municipal bonds and high-dividend stocks such as AT&T and Philip Morris. “We reinvest the dividends and income,” since the client’s current cash flow is more than adequate for present needs, he adds.
“We don’t have to swing for the fences and hit home runs if we can hit singles and doubles and grow capital,” the athletes’ advisor says.
In addition to stocks and bonds, Rawiszer carves out ample room for alternative investments, particularly oil and gas, floating-rate bank loans tied to LIBOR which rise in rising rate environment, and global credit opportunities such as recovering European bank loans.
When the celebrity’s career cycle begins to wane, the advisor transitions from a growth portfolio to an income portfolio he can live on.
“The goal is, whenever possible, not to invade principal,” he says.
Alas, however, the necessity of invading principal is par for the course for those unable to resist the temptations of their great wealth, and Rawiszer has needed to create a “liquidation strategy” on a number of occasions.
In that situation, the advisor endeavors to find the most tax-efficient way possible to liquidate assets and then to restore a damaged portfolio if possible.
But the flame-outs can be sudden and quick.
“The business manager tries to reach the client, to get them to think about this rationally. They really have the dialogue with the athlete or entertainer more than I do as the financial advisor. You try to have a financial intervention, but there’s only so much you can do in that situation,” Rawiszer laments.
On a more upbeat note, or perhaps upbeat hope, Rawiszer has been doing research on purchasing a sports franchise, a subject that has garnered headlines recently after Microsoft’s Steve Ballmer purchased the L.A. Clippers from Donald Sterling.
Because many of his clients are prone to extravagant purchases, Rawiszer is preparing for the conversation.
The advisor to athletes puts the purchase of a sports franchise in the category of “passionate investment” appealing to the heart as much as the head, in the same way oenophiles might purchase a wine vineyard.
Such an investment is high-risk, he says, “but you can make money,” citing Frank McCourt’s divorce-induced sale of the L.A. Dodgers for $2 billion after his $400 million purchase.
Even a gem like the New York Yankees, which is profitable most years, will have years like 2006 where the team lost some $25 million, in part because of its expensive acquisition of talent.
But the opportunities to exploit such an investment — through sports television programming, stadium naming rights and the like — can pay off, he says, if you buy the right team and hold it at least 10 years.
As an example, Rawiszer says the Tribune Co. bought the Chicago Cubs for $20 million in 1981 and the team is currently valued at over $1 billion, implying an impressive long-term annualized return of 15%.
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