Coaching clients on lifestyles as well as finances
Less than a year after hanging out a new shingle, Scott Highmark can already lay claim to about $500 million in assets under management at Mosaic Family Wealth.
The money comes from clients that he and his partner, Larry Shikles, worked with at Morgan Stanley before they left in February.
“Our legacy business was not subject to any non-compete clauses,” Highmark says. “We were able to take many, if not all, of our clients.”
Their fast break was part of a long-term game plan, says Highmark, a former college basketball star.
He and Shikles, a former professional baseball player, had wanted to manage their own team for years.
Operating under the aegis of a brokerage was too constraining, they believed, limiting the investment recommendations, the research and the choice of custodians that they could offer their clients.
A NEW RIA
The pair drew up a strategy, spent a few years saving seed money and launched a registered investment advisory the day after they left Morgan Stanley. The rest of their team, including former college soccer star Missy Brown and former sports agent Jim Steiner came with them.
Their lineup might lead one to believe that Mosaic Family Wealth is targeting a sports-planning niche, but that is only partly true.
Highmark’s typical client has between $5 million and $25 million in liquid assets. Although about 10% to 15% of these clients are athletes, coaches and sports executives, the greater number are either high-end corporate executives or entrepreneurs.
Each group has its own unique planning needs.
The challenge that athletes face is the sudden and often fleeting nature of their riches.
The dozen or so sports stars that Mosaic Family Wealth represents are mostly young males between the 20 and 30. They are earning millions of dollars a year, but their careers are typically short-lived.
“You may be playing for six or 10 years, but that’s it,” Highmark says. “The money you earn in those years has to last a lifetime.”
Many professional athletes, however, come from modest backgrounds. Not only are they tempted to spend like there is no tomorrow, they often want to lavish their wealth on less fortunate friends and family members as well.
That is to be expected and, to some extent, appreciated, Highmark says.
But without restraints, even a highly successful athlete can wind up destitute, despite earning tens of millions of dollars during his career.
“We have turned some athletes away because they weren’t willing to talk about the “B word” — the budget,” Highmark says.
“If they aren’t willing to let us teach them — coach them — we will gracefully bow out. We don’t want to be on watch when somebody blows themselves up,” Highmark says.
“That’s not fun,” he says. “Besides, if they don’t want to be helped, they don’t need us.”
To be sure, Highmark says that it is fine to factor in some luxuries and provide economic help to friends and family members, particularly in the first year of an athlete’s contract. Beyond that, it is all about living well below their means.
With Mosaic Family Wealth’s entrepreneur and wealthy executive clients, the issues are different.
After leaving or selling their original businesses, these businesspeople often want second careers, Highmark says.
Sometimes the next steps are obvious, but other times, they need coaching.
A LIFE OF SIGNIFICANCE
Yet the starting point is always the same: Consider what it would take to feel as if you are living a life of significance.
“You have a lot of money. Now what? How do you make your life meaningful in light of the wealth you have accumulated?” Highmark asks them. “How do you share; how do you interact; how are your relationships affected? What do you want your legacy to be?”
The answers are different for every client, Highmark says.
For some, these conversations have led them to finance other businesses, serve on corporate boards or mentor other entrepreneurs
Others have set up family foundations that finance charitable pursuits that fit the family’s mission.
An even bigger problem that these clients face is that they have created so much wealth that they not only don’t have to continue working but their children and possibly their grandchildren could live on their legacy, too. But that, of course, could ruin the kids.
WAKING UP ON THIRD BASE
“When you wake up on third base and you didn’t have to hit the triple, it takes away some of the struggle and character building that made the first generation very successful,” Highmark says. “To instill the family values, work ethic and integrity in the second and third generation is a big challenge.”
Communication is the key. Families that are clear about what they are trying to accomplish for themselves and the world at large and who convey that mission to their children will likely be most successful at shaping the values of the younger generation.
Highmark suggests that such families hold annual “summit” meetings, where the parents gather their kids together, talk about how much money they have what their goals are and how they intend to achieve those goals.
Discussing what has changed from year to year and what hasn’t can give the kids a lesson in both the risks and rewards of investing, as well as family priorities.
SPELLING OUT TERMS
Those conversations should help the kids and grandkids understand what financial help mom and dad will offer and what they won’t. They should also spell out what will happen when the parents are gone, so that the kids aren’t forced to guess about the parents’ motives when reading the will.
“They might say, ‘If you get a college degree, you’ll get this pile of cash; if you get a professional degree, you’ll get this; if you start a business, we’ll give you this,’” Highmark says. “You make them earn things.”
Does withholding money from a child who is not meeting the family’s standards cause acrimony?
Sure, Highmark says.
At the same time, “if the patriarch and matriarch explain to the child that they love him — that in fact they love so much that they’re not going to harm him by just giving him money — it can help,” he says. “The child may not understand when he’s 18, but hopefully he’ll get it when he’s 30 or 40.”
In that respect, this younger generation has something in common with Highmark’s athlete clients. Although the former come from money and the latter usually don’t, both groups have to come to terms with what it means to manage wealth and how those decisions can shape their futures.
Kathy Kristof, a Financial Planning contributing writer in Los Angeles, also contributes to Kiplinger’s and CBS MoneyWatch. Follow her on Twitter at @kathykristof
This story is part of a 30-day series on how to prosper as an advisor. It was originally published on July 30, 2015.