Advisors got another glimpse into the field last week with the announcement that platform powerhouse Dynasty Financial Partners had signed on Octagon Financial Services, the Mclean, Va.-based RIA with an impressive client roster of professional athletes. (Among them: NBA star Chris Paul of the Los Angeles Clippers and Olympic swimming champion Michael Phelps.)
But professional athletes can also present advisors with a minefield of challenges -- limited earning careers, high-flying lifestyles, tax challenges and a frequent lack of familiarity with basic financial principles.
How can advisors who are considering working with professional athletes navigate this sensitive terrain? Financial Planning asked several prominent advisors with established practices in the field to share some of their successful strategies:
EDUCATION
Educating athletes about finances is one of the biggest challenges facing advisors. Octagon starts by laying out a monthly spending budget for their clients over the course of the year.
“We set goals for saving and spending, and we challenge our clients to meet them,” said Jan Plewes, Octagon’s managing director. “Athletes are very goal-oriented, so it’s a concept they can really grasp.”
The athlete’s busy travel schedule is the biggest impediment to progress, Plewes said. “It’s hard for them to keep focused on learning about their finances during the season because they’re constantly on the road.”
When athletes do have down time, Octagon focuses on conveying the concept of risk and return as a starting point in their financial education. “They’re constantly being approached to put money into deals, and they’re always hearing about deals in the locker room, but they’re not seeing the whole picture,” Plewes said.
As for learning about financial instruments like stocks and bonds, Octagon waits until the athletes are older and wiser. “If they’re unfamiliar with concepts like equity and fixed income and you try to introduce them up front,” Plewes said, “the younger athlete may tend to be overwhelmed. And if you turn them off, it’s hard to get them back.”
GATEKEEPING
Successful athletes are used to being coddled from an early age. “No one says ‘no’ to them,” said Paul Tramontano, co-chief executive of New York-based Constellation Wealth Advisors, which is working with New York University on a research study on the finances of professional athletes after they retire. “They need someone to say ‘no’ on their behalf.”
But helping clients filter out unwise investment propositions requires understanding, sensitivity and diplomacy, Tramontano noted. “When you’ve made a lot of money, it’s natural for the people around you to expect to share in the payoff,” he said. “And it’s fine to help people who have supported your rise to stardom -- in a measured and careful way.”
The problem, he continued, is when the financial support is not prudent or “taken to excess.”
The brother of one of his clients, for example, had asked for a considerable amount of money to open a restaurant. The athlete was close to his brother, who had looked out for him in a tough neighborhood while growing up. “I advised the client not to invest in the restaurant because there was a good chance he could lose all his money,” Tramontano recalled. “But I said if he wanted to help his brother, write him a check for half the amount.”
GOAL-SETTING
Studies show that about seven out of 10 professional athletes go broke after their careers are over, said Norm Greenidge, national director of Northern Trust’s Professional Athlete Group. “We’re trying to help our clients navigate financially throughout the course of their careers and beyond so they can keep and enjoy their money,” said Los Angeles-based Greenidge.
Setting realistic goals and carefully managing what the athletes earn and spend are key starting points, he said. Using credit wisely is also critical, Greenidge noted. “Athletes only get paid during the season, and they end up using credit to support the lifestyle they are accustomed to while getting paid. It’s very important to monitor that use of credit carefully.”
Implementing a transition plan for a client’s post-playing career is also crucial, said Greenidge. The problem, he says, is that when it comes to listening to financial advice, “there is a lot of misplaced trust” among successful professional athletes because of their celebrity. “They’re often isolated among a select group of people they feel they can trust, and don’t allow themselves to listen to a different point of view.”
