Valleau doesn't use a set number of months to calculate an adequate savings cushion. He just wants one big enough "so they can ride out the gaps and not worry about the money and where it's going to come from."
His clients "can accomplish their goals by finding that disciplined approach," Valleau adds. "At the end of the year, they have a chunk of money. Maybe you make a retirement contribution and put the rest in savings."
Sometimes an advisor's biggest challenge is managing clients who have so much money that they can be a danger to themselves. C. Richard Hearn, president of Starcare, a financial advisory firm in Newport Beach, Calif., worked for years with professional athletes and coaches. He still works with a few, although most of his clients are now disabled people supported by injury settlements. Both types of clients pose the same challenge: people who are grappling with sudden wealth and "may not know what to do with it," Hearn says.
The average time someone stays in the major leagues is five years, Hearn says. Unfortunately, that's the same amount of time that most athletes' money lasts. Few clients recognize the danger until it's too late, however. "They've never seen that much money, so they can't imagine it ever runs out," he says.
And not everyone is a superstar. Peyton Manning might be making $15 million or more yearly, but the Broncos' kicker isn't making that. "You get all these people who can't afford to live like the big stars and yet they try to live that way," Hearn says. "First thing, they go and buy a big house - and then get traded from Oakland to Miami [so] they end up with two houses.
"You're from Arkansas, so mama's got to have a house, because she gave up everything," Hearn says. "Then the posses start forming, all the hangers on - people that hang around you because you're famous and you end up picking up the tabs. And the tabs get bigger and bigger." Inevitably, there will be a dad or cousin who thinks he knows a whole lot about investing. "If that person gets involved, the money can disappear faster."
Hearn enlists the help of players' wives, often making them the financial gatekeepers. He makes sure the athletes get disability insurance. And he uses the most conservative liquid investments.
He also creates an emergency plan. "They can get let go tomorrow," Hearn says. "I want a bunch of money in a short-term Treasury or muni bond fund. Something very liquid and very safe with low volatility." In those, the clients sock away a year or two of living expenses.
He says his job was often reminding the athletes of those obligations. "You have to make that case early and often. Nobody needs to go through money like General Sherman through Georgia," Hearn says. He asks his athletes and their wives to check in every week, but can't compel them. "There's not a way to keep someone from screwing up."
SOCK AWAY MONEY
The dominant message for all such clients is to "sock away a lot of money," says Winnie Sun, managing director of Sun Group Wealth, an independent agency in Irvine, Calif.
Many of Sun's clients work in the press, movies and television. "I consider a lot of these people business owners," says Sun, who entered financial planning after years of running her own company, wrangling audiences for live TV shows. "They go from project to project. It's really hard to plan how much they will bring in with how much they are spending." Sun says she helps her clients sock away six to nine months of savings. She tells them, "It doesn't matter how good you are. You can be the director of Shrek. You still need liquidity between projects."
Next, they must control their spending. Sun says her clients "are used to being flown to Europe. They say they need a tuxedo." Sun tells them to "spend like this is the year of your last paycheck." Trim every place you can, she says. Looking at their accounts, she'll offer stern advice: Consider your professional costs, such as your agent's cut. Then reconsider the niceties and "get rid of doggie daycare."
She insists they save for their children's education and invest for their own future. But there are few long-term solutions if the clients don't save now, Sun says.
Education can go a long way in keeping clients focused on the right priorities. Steven Cobb, the musician's father who lives in Arizona, says he's looking forward to training more artists about the importance of Schedule C forms, liability and health insurance, 401(k)s and IRAs through an online course this fall.