Senior Wealth Manager Rick Morse Talks Music, Money & Your Future

Welcome to Music Matters podcast with Darrell Craig Harris talking about all things music with celebrities, artists, music business insiders and more. Rick Morris, how are you doing today? I'm doing well. Thanks. Nice to be here. Thank you for having me. Yeah, I'm excited to talk to you. You're coming to us from... Are you in upstate New York or what part of New York are you in? No, I'm on Long Island in Melville, New York. Oh, okay. Long Island, yeah. So you're kind of very close to the city. Right. Closer to the city than the Hamphons, about an hour from the city, two hours from the Hamphons. Awesome. So, yeah, so you have an interesting background. You're a Senior Vice President, Wealth Manager, Management Advisor. I'll let you explain who you actually work with. I know you have your own group. These days, you're doing general financial planning for CEOs, nonprofits, high net worth individuals as they would say. But you also work a lot with musicians, entertainers, planning out strategies to deal with money, to do long-term plans. Talk a little bit about your background and how you got into also working with musicians and that kind of thing. So I started professionally as an accountant, hated it, but I didn't know what else to major in in college. But I always had an interest in music. I was never any good at performing or playing an instrument. More recently, I did start taking up piano lessons. But growing up, my dad was a magazine publisher and so was my uncle and my cousin. I put our names in one of the magazines as the music editors and we solicited to do reviews of albums from the record companies. And again, this was back many years. So it was before the advent of CDs and probably even a little bit before cassette tapes. And they would send us demo albums. And we amassed a pretty sizable collection and we would write reviews. I don't know if anyone actually read them. But we would write reviews, which we had to send to the record companies and they continued to send us albums. And so that started the interest in music. My brother is eight years older than I am. I was listening to his records when he was a teenager, mostly Motown and Soul Music. And I still like that today. My taste evolved more around classic rock, but still had folk rock. But still like Motown, a great deal. I went to see the Temptations when I was about 14. One of their shows in Hollywood, Florida. I got to meet Barry Gordy at the Kennedy Center Honors the year he was honored. And it was great chatting with him. I think he was surprised at my knowledge of Motown. Even before the movies had come out that explained his version of it. I brought up Holland Dozier and Allen. That didn't go over too well. But certainly they were great writers, which he did acknowledge. And then somewhere along the line for accounting, I ended up in the software business. The accounting firm I worked at did a lot of healthcare. They started a software company for healthcare. We ended up taking that private from the accounting firm. It did very well. We sold the business. And I had two friends that said, you should really be a financial advisor. I always had an interest in investing. And that's how I came to what was Ben Smith Barney and ultimately made my way to Merrill Lynch. And I've been here or been a financial advisor for 31 years at Merrill Lynch for 10 of those years. Yeah, that's amazing. And Merrill Lynch, of course, is one of the main large companies in that world. Of course, everybody's familiar with the name. To jump into the music conversation and finances. We've all heard a lot of horror stories about musicians and people that kind of got, I guess, ripped off would be the term. But that's one aspect of it. But then the other aspect of it is long-term financial planning. So when you are being really successful down the road when that maybe cools down, you do have some kind of a retirement. What are some of the most common mistakes that you see, not only with creatives and musicians, but with just people in general about developing an investment plan and financial security? So one of those is a lifestyle creep. People all of a sudden start making a fair amount of money and they didn't have that before. So now they want the trappings of wealth and that costs money. They get used to a lifestyle. And then years later, maybe they're not as successful as they once were. And they didn't plan for that day coming. They thought they would be successful forever. And so that's one problem. The other one has to do with taxes. That I'm a W-2 employee. My taxes are withheld from my salary. Maybe I owe a little bit at the end of the year. Maybe I get a little bit back. But musicians, entertainers, oftentimes they're paid on a per-project basis or per-concert or for recording and they own their own business, their own production company. So the money comes in pre-tax and the money gets spent. And all of a sudden the IRS comes a calling and you have no choice but to come up with the money and people end up bankrupt. The interest in penalties that could be amassed from all in the IRS is enormous. So we always make sure, one, to try and do investing in the most tax-efficient way as possible, but also make sure that money is being set aside to cover the tax bill. Yeah, because people, that's the thing there. Like you mentioned, sort of lifestyle creep. And that's true for everybody. Maybe you become successful, maybe raking good money and you start buying a bigger house, a nicer car. But that money may not always be there at that level. And ultimately down the road too, in thinking in terms of retirement, most people, if you come to even things like social security, most people cannot survive on social security. These not at all. Yeah, for sure. So when you get a new client, what's your first attack plan? How do you deal with them? Do you kind of go through their financials and see where they're at or how does that work? Right. So we sit down with the client to develop a plan, but there's a lot of discovery that's