“Now the former NFL player is still a client and the friend from Canada is also a client,” he says.
Brown has had other clients who avoided bad investments pitched by their close friends. One wanted to invest in real estate that promised 20 percent returns, but Brown found the deal was premised on unrealistic occupancy rates. The athlete client decided not to invest, but remained close to the friend who pitched the idea.
But in some instances, if the client insists on making bad investments, the advisor may have to terminate the relationship, Brown says.
“Sometimes advisors lose sight of the fact that we have the ability to choose who we work with,” he concludes. “Athletes have so many predators and leeches around them that they don’t trust many people. That means we, as advisors, end up dealing with things that are not really in our wheelhouse.”
To do that successfully, the advisor can refer the athlete to someone with expertise in the area of the proposed investment, says Jason M. Katz at Katz Wealth Management in New York City, part of UBS Financial Services Inc.
“We can tell them they should be talking to their agent or business manager, but we cannot recommend anything that has not been vetted by UBS,” Katz says. “We can also tell them if they are in a financial position to be able to consider one-off investments. We understand their goals and can see how much wiggle room they have to keep their future from imploding.”
For athletes, the advisor needs to make several plans. Plan A is the best scenario where the athlete has a successful career in broadcasting or coaching after retiring from the field or court, Katz explains. But then the advisor also has to make Plan B and Plan C in case that does not happen.
A financial advisor also has to think about protecting himself from being sued by a client who ends up in a bad deal against the advisor’s counsel, says Delgas.
“You have to make it clear it was not your idea and that you recommended against it,” Delgas says. “Document everything in writing and make sure you are not charging for advice you are not qualified to give.”