Advisor cries foul on athletes' financial troubles, legal woes

Amid reports that former New York Yankees players Jorge Posada and Jose Contreras are suing the same pair of Florida financial advisors for fraud, at least one financial planner who works regularly with professional athletes said that a lack of investor awareness, along with cultural factors, may have helped lead both retired Bronx Bombers—and many other professional athletes—into their current fiscal straits.

Jorge Posada
Gustavo Caballero | Getty Images
Jorge Posada

Posada, who retired as a Yankee catcher in 2012, is suing financial advisors Juan Carlos Collar and Anthony Fernandez of Quantum Family Office Group for allegedly scamming him out of $11.2 million via bad real estate and hedge-fund investments, according to reports in the New York Post and sports website Vice Sports. According to the latter source, Contreras—who most recently pitched for the Pittsburgh Pirates—is also suing the same advisor team, for alleged losses of almost $2.4 million.

Ed Butowsky, managing partner at Chapwood Investments—who is also featured in the film "Broke," an ESPN "30 for 30" documentary chronicling professional athletes and their financial woes—described the players' legal dustups as "not surprising."

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He pointed to what he said were two factors commonly at work in similar situations: predation by unethical advisors professing both ethnic solidarity and superior wealth-management skills, and the tendency among many inexperienced investors to overallocate to illiquid investments, such as real estate.

"You'd be shocked at how many players from Latin America are in big financial trouble because … a lot of them do they not speak the [English] language and they're trusting people they're familiar with," Butowsky said. "These [advisors] might have spoken the language, and the desire to trust somebody—because you don't know where else to go—is probably the cornerstone of what happened here."

"Are they targets? Yes," he added.

"A lot of people—and this is true of anyone, athlete or not—will invest in things they're familiar with, that they can see and touch." -Ed Butowsky, managing partner at Chapwood Investments

Both newly flush professional athletes and more seasoned ones have limited productive working lives and must invest earnings wisely to ensure long-term financial stability. Lacking sufficient financial literacy—and often somewhat stocks-shy, post 2008 market crash—many such investors are easily steered away from the market and convinced to overinvest in real estate and other illiquid investments that seem more tangible, potentially lucrative and "safe."

"A lot of people—and this is true of anyone, athlete or not—will invest in things they're familiar with, that they can see and touch," said Butowsky. "They don't understand that there's only been two 10-year time periods where anyone lost money in the stock market—but that's not what they're told."

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Butowsky advises that his athlete clients—after socking away $3 million in after-tax savings—allocate no more than 10 percent of their money to illiquid investments. "Between real estate and venture capital … you're going to allocate no more than $300,000 and separate that into 10 different investments that are not related to each other," he said. "You're not then going to go broke, if you control your spending."

Getting another opinion can help, too, said Butowsky. "Not only a second opinion but a third and a fourth," he said, referring in particular to real estate investments. "Most financial advisors are not trained to advise people on real estate transactions."

Unscrupulous or ill-informed advisors will, he said, tell unsuspecting clients, "Don't go into that [stock], but look how cheap this [real estate] is." He added, "These people probably weren't skilled to do so, and before you know it—guess what—you've got $11 million gone off the face of the Earth."

Investors would do well to up their own financial literacy quotients, as well. "We can fix this problem with good education," said Butowsky.

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The problem for some professional athletes is that they don't receive adequate educational support. The National Basketball Players Association runs a well-regarded Financial Education Program through its Players Programs Department, and the National Football League Financial Education Program refers member athletes to approved credit bureaus and counselors, FINRA staff and investment-education providers. It also runs a Registered Player Financial Advisor program for financial planners who pay a fee and meet certain professional criteria.

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But Posada, Contreras and their former teammates are out of luck, because the Major League Baseball Players Association currently does not work with financial advisors and provides only the most basic finance literacy training—for rookies only.

Butowsky said that may change. "I'm trying to put one [financial literacy effort] together, because most of my clients are Major League Baseball players."