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The 49ers' new top secret weapon: A robo-advisor

Too many professional athletes end up in a money mess due to lack of financial literacy, overspending and bad investments—sometimes helped by hangers-on and dubious financial professionals. Professional sports leagues and teams haven't done nearly enough to ensure their players' financial success either.

Can a robo-advisor design a play that will ultimately help NFL players pass the financial test?

The San Francisco 49ers—innovators in offensive schemes and use of big data by the sports front office—are now going where no team has gone before, or gone alone, signing a deal with robo-advisor Wealthfront to offer employees and alumni access to Wealthfront's fee-based online investing platform. The 49ers will pay the advisory fees on up to $100,000 in assets invested in an account through Wealthfront.

Willard | iStock / 360 | Getty Images

Wealthfront, based in the Bay Area (and a CNBC Disruptor 50 company), knows a thing or two about young people with money, having made a name for itself as the robo-advisor of choice to employees of Silicon Valley firms, including Facebook and Twitter, especially surrounding their IPOs. The 49er deal fits right into the West Coast playbook (the marketing one, at least)—the closest football team to Silicon Valley aligning itself with a Silicon Valley-backed, tech-based investing platform.

But it's not clear if the 49er-Wealthfront deal will be a model for other pro teams, or if it will help close the financial literacy gap among young, and suddenly rich, professional athletes, if it were extended to current pro athletes.

Inside the NFL advisor fiefdom

Several aspects of the deal are positive, even in the opinion of human advisors being challenged by the rise of online investing. For one, the 49ers are being proactive in offering investing support.

Currently, the only investing program for NFL players is provided by the NFL Players Association, and financial advisors who want to participate must pay a $2,000 application fee plus $500 annually for a membership.

Ed Butowsky, managing partner at Chapwood Investments and a financial advisor featured in ESPN's 30 for 30 "Broke" documentary about athletes and money, said it is good to see a team taking initiative, but really, teams need to take the initiative with financial planning for their current players "amid the league politics that often hold players hostage when it comes to getting the financial help they need." He added, "All teams should go it alone. The leagues have their own fiefdoms."

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The rise of robo-advisors—and the online platforms' use of exchange-traded funds—also reinforces a basic principle of investing that is often lost when complicated investments are pitched by advisors to athletes.

The biggest "crime" that occurs in asset allocation decisions is investors being convinced they need individual stocks, private equity and venture capital. Butowsky said unless an individual has over $3 million after-tax already socked away, there is no reason to invest in anything other than broad investments such as sector-based ETFs.

"The financial education of players does take a back seat for teams in the business of filling stadiums and positioning themselves for the highest level of success during the season. The last thought is, 'oh, by the way, maybe you should look after your 401(k) and talk to a financial advisor. Unfortunately, it's last on the list of importance." -Trevor Johnson, senior v.p. RBC Wealth Management's Steeplechase Wealth Consulting Group

Some financial advisors argue that instead of helping to solve players' financial problems, the deal could present a new set of risks for pro athletes, including after their playing days are done.

First, a team should not recommend any one advisory firm to players, as it presents a conflict of interest. (The players association financial advisor program—for which an SEC no-action letter was issued—specifically precludes the NFLPA from recommending any single advisor or advisory firm to a player.)

"There could be a conflict of interest here," said Trevor Johnson, senior vice president and financial advisor in RBC Wealth Management's Steeplechase Wealth Consulting Group, which works with NHL players and other pro athletes.

"Agents and organizations typically want to give players a variety of companies they either screen or test," Johnson said. "I prefer an unbiased approach letting players select own their own advisor rather than enticing them by covering the fees of one advisor platform. Do the players gravitate there because don't have to pay management fees? Is that in the players' best interest?"

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Johnson also said for many players, investment management should not even be started before the financial basics, including banking, checking and savings, are fully taken care of, and fluctuations in income are understood. A Wealthfront program, even with good intentions, could prematurely push players to take investment risks, especially if a similar program were extended to current team rosters.

The NFLPA did not respond to a request for comment on the 49ers partnership with Wealthfront.

A play that could fool them

A robo-advisory firm being selected to handle players' assets could also give financially under-educated individuals the wrong impression: that there is no more to managing their money than selecting an asset allocation plan online, which leaves out key financial considerations including family situation, budgeting, insurance and tax and accounting.

The robo-advisor trend is for real, and for one very good reason, according to advisors—basic investment asset allocation is a game of scale and can be scaled up online cheaply and efficiently. That should free up financial advisors to focus on the more complicated tasks on behalf of clients.

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"Scaling up investment management using low cost ETFs is a great model to get younger employees kickstarted," Johnson said. "While that's OK for the average investor just starting out in a career, working with pro athletes is complex and should not be left to a computer program."

He added: "I would hope that players don't discount the human element to it. ... Buying stocks, bond and mutual funds is only a piece of the total wealth management picture."

The 49ers declined to comment. After first agreeing to answer questions about the deal, a Wealthfront spokeswoman said there had been miscommunication and the company was limited in the number of interviews it was allowed to participate in about the deal, and could not provide comment. She declined to say whether it was Wealthfront itself, the 49ers or the NFL that made the decision to limit interviews.

Sudden money, hasty conclusions?

The marketing appeal of the 49er-Wealthfront tie-up also diverges from the details in the blog post from Wealthfront CEO Adam Nash that the company referred to in declining to provide further comment. In the blog post Wealthfront displays a side-by-side comparison of a young Silicon Valley employee and a retired player and says the idea to work with the 49ers came to it as a result of many athletes finding its services on their own.

Advisors, though, say that this comparison is a stretch. Both come into "sudden money," but there are many critical differences. Technology sector employees can take their skills with them for next four to five decades in high-paying jobs across many companies, and often have prestigious degrees. Athletes, on the other hand, can have very short careers and few options for work once their playing days are over.

Whether the 49ers novel approach will be replicated by other teams and offered to current players at any point is hard to say.

There's a lot standing in the way; for one, the NFLPA's existing financial advisor program, as well as the fact that most players have agents and individual advisors who oversee their assets.

At a legal level, teams may also be reluctant to take on liability related to directing players to one advisory firm. (In the SEC no-action letter on the NFLPA advisor program, the SEC says it does not consider the NFLPA an investment advisor under federal law due to the creation of its advisor program.)

"The financial education of players does take a back seat for teams in the business of filling stadiums and positioning their teams to have the highest level of success on the field during the season," Johnson said. "The last thought is, 'Oh, by the way, maybe you should look after your 401(k) and talk to a financial advisor. Unfortunately, it's often last on the list of importance."

By Eric Rosenbaum, CNBC.com

Technology