done first. And discovery is what are your current expenses? What does it cost Darryl to be Darryl? What's your annual layout? From there, are there any goals, aspirational goals perhaps that need to be taken care of? Do you have parents that are going to need help? Do you have children that are going to need help? Are there health issues that need to be addressed financially down the road? So that's part of it is looking at what's the need. And a little bit about what the want. One of the things we try and focus on is separating needs from wants. And then we look at the resources. And the resources may be down the road, social security, but what have you sucked away so far? What's in the bank? And then we come up with a number that says how much do you need to put away each year in order to achieve the goal that you want to achieve within reason. Right? You can't have someone's making 250,000 a year. We can all of a sudden say they're going to live a lifestyle that we're spending a million dollars a year unless they win the lottery or they have that huge mega hit or mega album that puts them in the rocker roll hall of fame or something along those lines. Right. And even then, you're still, like you mentioned, with the life expenses and taxes and all that kind of stuff. And you can get overwhelming quickly. And oftentimes, those people are so busy that they rely on people like you to sort things out. And they have somebody who knows what they're doing because we often hear stories about people that they hire somebody, the person is maybe taking their money or spending it in not the best way. Have you dealt with that in your career where you had to come in and clean up somebody else's mess? Is that a common thing or? So it hasn't been common for me. It happened once that we had. And it wasn't terrible. I mean, the client wasn't happy. Don't get me wrong. And in the scheme of things, it really wasn't that bad. They had a bookkeeper who was paying her American Express bill. She would write out checks to American Express. The owner thought that it was going to pay the company's American Express bill. It was going to pay the bookkeeper's American Express bill. So they never got the money back in the scheme of their net worth. It was just an annoyance. We were able to make it work. But thankfully, we keep an eye on things. Nothing goes out from Merrill Lynch, at least, that is not accounted for and is not documented. So dealing with musicians and how they get paid, as you mentioned, because oftentimes creatives, not only musicians, but creatives in general, have multiple sources of income. Have you found that doing an LLC, which is basically a limited liability corporation building, having your own business, is that a good idea? And is that a good way to protect your assets personally? Yes. I'll leave that to the accountants, as opposed to my job, because I don't practice accounting doing what I do. Typically, SNL LLC is created oftentimes for liability purposes. So somebody gets hurt. It's not, there's no personal liability. And there are advantages to doing that. One of the things that entertainers need to be careful about is that they're going to be taxed in multiple states, depending on where they performed. So if you're based in New York and you perform in Florida, well, Florida's not going to take anything that would have state income tax. If you live in Florida, though, and you perform in New York, New York's going to want their share of revenue from the event that you did in New York. Same thing for athletes, too. There's an accounting method called a games play method, but it works similarly for entertainers as well. Yeah. I actually worked with Jennifer Lopez and we did rehearsals in LA for two months. And that was something that I had not thought about, that all of a sudden you're going to get hit with a state tax bill. Right. So again, these are the things that can trip people up. So having good accountants that are familiar with the entertainment industry, good financial advisors that are familiar with the entertainment industry, that goes a long way to making sure the person is covered. And so we'll look at their tax statements each year to see what their expenses have been, what their net income has been. And we want to make sure that there's a certain amount of liquidity that's set aside in the portfolio to meet those things. So we don't have to incur penalties or taking money from an investment that you need it to be liquid. And that's how we do things. We create, I'll call it buckets, short-term buckets, medium-term buckets, long-term buckets of investments, long-term maybe to fund if there are children involved, their education down the road or your retirement. A short-term bucket maybe to buy the new house, or maybe that's a medium-term bucket. And the short-term bucket is, okay, this is the liquid money that we need to come up with the tax bill. You know, we had a client recently that sold the business for a fair amount of money and they sold it in June. The taxes were due on April 15th of the following year. We made sure that the money was set aside to come due on April 14th. Hey, the IRS the day early. We were talking about quite a bit of money and we're able to earn some decent interest on it. Yeah, you want to earn the interest, not the IRS. You don't want to give it to the IRS. Exactly. So when dealing with setting up a plan, a financial plan in terms of investing for the future, what's the first order of business? Obviously, you explained to them some options, but what are some of the best options getting started? Well, the first thing is coming up with a risk profile for the client. How much risk are they willing to take? We show them how much they may need to take. Again, we're looking at their resources. We're looking at their needs. And what type of rate of return do you need to meet those needs? If you could do it for a lower risk profile, some people are happy with that. Some people say, well, no, if I could do better, I'm willing to take a certain amount of risk because there is volatility in