I was driving home from Vancouver International Airport after a brief visit to L.A. when I heard the news: Michael Jackson, the King of Pop, was dead.
I've always been a fan of Mr. Jackson's music. (I'm one of the 104 million people who shelled out for a copy of Thriller way back when.) As an adviser to the wealthy, however, I've been more interested in Mr. Jackson's personal finances - if only as a cautionary tale.
Mr. Jackson was wildly successful with his music; with his money, much less so. Not that he didn't have the opportunity. Over the course of his career, Mr. Jackson earned an estimated $300-million in royalties. His concert tours brought in millions more.
Mr. Jackson also proved himself a shrewd investor. In 1985, he outbid former Beatle Paul McCartney for British music licensor ATV, picking up the company's back catalogue of famous songs for $47.5-million (U.S.), including most of the songs written by the Beatles. The company is worth almost $1-billion today, although Mr. Jackson sold off the majority of his stake.
At the time of his death, however, his personal finances were in chaos. Wildly impulsive spending, a series of financially crippling lawsuits, and a string of poor business decisions had all taken their toll on Mr. Jackson's finances. His famous altruism, while certainly deserving of praise and admiration, probably didn't help (he is reported to have given away up to $500-million to numerous charities over the course of his life). In fact, associates say one of the primary motivations for Mr. Jackson's planned comeback tour was to pay down an estimated $400-million in debt.
How did this happen? And more importantly, what lessons can high-net-worth individuals take from Mr. Jackson's sad experience?
Spend within your means Mr. Jackson led a lavish lifestyle, spending an estimated $20-million to $30-million more than he made every year. This is a recipe for financial disaster, no matter how wealthy you are.
Don't let emotion get in the way Mr. Jackson developed an intensely emotional attachment to assets of questionable value (example: his Neverland Ranch in California). He held on to these to the detriment of his overall financial health.
Keep your estate in order Mr. Jackson's estate is a complicated mess of assets and liabilities that will take months, probably years, to untangle. This is no legacy to leave behind to your family.
Hire good help, and stick with it Mr. Jackson worked with literally dozens of advisers, hiring and firing them in quick succession. The result: a financial mess of the highest order.
It's this last point that is the key to understanding Mr. Jackson's financial problems.
In the years preceding his death, Mr. Jackson's home was a revolving door of wealth advisers, portfolio managers, attorneys and business associates of all stripes. Even if these people were outstanding professionals (and there is considerable debate on that point), the lack of continuity and flood of widely different opinions, strategies and points of view virtually ensured financial chaos.
To some extent, I sympathize with the advisers. It's not easy speaking the hard financial truth to a wealthy, strong-willed client. It's even more difficult if your livelihood depends on keeping that client happy - you don't want to be the bearer of bad news. Yet this is exactly what wealth advisers need to do at times if they wish to serve their clients well.
I remember attending a Legacy dinner at the Business Families Centre at the Sauder School of Business at the University of British Columbia back in 2006. Phil Lind, vice-chairman of Rogers Communications, was speaking about his experience working with Ted Rogers, the late entrepreneur who was famously tough and demanding.
Mr. Lind was asked how he could give advice to such a strong-willed individual. His response was simple: "Always give advice on what you think is right, not what you think he wants to hear."
When you are asked for advice, he said, imagine you have a million dollars cash in your pocket. Grab it. It makes you feel more confident, doesn't it? Now you can speak the truth, knowing your livelihood isn't threatened should you say something your boss (or your client) takes exception to.
In my experience, most high-net-worth individuals appreciate the value of honest, open dialogue with their wealth advisers. What they want from the professionals they work with is an independent, objective voice that can give them both the good and the bad news. When an adviser gives them "tough love" in an effort to improve their finances, most respond with gratitude, not disregard.
I cannot overstate the importance of forthright, candid communication in the adviser-client relationship, particularly when working with high-net-worth individuals. Get this one right, and everything else falls into place. Get it wrong, and it rarely ends well.
As I read the reports chronicling Mr. Jackson's troubled life and finances, I can't help but wonder how things might have been different if he had found someone strong enough to tell him the truth about his financial situation.
And if Mr. Jackson himself had been willing to listen.
Thane Stenner is founder of within GMP Private Client L.P., as well as Managing Director, Private Client. He is also bestselling author of ´True Wealth: an expert guide for high-net-worth individuals (and their advisors). He can be reached at firstname.lastname@example.org. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of GMP Private Client L.P. or its affiliates.Report Typo/Error