David Byrne: Leveling The Playing Field On Fraud
Professional Athletes no matter what level are unfortunately susceptible to fraud from people that are suppose to have their best interests. It's important that individuals take it upon themselves to make sure their financial playbook is secure at all times. It doesn't matter if you are the star athlete or the new rookie on the team. Athletes on all levels from Tim Duncan to Mark Sanchez to Roy Oswalt and countless others have been defrauded by financial advisors, business managers, and even friends. I'm sure you are thinking, "that would never happen to me" but as I like to say it's better to be safe than sorry. We recently had the pleasure to speak with David Byrne, a man who's on a mission to help athletes stay away from fraud and dishonest business practices.
Q: Athletes as you know have been unfortunate victims of fraudulent activities from business managers and financial advisors, can you talk about what your company does to help alleviate that issue?
A: Athletes have so much to focus on as a professional, many rely on their financial team to manage their money with little to no monitoring on their own. Without a continuous monitoring plan in place, business managers and financial advisors have the opportunity to defraud their clients with little risk of being caught.
BrightLights acts as an independent advocate for athletes, providing continuous monitoring and review of an athlete’s investments and banking activity to ensure his or her financial team’s actions are aligned with the athlete’s stated goals. By reviewing financial documents on a periodic basis, BrightLights can identify fraud and abusive investment practices, such as excessive fees and unsuitable investments, and notify the athlete so it’s stopped immediately.
Q: What are some important points to help an athlete understand why fraud occurs?
Let’s start with the concept of The Fraud Triangle, which states that a trusted person commits fraud based on three factors:
Pressure - Trusted person has a problem in his personal life, such as a gambling debt or a failing investment, that money can solve.
Opportunity - Trusted person has the ability to steal his client’s money and will do so if he believes the fraud is unlikely to be discovered by his client.
Rationalization - Trusted person justifies the fraud to absolve himself of the guilt of the crime.
Fraud is difficult to predict because the victim is unaware of the pressures in a trusted person’s life that cause him to commit fraud. The only factor you can control is the trusted person’s opportunity to defraud you.
Q: As an athlete what are some ways you would recommend protecting your finances for possible fraud from within?
It comes down to three words: Trust but verify. All athletes should trust their advisors, but that trust must be accompanied by verifying your advisors are managing your money professionally and responsibly.
This means that on a monthly basis, you should independently review your investment and bank account statements. There’s a phrase we used back when I was a financial regulator: Follow the money. Identify how your income comes into your account and then how much of that income is being spent. Make sure this roughly lines up with your expectations of your monthly income and expenses. Ensure that your investments are in line with your investment objectives, and double check the fees you pay your advisor (typically charged on a quarterly basis) are what you agreed upon. Review for withdrawals of money to unknown people or companies.
Not long ago, I wrote a blog post about three pro athletes who had millions of dollars stolen by their financial advisor. Had these athletes been independently reviewing their account statements, they could have identified the first unauthorized withdrawal for hundreds of thousands of dollars. Instead, the fraud lasted years and the three athletes lost a total of $30 million.
Q: Adonal Foyle, someone I happen to know and follow very closely, stresses that you should continually "Audit your Team." What are some steps an individual can do to audit his or her own financial team?
First off, Adonal is an exceptional example of how to do things the right way as a professional athlete and understand both the benefits and risks of having others manage your money. His business manager, Stephen A. Eriksen, is also a great person to follow on LinkedIn.
But to answer your question, for an individual to effectively audit his or her financial team, he must understand his specific financial risks and then minimize those risks by reviewing his team’s activity. Ask yourself how, in a worst-case scenario, members of your team could defraud you. Then ask yourself what reviews you are doing to minimize that risk of fraud.
For example, does anyone on your team have power of attorney over your accounts or discretionary authority on your investments? If so, how do you manage the risk that these individuals can move money or buy/sell investments without your authorization? Are you periodically reviewing your investment and bank statements?
Additionally, a benefit to auditing your financial team is it creates more accountability on their end and less opportunity to commit wrongdoing because they know you’re looking.
Q: How can individuals better understand their own financial playbook without putting all their trust into the advisors?
Continually educate yourself about finance so you have meaningful conversations with your financial team. Learn from your financial team and never stop asking questions. Find teammates who love personal finance and pick their brain. Read books on finance (my suggestions include John Bogle’s "The Little Book of Common Sense Investing" and Jason Zweig’s "Your Money and Your Brain").
Every week or month, pick one financial topic you don’t understand, something like compound interest or index funds, and Google it. Write down what you’ve learned, repeating the concept until it’s ingrained in your brain and you understand it. For some more free ideas, check out my Resources page.
Finally, take advantage of the platform you have as a professional athlete. Reach out to people in the financial industry, you’ll be amazed how many will be happy to talk and teach you about their expertise. You can find a mentor this way or even a potential job when your career comes to an end.
Q: Any last pieces of advice you’d share with someone hiring someone for financial help?
A: If you’re hiring a financial advisor, check his background by searching their name on FINRA’s BrokerCheck.org and the SEC’s public disclosure system. Make sure the person is registered with either FINRA or the SEC. Look for complaints or disciplinary actions that alleged serious misconduct like fraud, misappropriation of funds, and unsuitable investments. A pattern of complaints or disciplinary actions like this is a big red flag.
Know that the best advisors understand your particular wants and needs, set reasonable expectations, answer all your questions patiently, document their investment process and are fully transparent, invest accordingly while educating you on your progress towards those goals and expectations, and are ethical.
Finally, identify, understand, and minimize the risks of fraud when hiring others to manage your money so you can focus on your craft and enjoy a long career and a financially sound retirement.
is the Founder of BrightLights and a Certified Fraud Examiner and Certified Anti-Money Laundering Specialist. David previously worked as a financial regulator at FINRA . Prior to FINRA, David was licensed as a financial advisor at Merrill Lynch. David is available through Email (firstname.lastname@example.org), Twitter, and Linkedin. BrightLights also has a blog which includes case studies of frauds against athletes as well as educational pieces on fraud and finance.