investing. But we look at time horizons too. If someone is 28, the time horizon is a lot longer for their retirement funds about when they're going to actually start taking it as opposed to someone who's in their 70s. Time horizon is different. Their needs are different. Their liquidity needs are different. So we look at all those factors go in. So there is no one magic bullet that says, here's the first thing you're going to do. But once we create the financial plan, then we look at the various investment options that are available to meet those goals. And how does that work in terms of working with the financial advisor? What's the system for how they get paid? Because I know that's going to be a question a lot of people would have is like, well, am I giving them a percentage of what I'm doing or how does that work? Right. So more and more these days, it's based on a percentage of the account value, the assets that are being managed by the advisor. Now that doesn't include idle money. So if there's money sitting in cash for cash needs, that feed does not, it's not charged that pool of money. It's only charged on the pool for the actual investments themselves. And that's a better way to do things than it used to be. You don't have to worry that someone's calling up to say, hey, let's sell this, we're going to buy this, and they're going to generate commissions because I have college tuition to pay for or whatever you are after wedding to make. It's all done as some of the commercials will show. We do better when you do better. And not that I want to make a play for anybody else's commercial, but we've been doing that since I got started in this business in 1993. That's really how the method that I adopted and even the office I was in at Smith Barney, that's how they were encouraging us to work. Client's winning and you're winning and it's just a good system, I think. What are your thoughts on, because we hear a lot about online investing these days and there's a lot of, obviously there's controversy about crypto, there's controversy about different things. Also you have companies like Schwab that have online. I don't know if Merrill Lynch has that or not. Kind of give me an overview of your thoughts on those areas. It really depends on the client. So someone who's focused on doing things online is really not a client for us. They're not looking for advice, they're looking to do it themselves. And that's fine. There are people out there that are capable of doing it. Most of our clients though, or all of our clients really, are successful in what they do and it's not that much of an interest to them or they do better if they focus on earning the money through their business, whether it's medical practice, law practice, consumer goods business, whether they're a musician, the more concerts they do or the more albums they sell, the more money they're going to make. Investing themselves takes them away from their creativity doing that. So for myself as well, I'd sooner come into the office on a Saturday than spend a day mulling the lawn. Okay. I'm better off doing this. It'll allow me to afford to pay someone else. And I'm not very good at gardening. So yet there are some people who absolutely love it. Yeah. Do you find that, I guess not only musicians, but just people in general, they get intimidated by money and dealing with money? Some do. Absolutely. I wouldn't say, I can't believe I'm making this much money. I never thought in my wildest dreams that that would happen. We have somewhere the parents or the father in this particular case did not come from money, grew a business that was usually successful and the kids kind of grew up with it, but the parents were very careful not to overindulge the parents. We do run seminars. It's called Bootcamp for children. When I say children, typically people in their 30s, 20s, 30s about what it's like growing up with money and how to be responsible for money. Because now you're going to come into it soon, or maybe not that soon, maybe not as soon as they like. They will come into it and how do they deal with it? And same thing, we run these programs for parents as well about how do you deal with children with significant wealth? We're not the experts in psychology or anything like that, but we do bring people to the table to say these are the things you need to watch out for. We've all seen new stories of wealthy children with various issues. Sometimes you can't help it no matter what they do. But we do offer those type of programs. So everything that we do is not just based on finance. A lot of it is based on behavior. Yeah. And your business can be a generational often. It is a generational business because you're dealing with large portfolios with kids and family. Is that something that you guys deal with? Do you have any kind of training with that? So I did attend the program. It was called the Institute for Preparing Heirs. I did it a long time ago, but it was very valuable. I still have the books from it. And there's so much continuing education that goes on at Merrill that people do take advantage of it. And it's worth, it proves to be worthwhile because you want to make sure that the kids are taken care of when the time comes. You want them to stay with you. But the parents, that's one of their biggest concerns. If there are children involved, that's not always the case. And if there are no children involved, what are they going to do with their wealth at the end of their life? They could leave it to siblings and other family members or cousins. Maybe there's a lot of philanthropy. And we do have a big focus in our practice on philanthropic needs. Yeah, you actually work with a lot of nonprofits as well. Yes. Talk a little bit about that and how people, if they want to do donations to nonprofits, what are some ethical really good practices to pay attention to? One of the things you want to look at is, and there are guidebooks out there. There are various websites that'll show you how much of the money that the organization raises is actually being used for the purpose of the organization