San Antonio Spurs basketball star and two-time Most Valuable Player Tim Duncan, who recently retired from the courts, is known as one of the greatest players of all time. His basketball earnings topped $220 million over his career.
But that didn’t stop him from getting fouled by bad investments.
According to his attorney, Duncan, now age 40, lost as much as $26 million in private deals pushed by his financial advisor, who urged him to invest millions in hotels, private companies, beauty products, sports merchandising and wineries without disclosing that the advisor “owned or had financial stakes in those entities.”
Duncan alleges that the advisor went as far as forging his signature on a $6 million bank loan.
The losses went undetected until Duncan and his wife went through a messy divorce.
Unfortunately, world class athletes like Duncan are often the targets of investment schemes and cons. They’re too busy with their careers to devote much attention to personal business, and often rely on high-priced advisors to manage their affairs.
Sticking with plain-vanilla, publicly-traded investments like stocks, bonds, mutual funds, and ETFs would avoid most the problems, but many athletes – like Duncan – venture into private deals like businesses and real estate, lured by promises of higher returns. What they may not know is that the advisor touting those investments can have major conflicts of interest.
“Sometimes the investment advisor has a personal interest in the company–either directly or through a family member or associate–he is asking the athlete to invest in. The advisor may not disclose this conflict of interest to the athlete, yet may get a substantial fee or commission to put the athlete’s money into the company,” says investment advisor Andrew Goodman, writing for Forbes.
Duncan, widely regarded as one of the most down-to-earth, modest and unassuming players in the NBA, says the losses won’t derail his lifestyle. He admits he took his eyes off the ball, and says he’s learned his lesson.
Even if you’re not an NBA star or MVP material, you can learn from Duncan’s ordeal. Here’s 3 pro-level tips:
1). Avoid conflicts of interest by using an objective, fee-only (non-commissioned) advisor who is a fiduciary, meaning they subscribe to a legal standard that puts your interests first and foremost. (This high standard is the one our firm follows). On or off the courts, this is a key rule for playing successful defense.
2). Just like Duncan, start by mastering the fundamentals. Owning stocks and bonds may not be as exciting as investing in flashy nightclubs or racehorses, but they’ll help you avoid multiple opportunities for fraud and abuse. Private deals, especially those promoted by family and friends, are the investment equivalent of the Hotel California. You can check out any time you like, but you can never leave. When it comes to investments, keep it simple.
3). Keep your eye on the ball. Sit down with your advisor periodically to review investments and third-party statements, which independently confirm the value of investment accounts and holdings. Good advisors choose to “custody,” or house, your investments with a reputable, independent broker (we use Charles Schwab & Co.), thereby offering a system of checks-and-balances.
The Takeaway: Whether your game is the NBA finals, or weekend pick-up in the driveway, following these 3 simple rules can protect you from tripping up when it matters most with your money.