Yesterday's post on Denny Neagle's financial woes generated some interesting comments on the need for personal responsibility in the personal finance world. One point personal finance bloggers understand well is that nobody knows your financial situation better than you do. Up to a certain point, everybody should know basic investment and financial planning concepts - they need to take some responsibility for financial decisions. This definitely includes the cost of different approaches to managing assets.
Having said this, I believe I am probably not as hard-nosed as some of the commentators. I understand exactly what they are saying when they argue that it was Neagle's fault in being taken advantage of; but, still, I try to put myself in some of these athlete's shoes. At the time they sign professional contracts, they are young and naive. Supposedly they have agents working on their behalf = there may be a whole back story here that hasn't come out. Where was the agent who undoubtedly received big bucks as his representative? I believe that major league baseball (maybe the union) has a list of approved agents and possibly approved asset/wealth managers.
Somewhere along the line, I believe, these young people signing these massive contracts should be exposed to the various views on how to invest. At the table should be a rep explaining that many very astute market participants (including Warren Buffett, John Bogle, and Burton Malkiel) believe a large portion of assets would be best invested in low-cost, well-diversified, index funds structured with an allocation that reflects risk tolerance. In the case of athletes, the asset allocation would take into account that there is no need to take an inordinate amount of risk given the size of the contracts.
Then, if the athlete, on the advice of his agent, goes the limited partnership/alternative investments/ high priced hedge fund route, I join others, wish him/her the best, and have no sympathy if he/she ends up like Neagle.
To me, all of this points to the need for strong financial literacy programs in high school. The athletes who blow enormous wealth get the publicity. The average person ripped off by the financial services industry goes unnoticed.
Before Google went public, they put all their employees through a financial literacy program.
ReplyDeleteI wish more companies did this.
I agree, if you are rich and wealthy, put yourself through some such program before signing up your financial advisor.
re MC: Yes Google is proactive. They have an author series for their employees. I actually ask prospective clients to view this Google author series presentation by Dan Solin:
ReplyDeletehttp://www.youtube.com/watch?v=Y0LSG2omvEg
To me it's not about whether you accept an approach but more about being exposed to different approaches. Sort of like seat belts - let's look at the data on traffic fatalities etc. and then you can make up your own mind about belting up or not.
My thing is that there are really smart people out there who recommend a very specific way that people should invest but people are never exposed to it and it can destroy their retirement.
That's a great post. A good agent should lay out for their client (whether an athlete, entertainer etc.) exactly what the options are. Then, if the client insists on doing a particular thing, it is their issue and not the agent's.
ReplyDeleteLet's face it, the agents and financial advisers that surrounded Neagel were more interested in getting their cut of his wealth than looking out for his long-term well-being. The problem with these athletes and other celebs who get lots of money quickly is that they don't know who to trust and get scammed by the slickest salesman. Sorry, but I would do my own homework investing a nickle with anyone, and get myself educated on investing, and read up on the worst case scenarios about how other athletes lost all their money and make sure I didn't repeat those same mistakes.
ReplyDelete