as opposed to going to administrative expenses. That's been a scandal on occasion. Are you giving to an umbrella organization that then gives money out to other organizations? And that could be beneficial. I'm involved in one of those myself because I think they do a great job at the due diligence. And they do a deep dive. I was actually on the board of one of the organizations that the umbrella organization was looking at to see if they wanted to support them. And I was impressed with their level of due diligence. So one of the reasons I think Warren Buffett had said he wanted to leave his money to the Gates Foundation just because of all the work that they do in the research, he didn't want to do it. And so if it's easy, I'll leave it to the Gates Foundation. They do a great job. And if he agrees with their mission, fine. So you do want to look at what's the mission of the organization that you're supporting. Maybe and people have different focuses. Maybe people want to help with animals. They want to help with children. So you have to kind of, yeah. And it is so tricky because you definitely want the money going to the on the ground, not to the CEO. Some of them run very large organizations with very large staff. And if you want someone good, you're going to have to pay them. Yeah. And that's true as well. Yeah. I don't want to take away from that. He just don't want 80% of the money going to the administrative expenses. So there were, I remember, there was, I don't know if it's a scamble, you call it, but there was a situation where a number of the telemarketing firms that telemarket for various charities, the money does go to the charity, but something like 70% stays with the telemarketing firm. Charities use them. So I reached out to one of the charities just out of curiosity. They said, we would never raise this much money if it wasn't for them. So yes, it's unfortunate that 70% of it goes to them, but that 30% is a huge amount of money for us. In fact, trying to justify it, but I had a problem with 70% of it going to the telemarketing firm. Yeah. Well, let's understand. Of course. Rick, give some advice, if you would, to young folks that they want to, they've never invested before, but they know they want to get into it. What are some just really basic things that they could look at? Okay. First thing is to start now. The power of compounding is huge. If you put away, and I'll just pick a number, $5,000 a year between ages 25 to 35 versus someone who starts at 35 and does $5,000 a year between 35 and 65, they come out the same. One person put away $50,000, one person put away $150,000. They ended up with the same number at 65. So clearly you'll continue on after 35. So the power of compounding is enormous. And that was one of the first things I took. My son, when he had a pretty decent job out of college or even one of his summer jobs, I said, you need to put away, you know, a certain percentage of that every year. And what do you mean? But then I don't have money. I want, you know, you want the immediate gratification. And the best thing to do is set aside that money, pay yourself first, and then live on what's left over. Not live on what you think you need. And then if there's anything left over, invest it. It's got to be the other way around. Yeah. And once you get started, actually, and I found this for myself, once you get started, you don't actually don't miss the money. And you just put, like you mentioned, what you can afford. But even a couple hundred dollars a month or whatever when you're that young can really build into something quite large, right? Right. It's a few drinks. It's a few Starbucks lattes, and it grows. And the best way to do it is to have it coming out of your paycheck. So if you're working for a company and there's a 401k plan or some sort of contributory plan, do that because it's coming out first. You don't see it out of sight, out of mind, and that's a great way to do it. And if you are an independent contractor with your own LLC, let's say, you could still have something set up automatically to take from the bank account and put it in the investment account on a monthly basis. Whether the market's up, down, don't try and time the market. Just keep putting it away. There'll be times you win. There'll be times, you know, you could have done better. But in the end, you're going to accumulate a sizeable mess bed. And you know, we all see like the exciting stockbroker, the New York Stock Exchange and all that, but they're really safe. I use a lot of ETF funds, which are basically really make they track the S&P 500, the top 500 companies in the stock market, and they're generally very safe. That's a great way to basically do it and forget about it. It's just letting it build up. In 22, everything went down. 2008, everything went down. As long as you don't panic and just keep adding, because now everything you're adding, is it a lower price? Exactly. Yeah. And it was so keep at it. Don't wait for it to go back up. This is the only store when things go on sale, some people run out of the store. Exactly. Yeah, that's a really great way to put that. That's what a lot of people don't realize when they talk about the stock market going down. A lot of folks see that actually as a huge opportunity. It's really just a matter of perspective. Tell people how they can reach you, Rick, and if they want to contact you. So you could Google Richard Morse at Merrill Lynch, or you could go on to send me an email. It's fine. It's richard.morse at ml.com. And the phone number is fine too. It's, if that's okay with you, 631-351-5128. I have a team of seven people. I have a name partner, David and I. And then we have two other advisors and three support staff. Awesome. And you're in New York, but you also work with people nationally, I would assume, right? Yes. We travel periodically to meet clients in California and Florida, wherever they may be. One of Jacob's going out to Texas next week. So yes. Well, and what you do is so important because our financial literacy in the United States is not the best, unfortunately. So