Tips to Help Avoid Financial Ruin

Without the advice of a financial advisor who is required to look out for your best interests, you could risk joining the ranks of professional athletes who have made and lost a fortune.

Spending money lavishly on luxuries like mansions and cars, being duped by untrustworthy advisors or simply not paying attention to finances has resulted in some professional athletes losing millions. Some make money back, but others don’t, unfortunately. How do you make sure you don’t fall into the same trap? Consider following these tips for doing your due diligence when selecting and working with an advisor.

Cautionary tales of pros who lost money

A few years ago, three pro athletes worked with a financial advisor who allegedly cheated them out of approximately $33 million. The alleged fraud victims included Denver Broncos quarterback Mark Sanchez, San Francisco Giants pitcher Jake Peavy and retired pitcher Roy Oswalt.¹ 

Their advisor had invested their money into Ticket Reserve, an online company that was struggling and on whose board the advisor served, according to an SEC news release.²

Other professional athletes, likely without the needed professional financial advice, have lost money by living beyond their budgets, something a wealth advisor might help prevent completing a cash flow analysis and budget.

One such example is three-time Wimbledon champion Boris Becker who declared bankruptcy a few years ago despite having reportedly made $63 million to $200 million during his career. He later rebounded and is thought to have $10 million in assets.³ In another example, former quarterback Vince Young filed for bankruptcy seven years after signing a $25 million contract with the Tennessee Titans. He told Sports Illustrated that he didn’t pay attention to his finances until his career was over, and by then it was too late to recoup his losses.⁴

To help safeguard your investments and future, think about taking these steps:

Before choosing an advisor, perform a no-cost background check.
Ideally, it is important to do this before you’ve chosen an advisor, but it doesn’t hurt to check up on an advisor even after you’ve been working with that person for a while. Go to the Financial Industry Regulatory Authority’s (FINRA’s) online tool, BrokerCheck, to see whether any complaints have been filed against the advisor. After you enter a name, you can also see years of experience, state licenses and exams passed, which helps indicate industry knowledge and the level of credentials the advisor holds.

Ask friends and peers about their experience with an advisor.
Talk to other athletes and your friends about their advisor to get an idea of what it would be like to work with the individual. A referral to an advisor from someone you trust can be helpful. If they can speak to their experience, you can get a feel for how the advisor works with clients before you meet with him or her. Once you have a positive referral from your peer or friend, still do your homework and look the advisor up on BrokerCheck to help increase your confidence in your choice and to verify he or she has a clean record.

Consider choosing a Registered Investment Adviser (RIA).
When you choose an RIA it means the firm is registered with the Securities and Exchange Commission (SEC) and is required to act as a fiduciary. A fiduciary is required to put its clients’ best interests first and is required to disclose any possible conflicts of interest to their clients and act in an ethical manner in all of its business dealings. Advisors who aren’t fiduciaries might recommend certain investments because those vehicles pay them a larger commission. Advisors should be upfront as to whether they are a fiduciary, which means they have a responsibility to always act in your best interest. 

Communicate with your advisor regularly.
It’s a good idea to talk to your advisor periodically. If you don’t feel like your advisor is checking in often enough, voice your concerns, and the advisor should be open to more frequent communication.  

Understand your investments and portfolio construction.
It’s important to have a basic understanding of the investments in your account and the inherent risks versus returns with those investments. Trusting your advisor’s decisions without accountability or explanation could lead to potential problems. Don’t be afraid to ask your advisor why he or she is making certain investment decisions or recommendations. Ask about your portfolio’s asset allocation and diversification within asset classes to help ensure you have an appropriate mix of stocks, bonds and cash investments to align with your tolerance for risk and how close you are to a goal, such as retirement.

Review your statements monthly.
Put time on your calendar every month to review your statements. Also make sure you’re sorting them or keeping them in a secure place for reference, whether that’s using an online tool or paper files. In the case of the athletes mentioned above, the SEC charged that the advisor was, “secretly siphoning millions of dollars from accounts he managed for professional athletes.”² If you’re reviewing your statements routinely, you should be able to catch something like this.

Consider creating a budget with your advisor.
Work with your advisor to create a monthly budget that includes your expenses and discretionary expenses. This can help ensure you are not spending more than you are making and set you up on a plan to have your income to last well beyond your playing years.

Consider an advisor who has worked with pro athletes.

At Mariner, we work with more than 100 professional athletes. We understand the concerns you face, from how to maximize savings during peak earnings years to how to make sure you have enough insurance to replace income and other assets should you get hurt while playing and not be able to return to the sport. We also have a tax team that offers multi-state tax preparation and tax planning strategies to help you navigate complex tax situations.

Footnotes

¹“How QB Mark Sanchez Was Sacked by a Financial Advisor,” Financial-Planning.com.

²”SEC Halts Scheme Defrauding Pro Athletes,” sec.gov.

³ “Boris Becker Net Worth,” celebritynetworth.com and “Foul Ball: 10 Top-Earning Athletes Who Lost A Lot of Money,” cnbc.com.

⁴ “Vince Young’s Journey North to Rewrite the Ending of His Football Career,” si.com.

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