Neagle signed for $51 million in 2000. Swedroe lists a number of other big time athletes who blew their fortunes because they were financially illiterate. Here's the rub, at least to me - it is not difficult to gain financial knowledge. It's a hell of a lot easier than walking to the mound in Yankee Stadium in front of 57,000 screaming maniacs with the bases loaded in the bottom of the ninth.
For example, these athletes could have saved millions by spending a weekend reading Millionaire Teacher (available at $11.49 used on Amazon) or a similar book. The advisor wouldn't tell them this. Quite the opposite - he would emphasize how difficult investment management is and, in the process, build up his importance and rationale for a huge fee.
Most people reading these books are learning how to build their wealth. These books are also valuable, however, for those trying to understand how to manage risk and preserve wealth--which is a big part of the game. It's a mistake to automatically assume that, because you are well off and have a high-priced adviser, you don't need this information.
My question, though, has to be on what the advisor's motives were. Advisors know that accounts of this size don't come along often and are literally a gold mine. There never is a need to try to hit the ball in the upper deck (to use a baseball pun), but especially with an account of this size. Was the advisor that greedy? I'm not naive - I know about Madoff et al. - but it does puzzle me!
Swedroe also points out that financial illiteracy is not just a problem for high-priced athletes. A large percentage of adults admit to pretty much being clueless when it comes to their investments.
The sad part, IMHO, is that it isn't difficult to remedy a large part of the problem. But until steps are taken, stories like the Neagles' will, unfortunately, be all too common.
One more reason why I prefer flat-fee advisors. Always ask if your financial planner is getting compensated for the securities he is suggesting.
ReplyDeletere MC: I agree. Although with that kind of money the client definitely has the capacity to take risk, he is also quite young and can easily generate enough income to take of his family and do what he wants by investing conservatively.
ReplyDeleteI've always been in the camp that only you and only you are responsible for your own money. So, therefore, you had better get yourself educated and assume responsibility for your own financial fate. It doesn't take much brain-power to understand index investing, MPT, the random walk, etc. But many of these star athletes seem to have no concept of risk or can even begin to comprehend the risk others are taking with their money. If only he had bought a couch potato portfolio, he'd be set for life, and so would his kids and grandkids.
ReplyDeleteYeah, this appears to be yet another preventable and costly loss. It is very sad that we don't stress and emphasize the importance of being an educated participant with respect to your money. Regardless of whether the advisor was greedy, I think much of the burden lies on the investor, as why he would work so hard for his money only to turn a blind eye. Did he think that there was someone else who cares more for his best interest than himself?
ReplyDeleteThis will truly help the advisor learn about their job.
ReplyDeletefinancial advisor education and job requirements
Somehow there us a perception that a person should not only know everything about profession but also:
ReplyDelete- the laws
- finances
Nobody expect banker /lawyer or anybody as a matter of fact to know everything your body when you go and visit doctor or about car / building when you are buying it.
This is the whole idea behind progress - you trust your professionals to help you. There is no another way around - it is simply impossible to comprehend everything in life.
The laws are not written in plain language and notion that you should read everything - just plain attempt to cover greed and lack of responsibility for the actions. IMHO.