The Absolutely Necessary, but Potentially Dangerous Combo: Athletes and Financial Advisors

My 2 cents on how athletes can avoid the trap of fraud from bad-apple financial advisors.

This week there was a headline of yet another group of athletes that were cheated out of millions by an individual claiming to have their best interest in mind.  There are a number of reasons I wanted to opine on this headline not the least of which are that is causes several emotions in me from sadness to anger to empathy.  Why sadness?  Because this instance seems to have been avoidable if only a few “checks and balances” were put in place (see below).  Why anger?  Because as a member of the financial services community for nearly 20 years now, I’m embarrassed of the image that it paints to the public.  The wall of distrust it builds makes it just that much harder for individuals to place their faith in financial advisors.  Why empathy?  Because at the end of the day, athletes are just people.  They happen to be in a unique situation where they make the bulk of their lifetime earnings early in their careers and it is imperative that they leverage that for when they can no longer compete on their field of play.  So any financial missteps could have exponential consequences for them and their families.  In nearly all cases, it helps to have the assistance of a good financial advisor, unless you can save like Marshawn Lynch (which is not a bad idea anyway)!   My goal in this writing is to outline some steps that can be taken to provide athletes with ways to avoid getting into situations like this.
Trust but Verify
In the case in question, court documents state that the athletes were “introduced to Narayan and came to trust him”.  My advice is to not just take someone’s word for another person’s reputation.  When seeking out the services of a financial advisor, research any referrals you get.  Even if a player’s association (e.g. NFLPA) “stamps” someone, make sure you vet an individual yourself.  Why?  because it is really easy to do thanks to the Internet.  Here are some ways you can find out if the financial professional you are looking to work with is legitimate.  First, understand that each financial professional should be regulated by some federal entity.  There are only two:  the Securities Exchange Commission (“SEC”) or the Financial Industry Regulatory Authority (“FINRA”).  Do yourself a favor and run a quick search before working with anyone.  Here is the link.  Why is this so important?  Because for very little effort, you can perform this simple check and potentially save you from working with the wrong person.  Look for any disciplinary actions and inconsistencies. For example, in the subject story, Mr. Ash Narayan claimed to be a Certified Public Accountant (“CPA”).  However, per his SEC disclosure page (under professional designations) CPA is not listed.  On purpose or on accident?  My point is that arming yourself with a little bit of information helps you ask very good questions.
Access to Bank Accounts…uhhh no!
I’ve read too many of these type of stories where advisers had direct access to a bank account.  Although in this case, Mr. Narayan forged signatures, recognize this is a major red-flag.  There is no reason an adviser should have access to your bank account.  Keep control in your hands, don’t delegate access to your bank account to pay bills, etc.  When money leaves your bank account it should show up at a financial institution.  There are many out there and you’ve probably heard of most of them like National Financial Services, Pershing or Charles Schwab.  After your money shows up there, the custodian is required to send you a monthly statement detailing the activity in your brokerage account.  This is the evidence proving that the withdrawals from your bank account reached the proper destination.  Watch out if someone is telling you to get those sent to you electronically.  In the case of athletes, I’d recommend also receiving them by paper so you can actually see it with your own eyes.  If your financial advisor produces internal statements you should still reconcile them back to the custodian’s monthly statement.
The Greater Good
As I understand it, Mr. Ash Narayan worked his way into the good graces of these athletes by using their affinity to charitable causes to “sell” his services.  As a high-profile athlete, you must understand that you will be “prey” to a lot of individuals.  Regrettably, some of those individuals are in the financial services community.  So this is why you really need to build a network of “ride-or-die” individuals that can help you personally and professionally.  Like in Ballers, you need a Reggie (the homeboy) and a Spencer Strasmore (the numbers guy).  I’ve written previously about building an All-Star Team and in that piece, I go into greater detail on how to do just that.
Big Firm or Small Firm Doesn’t Matter–Focus on the Individual
In the long run this shouldn’t really matter.  You obviously want to work with someone who will be around for a while to handle your affairs and not close up shop during the next recession.  Small or large firm is just a matter of preference, however, I think forming a good list of questions to “vet” an individual is the most important.  Let me outline a couple you should consider adding to your list:

 

Q:  What licenses do you need to practice and how are you regulated?
Here’s why you want to ask…you want a licensed professional because the licensing is how they are held accountable.  Granted, it is not foolproof, but it is a good start.  I would also look for someone who has 10 or more years of experience.  Advanced degrees or other designations are not deal-breakers, but could be necessary based on your situation.  See this link for more info.