having somebody like you can really set somebody up for a great future. And some people come to us too for a second opinion, being the second one being their first one being their own. Well, I think about this, what do you think? And look, one of my clients was a hedge fund manager. And we became friends. He wasn't a client for a long time, but eventually he decided, I really don't need to be doing this anymore. I want to spend my days doing something else. And they liked us, they trusted us and said, here, you take it over. Well, it's why people have doctors because it's hard to diagnose yourself, right? It's great to have somebody with you with your kind of experience. Not only that, but also having a team. Talk a little bit about that, having a team, that's what you do, how important that is. I don't know how anybody is sole practitioner anymore. There are people that do it, and I give them a lot of credit for being able to do it, but it's a lot easier to have a team behind you. We all have various specialties, but we all are generalists as well. And to have a support staff, we bounce ideas off each other every week. I even get together with, on a conference call, with three other advisors or four other advisors every Friday to talk about what's working, what have you come up against in terms of investing, what do you like these days. Having that thought process to share ideas with one another is so important. Otherwise, you end up just thinking that you're the only right voice out there. Nobody is. We all learn from others, and we need supports to have, especially if someone's out sick, if someone's on vacation, you know that your accounts are being taken care of. If you need transfers done, because invariably, someone will call up, hey, I need to wire money to X, Y, and Z, especially this time of year. They're paying withholding tax. They're making last minute charitable contributions. A whole host of things. There are people who are doing estate planning at the last minute. They're gifting to their children to help reduce their estate tax liability down the road. To complicate the world, and obviously this world with the technology, things are always changing, and it's very much a 24-hour, I would imagine very much a 24-hour business for you these days. Hopefully not, but no, it is. Certainly it's seven days a week. We do get emails that don't necessarily respond to them over the weekend if it's not an emergency, but if it is, I'll get back to the person because I know that it's eating at them, whatever the question is that they had, rather than letting it fester over the weekend, I'll just get back to them. Awesome. I really want to thank you for joining me. I know we could probably go on on these topics for hours because there's a lot to learn. Maybe a few months down the road, we will revisit it because I do have some other questions about one of the things we hear a lot about the news these days are people selling their catalogs or music catalogs. Bruce Springsteen, a lot of folks that we all know. That's something I'd like to talk to you about down the road as well. Sure. Queen was the largest one, I think at over a billion dollars. I'll just touch on one thing. One of the reasons why this is happening is especially with musicians that are much further along in their career and life stage is that it's in a liquid asset. It's not something you could post and put an order in to sell tomorrow. At the end of the day, if the state taxes are due, they're due in nine months and you don't want to be selling your catalog in a fire sale. You want to be able to get whatever offers you can, negotiate, and again, that's left to lawyers and people who do the brokerage for those type of things. In the end, that's why they need the liquidity to divide it up amongst the family members and to pay the IRS. You find that artists often will do that because they don't want to burden their family. Because often it's artists that are older that are doing that. You think that sometimes it's because they don't want to burden their family with having to deal with all the other stuff? In some cases, sure. One of the other things that, again, you don't want an illiquid asset that if you don't have the cash around. If you're selling a catalog for a billion dollars, do you have 500 million to pay in estate taxes? Right. Just throwing a number out there. That's got to be liquid cash. If you do, that may be all the cash you have. Then what do you do? Yeah, because you still have to live and you still have to pay your costs, whatever. Yes, you're getting revenue from it, but you see you often the states pay end up selling it. I had looked up once when I was interested in this. It was an artist's PF Sloan. He was a writer, wrote a bunch of songs for the Turtles and other older groups. There are states sold there, his catalog, for $20 million to Primary Wave. Yeah, just then basically, just oftentimes too, just to keep everything afloat, right? This way, I don't know how many children he had, but it's easy. It's like applesauce. It's a lot easier to divide up. St. Louis paint things with real estate. Who gets which building? If you own multiple buildings, if you own multiple paint things, they only own one painting You lucked out, it's worth a lot of money. How do you divide that up amongst a few children or other beneficiaries? Thank you so much, Rick. I appreciate your time. Thank you for having me, Darrell. I appreciate it. Yeah, it's great information. I hope everybody does their due diligence and investigates how to protect their future because it's super important. In the end, you have to trust the person you're dealing with. Yeah, exactly. It's all about trust for sure. Thank you so much. Have a great day in Long Island. I'm going to say hi to all my friends out there. Thanks very well. Enjoy Las Vegas and enjoy the holidays and happy and healthy New Year to you. Awesome. Thank you, Rick. I appreciate it. Thanks for joining us and please consider subscribing to our podcast and follow us on our social media pages for guest announcements.