Celebrities – they’re just like us. Or so the gossip magazines say.
I’ll attest to this much: The rich and famous can have as hard a time protecting their money as everyone else. Just ask Kevin Bacon, erstwhile client of Ponzi-scheme con artist Bernie Madoff.
“Most people, unfortunately, are predisposed to spend more than they have,” said Peter Mainstain, a Los Angeles business manager whose clients include actors and athletes.
“When you’re young and you’re new to money, there are a lot of hands out,” he said. “It’s easy to get caught up in it.”
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Take the case of former Los Angeles Clippers forward Craig Smith, who says he was bilked out of more than $2 million. Smith, 31, told me he knew very little about managing money when he first came into serious coin.
“Growing up in Los Angeles, I didn’t know what a million dollars looked like,” he said. “You hear about all this stuff, but in real life it’s different.”
The 6-foot-7 Smith was raised in Inglewood and was a high school standout. He was drafted by the Minnesota Timberwolves in 2006 and traded to the Clippers in 2009. He joined the Portland Trail Blazers in 2011 and now is a free agent.
Smith’s total income from six years in the National Basketball Association was $9.4 million, according to the website Basketball-Reference.com.
He told me, and he alleges in a pair of lawsuits filed in Los Angeles County Superior Court, that he discovered in 2012 that he had only $85 in an account at City National Bank.
Smith’s lawsuits allege that his then-business manager, Noah Lookofsky, forged Smith’s signature to transfer more than $2 million to his own accounts from Smith’s accounts at City National and U.S. Bank.
Smith is suing the two banks for allegedly failing to notify him of unusual activity involving his accounts. Representatives of both institutions declined to comment.
Smith also is suing Lookofsky. In a brief phone interview, Lookofsky declined to comment on the allegations against him, saying only that “no fraud was committed.” Separately, he is awaiting trial in Iowa on a bad check charge.
Perils of sudden wealth
Coming into big bucks is a problem most people would love to have. But it’s a situation fraught with peril – so much so that psychologists have coined a phrase, “sudden wealth syndrome,” to describe those whose lives are ruined after becoming rich.
Think of all the stories you’ve read about lottery winners who end up destitute.
Athletes and entertainers have it a little different. They’ve worked for their success, after all, and frequently approach sudden wealth with a sense of entitlement.
“Those are the hardest clients to deal with,” said Belva Anakwenze, an L.A. business manager who got her start handling NBA players but now focuses on clients in the TV industry.
“I stopped chasing NBA players because they just don’t care about their finances,” she said. “They don’t ask any questions. They don’t want to know.”
For his part, Smith acknowledged that he was more focused at the outset of his career on enjoying himself than in raising his financial game.
“You’re young,” he said. “You want to show off a little bit.”
Don’t be arrogant
That’s the first mistake a newly rich person can make, Anakwenze said. Rather than strutting your stuff, it’s important from the get-go to take your finances seriously and to understand how your cash is being put to use.
“I also advise segregation of services,” she said. “I’ll be your business manager, but someone else will do your taxes, and someone else will handle your investments. That way there are checks and balances.”
Another rule of thumb: Don’t be foolish.
Bernie Gudvi, a business manager whose clients include pop and rock stars, said it can be tempting for the newly rich to think they’ll hit financial home runs by investing in clubs, restaurants and similarly risky businesses.
“You’re successful at what you do, so you think that makes you smart in other areas,” said Gudvi, who is also based in L.A. “That’s usually not the case.”
Scott Feinstein, another area business manager whose clients include actors and athletes, said one of the biggest challenges he faces is dealing with clients’ restlessness.
“They’re frequently bored and looking for something to do,” he said. “The combination of boredom and money is the root of all evil, as far as I’m concerned.”
By this point, you’re probably thinking, “Well, if I struck it rich, I wouldn’t be a jerk. I’d do it right.”
Rules to remember
The reality, however, is that the rules for one-percenters apply to the other 99 percent as well – meaning these are things you already should be doing:
▪ Be hands-on with your finances. Make sure your money is being put to the best use in financial markets, and revisit your portfolio annually.
▪ Do your homework. If you don’t know the answer to a question, ask someone who does.
▪ Don’t take on more risk than you can handle.
▪ Plan for the future. That means saving a portion of your income.
Each of the business managers I spoke with said the most important task they face is educating clients about responsible cash management. Some clients get it, they said. Others end up broke as soon as the well runs dry.
Smith gets it – at least now.
“This is a business,” he said. “It’s all about longevity.”
The biggest lesson he’s learned?
Smith didn’t hesitate. Pay attention to your money, he said.
“And don’t trust anyone.”
David Lazarus is a personal finance columnist for the Los Angeles Times.