Four Steps Advisers Should Take to Serve Professional Athletes
Few advisers find success in this space because the needs of pro athletes are so much more complex, dynamic and idiosyncratic than other niches
One of the biggest sports stories this summer was not anything that occurred on the field. It was the tense contract negotiations between Russell Wilson and the Seattle Seahawks of the National Football League. Talks lingered for months and ended only hours before the start of training camp, with the two sides agreeing on an extension worth a little more $87 million. The deal, which included a $30 million signing bonus, followed similar contracts signed earlier in the year by two other young quarterbacks, Carolina's Cam Newton and Miami's Ryan Tannehill.
Those weren't the only "big money" headlines for the professional athlete space this past summer. National Basketball Association free agents inked deals totaling more than $2 billion, according to ESPN, highlighted by the New Orleans Pelicans and Anthony Davis coming to terms on a five-year, $145 million extension. And then there's Major League Baseball, which sets the gold standard for professional sports contracts in this country: According to Baseball Prospectus, 26 baseball players have contracts worth more than Mr. Davis' deal with the Pelicans, including the game's highest-paid player, Miami Marlins outfielder Giancarlo Stanton, who last fall signed for $325 million over 13 years.
With dollar figures like these, it's hardly surprising to see independent advisers attempting to make professional athletes a primary focus of their practices. But while they might feel this niche market is their calling and may even land some professional athlete clients at the outset, very few advisers actually find long-term success in this space. Why? Because the needs of professional athletes are so much more complex, dynamic and idiosyncratic than meets the eye, more so than virtually any other niche market.
AUTONOMY AND SCALE
Small independent teams and solo advisers looking to serve this market should prioritize aligning with an organization that simultaneously respects their autonomy and provides the added scale necessary to serve this client segment effectively. This is where some independent producer groups, sometimes known in industry parlance as super OSJs (meaning a large office of supervisory jurisdiction), can offer value. But not all such groups are created equal. Some make wild claims about the support they can provide. Others offer resources that are, in fact, not mission-critical to success in this space.
Here are the top four things independent advisers should look for when seeking to align with an independent producer group to better support professional athlete clients and grow in this space:
1) Strong institutional knowledge of the business side of sports. If an adviser wants to serve professional athletes, a crucial first step is to gain a better understanding of the business of sports. Making connections with parents, agents and even coaches is one way to get your foot in the door, but none of it will make a difference absent an institutionalized knowledge of the various professional sports leagues.
Consider Major League Baseball as one example. There are a number of elements to think about, including the draft, compensation structure, free agency, the pension plan, the collective bargaining agreement with the owners and the arbitration system. It's very unlikely that any single individual would have mastery over all these components, much less to have had to help actual clients navigate all of them. Rest assured that no parent wants you trying out your understanding of these things for the first time on their son or daughter.
DEEP KNOWLEDGE KEY
Start by asking the independent adviser group that you are thinking of joining very detailed questions about how much they actually know about the professional athlete space. It's pivotal to join an independent adviser group that has strong command of these issues and years of experience shepherding multiple clients through a professional athlete's lifecycle, from getting drafted to retirement and beyond.
2) Scale-driven administrative support with a bias for being proactive and "looking around corners." Nearly every successful adviser has the backing of a strong back- and middle-office support system. But this function is especially vital for independent advisers serving professional athletes. Due to the demands on their time and erratic schedules, no set of clients are more unresponsive day-to-day, on issues big and small. Even during the off-season, it can be difficult to win face-to-face meetings with athlete clients.
Not only is it essential that your support staff be able to think critically and solve problems on the fly, they also have to be incredibly persistent on a proactive basis. Chasing down clients to sign off on paperwork or approve advice in a timely manner is obviously a critical component of any firm. But it's not a role that is ideally suited for an adviser, especially a solo independent adviser or member of a small team, who needs to focus more on more revenue-generating activities, not processing every day, routine requests — which for professional athletes can be anything but routine.
As part of the adviser's due diligence process, ask to speak with members of the administrative staff that the independent adviser group is proposing to make available to support you. Make sure that the admin team members actually understand the professional athlete space and can provide multiple examples of how they routinely "look around corners" on a proactive basis for the advisers they support in this industry.
3) Operational and administrative staff who have exceptionally high EQ (emotional intelligence). Not only do professional athletes travel extensively, often at very odd hours, but given the nature of their work — there's winner and a loser each night — and the fishbowl in which they operate, there are plenty of emotional peaks and valleys to navigate. That's why it's absolutely crucial for the operational and administrative support staff of an adviser focused in this niche to have exceptionally high EQ. We're talking about back- and middle-office staff who appreciate that there are good times to reach out to these clients and there are other times when it's best to lay low.
If, for instance, a client struck out four times the night before, it's probably best to leave the guy alone while he's hanging his head unless it's absolutely necessary. On the other hand, if he knocked in the game winner or hit a home run, odds are he'll be happy to talk. Firms with experience providing operational and administrative support in this space understand this and follow the day-to-day performance of their clients very closely, as well as being respectful of whatever time zone they happen to be playing in that day.
4) Squeaky clean regulatory and compliance track record. Professional athletes are ultrasensitive, perhaps more so than any other niche market, including doctors, lawyers and other high earners. It's easy to understand why: There's a long and sordid history of advisers abusing the trust of athletes and taking advantage of them.
And while the bad actors in these instances were few and don't represent the overwhelming majority of financial advisers, such tales have left an imprint in locker rooms and clubhouses. More than ever, athletes want to work with an adviser who has a long history serving this market without any hiccups or black eyes. Whether it's fair or not, solo advisers can be seen as potential rogue actors because their structure resembles previous offenders who had no one looking over their shoulder and holding them accountable. You want to be able to demonstrate that you are part of a trusted broader organization that has an established expertise in this area, more than one set of eyes on things, and the cleanest possible compliance history.
Remember, athletes have operated on teams their entire lives and they intuitively understand that no one person possesses all of the skills needed to succeed, in sports or in business. Knowing you are part of something bigger can add a comfort level and credibility.
EXTENSIVE TRAVEL PART OF THE DEAL
Obviously, other considerations exist outside of the four core items listed above. With the market very scattered geographically, advisers serving this niche group have to be willing to travel extensively — athletes don't come to you, you go to them. Independent adviser groups that specialize in this space can also benefit their advisers with cost savings by aligning travel calendars with other members of the team who might be serving the same type of clients. From splitting rental cars to dinner tabs, it can all add up over time, versus paying for everything all by yourself.
Also, while many advisers fear they'll lose their identity if they join a larger group, keep in mind that the best independent producer groups offer flexible arrangements that allow advisers to retain their own brand and still benefit from the tools, support and expertise of a broader team.
By now it should be clear why many solo advisers and other small firms, in spite of their strong desire, have difficulty making professional athletes their primary niche. Without the scale that comes with added resources, team experience and reputation, growth is hard — if not impossible — to achieve.
Pete Bush is chief executive of Horizon Wealth Management, an independent adviser group that is affiliated with Cetera Advisors. To read the original featured article, please click here.