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Financial Advisor IQ: Want to Score a Sports Star as a Client? Here’s How…

September 2, 2020

Dan Gimbel was featured in a Financial Advisor IQ article on how financial advisors can work with athletes.

Most athletes have had an unusual year, with many sports activities on pause or otherwise in flux due to the coronavirus pandemic. And it is during unpredictable times like this that the management of the finances of this group of individuals is even more pertinent, advisory executives say.

Advisors who cater to this clientele say they are used to having to pivot.

“In the sports world, decisions happen quickly, and financial situations can change quite a bit,” says Sandra Richards, head of Morgan Stanley’s global sports and entertainment division.

Work stoppage amid the pandemic “has been a major concern” for athletes in recent months, according to Richards.

“When working with an athlete or entertainer right now, it’s important to prioritize cash flow coverage and sources of alternative income, so they can hopefully come out on the other side of this crisis financially sound,” she says.

The ability to pivot is just one of the many requirements athletes typically have for advisors, according to Richards.

An advisor with athletes as clients should be “a strong communicator, relatable and flexible,” she says. Advisors must be nimble because a player could be traded to a team across the country and need to be relocated immediately, she explains.

The financial planning needs of athletes can be complex because of their variable income streams, aspirations and obligations, Richard notes.

Athletes “need distinctive financial strategies that match their lifestyle and career trajectory,” she says.

Morgan Stanley formed its global sports and entertainment unit in 2014, with the stated goal of addressing the specific needs of professional athletes and entertainers through financial advice as well as financial literacy programs in partnership with collegiate and professional teams and entities. Advisors in the unit hold the designation of sports and entertainment directors.

Earlier this month, Morgan Stanley announced that the National Football League Players Association, the official labor union for professional football players in the NFL, added the wirehouse to its list of official institutional financial advisors. The NFLPA launched its institutional financial advisors registration program in 2019 to offer players access to financial advisors at various financial institutions, chosen based on their capabilities and services that cater to NFL players.

Earning so much, so quickly

A big differentiator between athletes and other clients is their typical earning ability and potential, according to Michael Ladge, managing director of the sports, entertainment and technology group at RBC Wealth Management.

Athletes “usually earn a significant amount of money very quickly but their careers are often short and unpredictable,” he says

Thus, “the money needs to be managed in a way that can last a very long time,” he adds. “I like our athletes to be debt-free and live well below their means, so they aren’t drawing off their principal.”

Ladge and three other advisors recently joined RBC Wealth Management from Morgan Stanley, where they served high-net-worth families, including professional athletes, entertainers, technology entrepreneurs and business owners. He says he has clients from “all major pro sports,” including soccer and golf, and works with NFL Hall of Fame member Jim Brown’s Amer-I-Can Foundation, which aims to help individuals reach their potential and improve the quality of their lives.

A common mistake advisors make when advising athletes is their belief that the money needs to be invested immediately, Ladge says, noting that “capital preservation is more important.”

Ladge and his team tend to invest the athletes’ money in “very liquid investments” so the funds can easily be pulled out when they are needed. “We tend to avoid high-fee, illiquid investments,” he adds.

Making sure the money doesn’t run out

Tracking an athlete’s income and expenses can be crucial for long-term success in helping manage an athlete’s finances, says Craig Jones, co-president of the Colony Group’s sports and entertainment group, which has clients in the NFL, the National Basketball Association and the National Hockey League.

“A detailed cash flow model should be created with every athlete client,” he says.

“The model should illustrate cash flow and asset growth throughout a lifetime, illustrating how clients can grow resources rather than depleting them during their lives. Assumptions such as investment returns, inflation rates and tax rates should be part of the model,” he adds.

When it comes to preserving wealth, Jones says advisors must consider risks inherent to financial markets, as well as potential property damage or loss, lawsuits, marital dissolution, illness, disability and death.

“While the primary goal is to help the client achieve lifelong financial security, there are many complexities, decisions and diversions that define each client’s experience and outcome,” he says. “Advising athlete clients not only requires specialized experience, knowledge, and credentials, but also the temperament and desire to make a lasting difference in the life of their athlete client.”

Preaching slow and steady to competitive athletes

Because athletes have relatively short careers compared to most others, advisors must be patient and urge their clients to do the same, says Marc Isenberg, CEO at Playbook Financial Advisors. The firm draws inspiration from “legendary coach Bill Walsh,” who “famously scripted the first 15-25 offensive plays of each football game,” the firm says on its website.

“It is definitely more challenging to preach slow and steady wins the investment race to high-achieving professional athletes.”
“It is definitely more challenging to preach 'slow and steady wins the investment race' to high-achieving professional athletes,” says Isenberg, who also previously worked at Morgan Stanley.

Isenberg recommends not scrimping with the figurative hand-holding and literal financial education of athletes, who often reach out to advisors when they are still relatively young.

Pam Krueger, founder and CEO of Wealthramp, agrees. Kruger connects investors with the advisors who best match their investing priorities, according to her firm’s website.

“They often go from twentysomethings who have never had a savings account to $1 million in one step. They have not had the time to develop any kind of educational framework, let alone an investment strategy.”

Krueger notes that athletes don’t often have the luxury of time that other investors have.

“Most people who are not in professional sports get to build their wealth gradually. They tend to make small mistakes along the way over the years, but they recover and learn from those small mistakes,” she says.

Athletes “don’t have that time and are much more likely to make big mistakes that make it harder to come back from, even though they are young, because they really can’t count on continuing to earn that kind of money,” she adds.

Dan Gimbel, a principal and senior consultant with the private wealth team at NEPC, which caters to high-net-worth individuals and family offices, says athletes tend to overspend and don’t always grasp that their earnings are fleeting. Gimbel worked as the sole onsite provider advisor for players and staff of the PGA Tour from 1996 to 2006 when he worked at Charles Schwab.

With the factors stacked against athletes’ finances, “helping educate them and their team as to a disciplined investment program can be challenging,” he says.

Craig Myers, president of CR Myers and Associates, believes athletes should save at least 50%, or even up to 80% in certain cases, of their annual income.

It’s easy for advisors to say, “‘Everything will just work itself out.’ But if you’re acting in your client’s best interest, sometimes you have to be direct and say, ‘If you don’t follow this savings plan, you will run out of money.’”

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