Why do we play the game? The simple answer: to win. If MLB teams did not care about the outcome of the game, they would choose players based on who they liked, who they were friends with, and who they were related to. We all know this would never happen and is why teams invest hundreds of millions of dollars into building the best team possible. When there is something of great value on the line, most people will commit their time, energy, and resources into creating the best opportunity to succeed.
Your financial life is no different.
Make no mistake about it, the difference between winning and losing when it comes to managing your financial life can be catastrophic. Yet, the majority of athletes will put little thought, time, and energy into building a winning team.
- Only 33.1% of athletes are focused on the business side of their careers
Significant wealth offers opportunity, but with opportunity comes complexity and challenges, such as investing, taxes, wills, trusts, philanthropy, spending and more. The issues that follow have the power to keep you awake at night.
The problem facing professional athletes is not the lack of people willing to extend a helping hand, but the number of unqualified and unethical advisors soliciting their business.
One of the most common mistakes professional athletes make when they build out their team of advisors is to assume that any financial advisor is qualified to work with them. As a professional athlete you have unique needs that the traditional financial advisor is not qualified to meet.
Ideally, you want an advisor who has extensive experience working with people just like you. Most financial advisors may be able to construct an investment portfolio, but not many of them specialize in working with 18 to 35-year old individuals with sudden wealth, uneven cash flow, uncertain job security, lack of financial expertise, and who are targets of lawsuits, investment scams, and the other complexities that come along with being a professional athlete.
There are more than 308,000 financial advisors in the United States, but few are experts.
The best parallel to understanding the financial industry is to compare it to professional baseball. While there are 5,400 professional baseball players, only 13.8% (750) of all professional baseball players are actually Major League players. Yes, every professional baseball player is more skilled than the general public but only a small percentage are elite.
If you tore your UCL (ulnar-collateral ligament) in last week’s game and required Tommy John surgery, you wouldn’t agree to let any doctor perform the surgery. Most likely, you would demand to be seen by the most famous and successful sports orthopedic surgeon, Dr. James Andrews.
Similarly, would you hire your family friend who is an attorney but does not specialize in player contract negotiation to negotiate a long-term deal with the Boston Red Sox? I surely wouldn’t. Nor would you take your brand new Bentley to a generalist mechanic just because they may be your uncle or your agent’s best friend. These decisions seem like common sense, right?
Just as you would hire the best surgeon to fix your injured elbow, rely upon an experienced agent to negotiate your contract, and hire a specialized mechanic to work on your luxury car, you would be wise to hire the most qualified team of financial advisors with the experience and expertise of working with professional athletes.
Never be a surgeon’s first patient. And never let a podiatrist operate on your elbow.
Avoiding the Pitfalls: Picking the Wrong Team
Mistake #1 – Believing All Financial Advisors Are The Same
Take a look at who is the “traditional” client in the financial industry.
- 63 average client age
- $425,944 average account size
- Retirement planning is primary service
- 221 clients per financial advisor
Does this resemble you? When interviewing a potential financial team the first set of questions to ask are:
- What is the median age of your clients?
- How many clients do you work with who are professional athletes?
- Do you work with any clients with a net worth greater than $10 million?
- What services do you offer in addition to investment management?
- What is the client to advisor ratio?
Mistake #2 – Believing Bigger Is Better
Another common mistake we see professional athletes make is hiring a single “financial advisor,” often from one of the large investment brokerage firms. What most of these advisors do not disclose is that you are not hiring the brain power and resources of the firm. These firms operate much like real estate firms. You have thousands of advisors working for the same company, but all are independent of each other. Instead of benefiting from the collective expertise of a team, you are receiving advice from one individual.
Mistake #3 – Believing Age Equals Expertise
This is the easiest trap to fall victim to. As a society we are taught that as we grow older we theoretically should become wiser. However, there is no evidence that suggests that being older results in expertise. Logically, we know this to be true. Theo Epstein became the GM of the Boston Red Sox at age 28, Mark Zuckerberg founded Facebook at age 21, and the best athletes in the world are all under the age of 40. In addition, for many advisors this is their second or third career and they do not have the years of experience their age would suggest.
So, how do you choose the right financial team?
One of the key components for giving great advice is your advisor understanding the decisions you will face. This allows the advisor to anticipate the critical decisions you will make, and to communicate the information you need in terms that you can understand. With that said, solely being a former professional athlete does NOT qualify an advisor as a FINANCIAL expert.
Finding qualified advisors is particularly challenging because the financial industry selects, trains, and retains based on sales ability, not expertise. Accordingly, to the untrained and inexperienced eye, it is difficult to distinguish the qualified expert from one who is simply a good salesman.
The Most Important Questions
- Are you a qualified expert in the given field?
- What proof is there to support your claim?
Next week we will dive deep into how you can answer these questions.