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Should Artists Go Solo With Their Money?

Kendrick Lamar and Janelle Monae
Kendrick Lamar with Janelle Monae in 2016. Photo courtesy the White House.

Kendrick Lamar’s new album, “DAMN.,” has vaulted him solidly onto many critics’ lists of top 10, or even top five rappers of all time. Its April release represented the biggest album debut of 2017 to that point.

I am a big fan of Lamar’s work but, as a financial adviser, I have to face the fact that he evidently admires mine much less.

In the track “FEAR.,” Lamar gets specific about his wariness of those in my profession:

What is an advisor? Somebody that’s holdin’ my checks
Just to f--- me over and put my finances in debt?
I read a case about Rihanna’s accountant and wondered
How did the Bad Girl feel when she looked at them numbers?

The case in question made headlines in 2012 when Rihanna sued her former accountants, whom she had fired two years prior. The lawsuit alleged that they had engaged in bad bookkeeping, charged “exorbitant” commissions and failed to offer sound financial advice, which led to massive losses during her “Last Girl on Earth” tour in spite of strong revenue. Rihanna also accused the accountants of negligence in preparing her tax returns, leading to penalties when she was subsequently audited by the Internal Revenue Service. That suit was settled in 2014. Rihanna had the last word, though, at least in the court of public opinion; her popular single “Bitch Better Have My Money” was widely understood to be a direct response to the years-long legal fight.

Incidentally, 2014 was the same year that Lamar spoke to Complex about his fame and the wealth that goes with it. In the now well-known interview, he voiced many of the concerns that would later turn up in “FEAR.” Lamar mentioned his reluctance to indulge himself in conspicuous consumption and revealed a focus on the financial long term. “If my music were to stop today, how would I make this stretch for the rest of my life?” he said. “My kid’s lifetime? Hopefully my grandkids. If I stopped today, how would I do that?”

As I wrote at the time, Lamar’s financial prudence is a welcome departure from what Complex called “the rapper starter kit” – artists immediately spending newfound wealth on huge mansions, expensive watches and jewelry, or luxury cars for themselves and loved ones. Instead, Lamar purchased a relatively modest four-bedroom home and talked about relieving stress by taking time to sit in silence or play music rather than drinking and attending lavish parties.

Lamar was 27 years old in 2014, a year he directly mentions earlier in the lyrics to “FEAR.” He describes how success did not ease the fear he would wind up back in poverty:

At 27, my biggest fear was losin’ it all
Scared to spend money, had me sleepin’ from hall to hall
Scared to go back to Section 8 with my mama stressin’
30 shows a month and I still won't buy me no Lexus

Lamar has demonstrated responsibility, and arguably even an overly cautious attitude toward his wealth. So it is hardly surprising that a story like Rihanna’s would leave him distrustful toward financial professionals. For what it’s worth, Rihanna is hardly destitute these days; Forbes estimated her earnings for 2016 at around $75 million, suggesting she’s recovered financially.

Unfortunately, just as there are bad doctors, lawyers and teachers in the world, there are financial professionals who are unethical or incompetent. When a celebrity encounters one, the results can make for memorable headlines. My colleague Paul Jacobs wrote about NBA star Kevin Durant’s lawsuit, later dropped, against his accountant, whose error may or may not have been an honest mistake. Such stories are outliers, but they are more memorable than the many unremarkable cases where financial advisers quietly do their work well and serve as invaluable members of an artist’s team.

Lamar may have decided to manage his own financial affairs, though this is merely conjecture on my part. If he has, it seems likely he has the temperament to do so responsibly. But I am concerned that artists who have achieved Lamar’s level of success, or those aspiring to get to his level, especially within hip hop, will take his lyrics as gospel. They may avoid hiring a capable financial adviser or business manager, and instead either go it alone or put their financial well-being in the hands of a family member or friend with no financial management knowledge or experience. Unfortunately, this increases the likelihood that those artists find themselves in financial ruin, the very fate they wished to avoid.

Not taking professional advice can prove costly for artists. Artists who tour nationally – and sometimes internationally – face a dauntingly complex tax landscape, not to mention the intricacies of intellectual property and royalty tracking. It’s hardly surprising that so many high-profile stars of the music industry have run up against the IRS, facing stiff penalties and interest charges for not paying income taxes. Jermaine Dupri was assessed a $3 million tax lien for failing to pay Uncle Sam, and more recently Nelly faced a $2.4 million lien, along with smaller tax troubles with the state of Missouri. Fat Joe served four months in federal prison for tax evasion in 2013 and was hit with a tax lien last year for over $1.1 million in back taxes. And Lil’ Wayne reportedly owes more than $12 million in back taxes to the IRS for tax years 2011 and 2012, after having paid close to $8 million in back taxes for 2007 in 2012.

Yes, there are bad advisers who take advantage of their clients, in entertainment and elsewhere. But there are far more advisers who take their job as fiduciaries seriously by putting their clients’ interest first. Artists shouldn’t let the fear of “losin’ it all” keep them from getting the advice they need to reach their financial goals. Instead, they can take concrete steps to make sure their advisers are people they can trust.

First, look for credentials that represent a rigorous certification process and high professional ethical standards. A Certified Financial Planner™ is overseen by the CFP Board, and an Enrolled Agent is certified by the IRS. If you don’t know what a certain certification means, find out. Many agencies, including the CFP Board, will also disclose whether a professional has any recent disciplinary history or violations by conducting a quick search on their websites.

As with any professional you hire, it is a good idea to request references before agreeing to work with an adviser. In addition, research the individual on your own. Are any current or former clients discussing the adviser online? A negative review may not be a deal breaker, but it could be a red flag.

Once you decide to work with an adviser, there are still a variety of ways to safeguard yourself. All artists could benefit from learning or refreshing themselves on financial basics. Many Americans do not get this background in school, but luckily there are many online and print resources for those who want to get a grounding in financial concepts. A good adviser educates his or her clients, encourages questions and is happy to talk about anything a client doesn’t understand. Also, advisers’ fees should be clearly defined in the engagement letter that you sign with them, so that you can determine whether you are being overcharged once you begin receiving invoices.

You should also work closely with your adviser to establish a realistic budget that reflects your goals and priorities. A budget you cannot adhere to is worthless, so it is crucial that you and your adviser communicate honestly about the plan. If it’s feasible, you may wish to retain check-writing and bill payment authority; if you decide to delegate that authority, at a minimum, you may wish to set up bank alerts that you receive by text or email for large withdrawals from your bank and brokerage accounts.

Artists who wish to stay very hands-on may gain peace of mind by reconciling monthly account statements to make sure what’s coming in and going out match what they expect. Many artists might say this is the very reason they hired an accountant or a business manager – to avoid such work. Yet leaving everything in one person’s hands opens artists to potential malfeasance from those same accountants or managers. A sound compromise for those without the time or background to review statements personally is to hire an independent CPA firm to review financial statements and reconcile accounts. Yes, this is an added expense, but it also provides peace of mind for artists, like Lamar, who take stories such as Rihanna’s as cautionary tales. In fact, Palisades Hudson frequently recommends this strategy to fiduciaries and trust beneficiaries when we manage their money or serve as trustee. An honest financial manager has nothing to hide and will be happy to adhere to any system that provides clients the assurance of an independent review.

I laud Lamar’s artistic skill, as well as his prudent commitment to a sound financial future. I hope that he, and other artists like him, seek out competent and ethical advisers to assist them with their financial affairs.

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