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Athletes and Entertainers: How to Strike a Balance Between Career and Money

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Elite athletes and entertainers are adept at competing in a fishbowl. But after proving their professional prowess before audiences across America, these on-field stars can find a bullseye on their backs once they exit the public stage.

“Building a career as a pro is a very unique and outstanding accomplishment unto itself, whether someone becomes a star or not,” says Tom Pohlen, an advisor at Index Fund Advisors who focuses on helping athletes and entertainers build robust investment plans.

But such success can come relatively early in a performer's life, he points out. "Once the lights go out, both athletes and entertainers are on their own,” says Pohlen. “They don’t have the rigid guidance and scheduling they’ve become accustomed to, which can leave someone feeling very vulnerable and without much structure outside of the lines.”

In its seminal study of hurdles facing professional athletes, Sports Illustrated finds within two years of retirement more than two-thirds of ex-NFL players go bankrupt or land in some sort of financial duress because of divorce or unemployment.

The research report, which first came out in 2009, estimates that within five years of retiring, 60% of former NBA players go broke.

In fact, a long trail of articles by several leading publications trace a pattern of brokers peddling assorted "get-rich quick" schemes to athletes and entertainers. Numerous reports have documented pitches to such performers touting alternative investments that supposedly are only available to a select few.  

Beware of code words used to allude to -- without fully explaining -- highly questionable strategies, says Pohlen. He points out that most are built around strategies by active managers trying to pick winning stocks and bonds. "These investments are usually opaque in nature and difficult to unload because they only exist in very illiquid markets," says Pohlen. "They're the type of products that IFA won't touch, let alone recommend to our clients."

The rush to get a hand into the wallets of professional performers has only become more cut-throat in recent years, according to Pohlen. It's not uncommon, he adds, to hear of brokers who completely overlook educating athletes and performers about the advantages of owning globally diversified portfolios. "A transparent investment strategy has to be designed around balancing market risk and each person's unique set of financial goals," says Pohlen. "That's why we put together portfolios that span 45 different countries and include 13,000 different companies."

In order to help performers achieve financial success, IFA's investment discipline is built on a foundation of passive investing. “A wealth of academic evidence dating back over the past 90 years gives us confidence that index funds provide our clients with the best chance at achieving the highest expected long-term returns net of fees,” says Pohlen.

Defining a set of financial goals and determining how much long-term risks an investor really needs to be exposed to at any given time, he notes, is a first step in creating a solid foundation for athletes and entertainers trying to manage their finances. “It can all be a bit overwhelming," says Pohlen. "With new wealth comes a whole different set of complexities tied to behaving responsibly with money.” 

Developing a solid plan of attack for managing wealth is much like how performers think about practice. “A well-thought out investment strategy is much like a good practice schedule,” Pohlen says. “It creates a structure to hone your skills as an investor of a well-diversified portfolio of stocks and bonds.” 

That sort of financial rigor and investment discipline, he suggests, is particularly critical given a sort of “Wild Wild West” marketplace where “almost anything goes” in terms of representing athletes and performers.

“The most successful relationships I’ve seen are typically ones where those who manage a person’s finances work independently from an agent or manager who handles career-related decisions like contract negotiations and endorsements,” says Pohlen.

But just like on a bigger stage, teamwork between such business managers and financial advisors is essential, he adds.

“I see creating open lines-of-communications between all members of someone’s professional team as a critical part of the wealth-building process,” says Pohlen. “You just don’t want to be making big-picture financial decisions in a silo -- it’s probably why so many athletes and entertainers find out after-the-fact things are falling through the cracks.”

First and foremost, he suggests that pro performers stress looking for a financial advisor who works as a true fiduciary. “That’s a registered investment advisor (RIA) who pledges to work in a client’s best interest -- regardless of whether it’s going to be in the best interest of the RIA,” Pohlen says. “Hiring a fiduciary to manage your finances should be the first step in building a trusting and caring relationship that can last a lifetime.”

As with any successful career professional, he recommends that athletes and entertainers should get such a promise in writing. “At IFA, our written agreement signed with each client stipulates that we will always act in a fiduciary manner,” says Pohlen. “It even explains exactly what we mean in practice by applying such a philosophy to our unique investment planning process.”

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