Q&A with Financial Advisor Justin Bass
Q: Financial advising and wealth management are such broad concepts in the grand scheme of things. Can you talk a little bit about your responsibilities and duties as a Financial Advisor for athletes?
A: Our firm, True Capital Management, is a multi-family office specifically designed to provide financial and investment advice to high net worth individuals and families, with an emphasis on athletes and entertainers. We are focused on providing a suite of services and an open architecture wealth management platform that empowers our clients to protect and grow their legacy. Not only do we strive to provide the tools for long-term financial success, but we think it equally important to continuously teach and educate our clients along the way.
As a Financial Advisor to professional athletes, I like to think of our role as being the financial quarterback . . . essentially available to help clients make prudent decisions about anything that impacts their financial affairs. Inherent in serving as a Financial Advisor is as a fiduciary responsibility to provide all clients with the highest standard of care which sometimes includes having to tell clients something they may not want to hear.
As strange as this may initially sound, our job is not to make clients rich, but rather, to help keep them rich. This isn’t accomplished by simply telling clients what type of investments to make, but rather, it’s accomplished by providing clients with sufficient information to make informed decisions about all financial related matters. We create specialized investment portfolios for each client, tailored to balance each client’s risk profile with reasonable levels of return. However, investing money is only one part of a much bigger picture. That said, a differentiator to our approach on the investment side is a focus on investing in income producing investments in order to re-create an income stream upon retirement.
The job of a Financial Advisor entails much more than simply constructing a client’s portfolio. For example, we need to help clients understand how to maintain reasonable expenses and live within their means. To accomplish this goal, it’s critical that we work closely with clients to determine a reasonable budget so they can live a comfortable, but sustainable lifestyle. Despite the high-earning years, the money doesn’t last forever . . . particularly after taxes and expenses are taken off the top. If our clients perform on the field/court, they will earn enough money to be financially secure for life. We can provide assistance in terms of reducing tax liability, making sound financial decisions, and managing their portfolios to achieve reasonable returns, but the single biggest variable in their long term financial success will be their spending.
In addition to establishing good savings habits early on, we also stress the importance of setting financial goals and preparing for retirement. While most young athletes can’t believe that we’re talking about retirement so early, sometimes before they even sign their first contract, the fact is that its never too early to start saving for retirement.
By creating a reasonable budget, implementing good savings habits, and establishing goals with the client, we’re then able to focus on other things, like how to help friends and family members and how to make a difference in their communities through charitable giving, actively participating in community outreach, and ultimately, how to create and maintain generational wealth. In addition, we work closely with clients to evaluate their risk management (i.e. insurance and asset protection) needs, work with them through various life-changing events, and provide comprehensive investment advisory services.
Q: Based on your experience, what are areas you think professional athletes need the most guidance?
A: One area where athletes need guidance is how best to help friends and family. Even though it comes from a good place, sometimes an athlete’s desire to help loved ones does more harm than good. It’s not that athletes shouldn’t provide assistance, but it’s a question of HOW that help is provided. Athletes need to be careful about simply giving material items to people. Reasonable gift giving is fine, but not when taken to excess. Not only can giving gifts create ongoing financial obligations for the athlete, but it also stifles the recipient’s growth as an individual. If you want to help a loved one, use your wealth and stature to invest in them becoming independent and accomplishing their own dreams. Rather than simply buying things, think about paying for someone’s tuition or job-training, which enables them to develop the skills necessary to become self-sufficient. In the long run, wouldn’t your loved one feel better about him or herself if he/she becomes self-supportive, rather than relying on you? Strange but true – creating dependency actually hurts those that you’re trying to help.
Another area where athletes need guidance is learning who to listen to, particularly when it comes to their financial affairs. Athletes today are not just players, but large businesses – they are their own individual companies. While the athlete is the CEO, he or she needs to be supported by a team of competent and trustworthy professionals. Athletes must surround themselves with professional team members to assure that a proper system of checks and balances is created. Hiring professionals means not just hiring people you grew up with or people who will just say “yes.” Rather, athletes need experienced advisors who can help them evaluate situations, identify the risks and provide enough information to help them make informed decisions. Sometimes, this means having to say “no!”
While nobody likes paying taxes, where else can athletes get paid millions of dollars for playing the sport they love? This tremendous opportunity for wealth, comes at a cost – namely taxes. Although it’s impossible to avoid taxes entirely, athletes can save significant amounts of money with proper tax planning, which is why it is so important to hire a competent professional. Most people simply file their tax returns when due, which is known as tax compliance. Tax planning, on the other hand, is a much more proactive approach, which requires athletes to work with qualified tax professionals to analyze their unique situations in order to reduce the tax burden. If you earn $5 million dollars, strategic tax planning resulting in a reduction of even just 1%, means an extra $50,000 in your pocket.
Q: When it comes to athletes and investing, many athletes want to hit the homerun. How do you work with athletes to develop a sound financial plan for the long term?
