San Antonio Spurs basketball star Tim Duncan is one of the latest high-profile athletes to sue his financial advisor for allegedly costing him millions in lost investments, but he is far from the only one.
The six-foot, 11-inch NBA star, who has a $5 million-a-year contract, filed suit last month against his financial advisor, Charles Banks of Atlanta. Banks allegedly cost Duncan more than $25 million because of bad investments, according to the Associated Press. Banks has denied the allegations.
But Duncan is not alone. Ex-boxer Mike Tyson sued his financial advisor for alleged breach of fiduciary duty and fraud. Former Major League Baseball pitcher Denny Neagle also sued, accusing his advisor of putting his money in risky and illiquid assets.
Athletes, entertainment artists, lottery winners and others who achieved wealth relatively quickly often run into problems with managing their wealth, sometimes resulting in lawsuits.
But there are ways the instantly wealthy reduce the risk of falling into bad investments, say advisors.
“The client needs to know going in where everybody’s ax to grind is,” Michael Delgass, managing director of Sontag Advisory, a wealth manager and investment advisor in New York City, says. Know how each person is getting paid, he says, adding that a flat fee for services may be the best way to accomplish this.
“Do not go into illiquid, opaque investments and avoid advisors who want to be both the advisor and the custodian,” he says.
Sontag has Hollywood stars, lottery winners and athletes among its clients. “Our job as an industry is to try to educate a person on what to expect. We have to deliver bad news sometimes. ... We also tell clients to pay as they go; do not leverage up and go into debt,” Delgass says.
Sathya Chey, relationship manager at Halbert Hargrove, an investment management and financial services firm in Long Beach, Calif., advises those who come into sudden riches to work through the Centre for Fiduciary Excellence (CEFEX) to find a reputable advisory firm. CEFEX is an independent global assessment and certification organization created to help determine trustworthiness of investment fiduciaries.
“We also tell the clients to take a deep breath and keep living as they were before they got the big contract or the windfall. Then they have time to think about their goals and set a time line for spending. They need to stick to it,” Chey says.