Young athletes are often easy targets for shady investment advisors, with tragic consequences.
Take Tim Duncan, the retired San Antonio Spurs basketball champion, who lost millions to his former financial advisor, who pleaded guilty to fraud and was sentenced to prison in 2017.
Or the director of the National Basketball Players Association's primary financial advisory firm, who was arrested in 2013 for forging a signature on a contract to try and retain the union's business.
CBS' 60 Minutes did an investigation in 2016 that exposed the NFL Players Association's failure to vet those who registered for its financial advisors program. Several players lost a total of $43 million due to a bungled investment scheme in that case.
Successful athletes, who tend to come into large sums of money at a young age, may want to take a conservative approach that puts safety first and takes into account their likely lack of career longevity when developing an investment strategy with their advisors, said Boris Gluzberg, who works with professional athletes as a senior vice president at City National Bank.
“The professional athlete takes risks on the field, so there should be no risk-taking on the investment side," Gluzberg said. “It should be all about preservation of capital because an athlete's career can be limited."
He recommends that his player clients put together business management teams that include: A sports agent; financial planner; CPA; and lawyer. Good agents will welcome that kind of support team approach and not be threatened by it, Gluzberg said.
Here are some of the additional tips Gluzberg gives his pro athlete clients who are choosing a financial advisor:
- Make sure that any advisor you hire is registered properly as either an advisor or broker. FINRA, the Financial Industry Regulatory Authority, offers a free web tool that allows anyone to search potential advisors – even using phonetic methods – to see whether they are registered, how long they've been registered, what licenses they have and whether they have any disciplinary history. Its Investor Education Foundation also partners with leagues like the NFL to provide players with financial literacy tools and other materials.
- The National Association of Personal Financial Advisors (NAPFA) offers a questionnaire to help consumers evaluate financial professionals on the basis of whether or not they follow “prudent core values" embraced by the investor. One question deals with potential conflicts of interest, including engagement in any other business, either as a sole proprietor, partner, officer, employee or trustee.
- Take advantage of the in-house capabilities offered at sports agencies, such as wealth planning and advice on choosing the right insurance structure and the best tax structure. "They'll tell you before you even get paid that you may be better off getting paid into a corporation or an LLC or another entity, because as an athlete you can deduct certain things that other people can't," Gluzberg said.
- Look for specific expertise in pro sports. Those who work regularly with players understand details such as collective bargaining agreements and the way contracts are structured in various leagues. They also have insights into the financial demands that often come with certain sports careers. For example, pro hockey draws players from all over the world who may need to maintain a residence in their home country during the off-season. “You need a team in place that has cross-border tax expertise," Gluzberg said, and can discuss issues such as where the athlete wants to settle down post-career and the tax ramifications involved.
- Advisors to athletes must also understand payment structures in various leagues. In the NBA, a player can choose whether to be paid year-round or only during basketball season. Baseball players are paid only during baseball season.
“You need to learn to budget because you're only getting paid eight months out of the year," Gluzberg said. “A good business manager will know that and create a budget for the player and for the family – because in many instances these players support their families."
City National Bank, its managed affiliates and its subsidiaries, as a matter of policy, do not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisers on the tax, accounting and legal implications of any proposed strategies based on your particular circumstances.
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