A: As a starting point, I encourage clients to think of wealth accumulation like a pyramid. I first explain that the reason the Egyptian Pyramids have survived so long is because they were built upon a solid foundation. Similarly, an athlete’s finances must be built upon a solid foundation (of cash, fixed income, and “blue chip” stocks). Reasonable exposure to managed real estate also has a place as a way to generate additional income through a non-correlated asset class. While private equity, venture capital, and “other” investments (like restaurants, bars, and music production companies) often sound more exciting to athletes, I encourage clients to avoid taking unnecessary risk. If a solid foundation is established first with a slow and steady methodical approach, there will likely be room for other opportunities later (in reasonable amounts). However, taking unnecessary risk too early could significantly damage the foundation, causing the whole pyramid to crumble.
Another critical point to remember in investing is to always be cautious! If an investment return sounds too good to be true, there’s a reason . . . as it’s usually illegal or extremely risky! Be careful of investing with friends or in “get rich quick” schemes. I always remind clients that they hire financial advisors for their expertise in evaluating the true merits of an investment opportunity, not for their friendship. Of course, its also important to remember the other side of that coin . . . that just because someone is a trusted friend doesn’t make them qualified to give investment advice or run a company that is funded with your money.
When it comes to planning for the long term, I always suggest that clients should pay themselves first. Beyond skill and hard work, part of what enables professional athletes to succeed is self-confidence. However, one major challenge to attaining long term financial security is overestimating the length of one’s career. When it comes to financial well-being, athletes should plan as if their current contract will be their last. Most professional athletes feel invincible, but they aren’t! An athlete shouldn’t rely on saving for retirement from his or her next contract, because there might not be another contract. It’s never too early to start saving for retirement and the athletes who are most successful financially heading into retirement are the ones that start planning early and contribute to a retirement fund (or account) from every paycheck.
Q: What are some ways athletes can increase their financial literacy?
A: While most athletes aren’t formally trained in finance, everybody should develop an understanding of the basics of handling money to succeed financially. The financial advisor’s job is not only to execute a financial plan, but also to help educate the client about financial affairs. Take the time to establish a budget with your advisor that you track and review regularly. Review financial reports from your advisor in a way that you really understand what they mean. Similarly, take an interest in your portfolio so that you understand how it is managed. Don’t ever be afraid to ask questions. Remember - nobody should care more about your finances than YOU!
These days, there are so many books, podcasts and seminars available, either through Players Associations or independently, that the information is readily available for anyone interested. You just have to seek it out. Ask your own Financial Advisor for some recommendations and I’m sure he/she will have some good suggestions.
Many athletes struggle with the transition to retirement, which usually arrives earlier than anticipated. This challenge can be both financial and emotional and is completely understandable. After all, anyone fortunate enough to become a professional athlete probably dedicated most of his or her life up until that point on their sport. Whether the struggle is financially based (i.e. no more paychecks, the need to scale back on lifestyle) or more personal in nature (i.e. losing one’s sense of identity, missing the camaraderie), the best way to transition into retirement is to prepare yourself in advance. Athletes shouldn’t be trying to figure out how to replace the huge paychecks when retirement arrives. Rather, they should try to discover early in their careers where their off-field/court passions lie, and spend their playing years figuring out how best to pursue those endeavors when the time comes. Take advantage of opportunities that are presented during your active years to network, make future business contacts, and figure out where happiness and satisfaction are derived other than your sport. Fortunately, many of the pro sports leagues have created internship or “job shadow programs” as a way to provide current players with the opportunity to develop their post playing career interests during the off-season. If you’ve got your financial house in order by the time you retire, your next job should be one that you take because you love it, not because you need a paycheck!
Q: Why do you think being frugal is frowned upon in the athlete circles?
A: Any number of factors contribute to why it is looked down upon to be frugal. Some of it might be tied to “bravado,” while sometimes successful athletes feel like they’ve finally “made it” when they can afford to buy or do certain things. I often like to distinguish for clients the differences between “needs” and “wants.” Unfortunately, this can be challenging when you are suddenly thrust into the spotlight of a freshly minted multimillionaire. Everyone knows who you are and you immediately become a target! You almost feel obligated to live a certain way and it feels like the money can never run out! That is just plain wrong and it takes a very strong person to be comfortable in his/her own skin.
Athletes need to be aware of the “lure of the tangible” or “keeping up with the Joneses” mentality. Athletes face tremendous pressure from outsiders who expect them to live an ostentatious lifestyle and from competition amongst their own peers. Even though you’re earning $1,000,000 this season, which is unquestionably a lot of money, the teammate dressing at the locker next to you has another zero in his salary (making $10,000,000). The pressure felt in the locker room can be intense, however, athletes need to avoid overspending. Instead, individuals need to establish a reasonable budget and learn to live a comfortable, but sustainable, lifestyle while living within their means. As I sometimes ask my clients, would you rather live like a King for a few years and die broke or live like a Prince forever?
Look around the world at some of the wealthiest people and you’ll notice something: “money talks, but real wealth whispers.”
Justin Bass is a Managing Director at True Capital Management (company website: www.truecapitalmgmt.com) where he oversees the financial and business affairs for professional athletes and high net worth individuals. Justin is a Cum Laude graduate of UCLA and obtained his law degree from University of California, Hastings College of the Law. Justin taught Sports Law as an Adjunct Professor at University of San Francisco, School of Law for several years and has worked with professional athletes for over twenty years. Justin can be reached at email@example.com his Twitter handle is @Justin_H_Bass