 

Q.  What financial institution or custodian will be holding my assets?
Here’s why you want to ask…because you can check into the bank’s reputation (e.g. how long they’ve been in business, amount of insurance coverage, etc.).  Red-flag alert:  Your advisor shouldn’t be holding funds of yours in a bank that you haven’t heard of.  They also shouldn’t be commingling your funds with their other clients or their own.  Having a reputable custodian will prevent all of this because of regulated account opening procedures.  See this link for more info.

 

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3 “To-Dos” on your Path to Financial Literacy (unabridged version)

Want to win with money? What to experience financial wholeness? Here are 3 tips to help.

Just recently I provided a few tips on how to become more financially literate.  It was such an interesting exercise for me because I wanted to boil it down into three succinct points.  After all, who wants a big list of stuff?  When I finished the email, I thought it would make for an interesting topic in this blog with just a bit more expansion on each idea.  So, here we go…

1. Take some time to explore your “money mindset”.  I find that a lot of clients often view money differently on paper than they do emotionally.  Like anything in life, money has feelings around it and sometimes those feelings are from false notions.  What false notions?  Usually, they are called “biases” or filters. (I’ve written about this in a previous post.) But the point is that they keep you from seeing something from what it really is.  When it comes to money and finance this can happen.  For example, if you grew up poor you may have the mindset (or bias) that causes you to live in a place of “scarcity”.  I find that these people, unless corrected, will always feel that they never have enough regardless of how much is in the bank account.   But like you can probably guess, the “enough” really doesn’t have anything to do with money.  The feeling of completeness and wholeness has to come from another place.  On balance, you have to be able to find a way to spend some, save some and give some. Ideally, we should be more neutral about money and realize it is just a tool or a “means to an end”, rather than having overly negative or positive notions about it.

2. Look to get a professional’s opinion on your situation.  Sometimes it can be difficult to sort out #1 without intervention. The beauty about having another person “in the room” to help you talk through that exercise is you are less likely to succumb to your biases. This is why I would recommend hiring a financial professional to handle your money goals.  Why?  Well, you would never consider playing the role of dentist and fill your own cavity or give yourself a root canal.  I mean, even dentists have their own dentists.  Same as physicians, lawyers, etc. and the logic is fairly sound.  The risk of messing up the procedure is high without some assistance or oversight. The money a dentist could save doing his own dental procedure does not outweigh the benefit received from letting someone else do it.   Conversely, however, nearly everyone tries to handle their own finances without professional advice.  (Clue:  It is not a money issue, it is a control issue.) You can argue that although not as potentially damaging as trying to drill on your own teeth, a wrong move financially has social, psychological and possibly physical ramifications also.  The bottom-line is that a good financial advisor can help you establish realistic goals and provide accountability while preventing you from making a costly error when life throws you a curveball.

3. Be Different in All the Right Ways.  I know, I hate clichés also.  And although this seems counter-intuitive, it makes a lot of sense.  Generally speaking, I find that most people are very reactive with their money.  I mean they let things happen to them instead of happening to things.  For example, funding an emergency fund of 6-12 months of living expenses seems to be common sense.  But, this is something that often doesn’t get completed for various reasons, when in fact, emergencies happen more often than people think.  I would say that at least 40% of all people I speak with (even more of my peers) have not completed a will, health care directive or power of attorney.  However, if any one of them were to become incapacitated, it would be very difficult to act on their behalf to fulfill their wishes.  My advice, instead of being reactive, be proactive.  Instead of being on the defensive, be offensive.  One thing is for sure, following the “herd mentality” usually doesn’t help you become the millionaire next door.

Plain old common-sense is often not “common” at all when you dive into the behavioral aspects that keep people from winning with their money.  It is a matter of becoming really smart around your feelings and removing mental obstacles that keep you from doing the right things even if it takes a little coaching to get you there.