This article will discuss how a financial advisor can help professional athlete manage their money. We’ll also discuss tax planning for pro athletes and the potential conflicts of interest of financial advisors working with professional athletes. The key to managing a professional athlete’s money is to find a financial advisor professional athletes. The financial advisor you choose should have a good track record, academic credentials, and commitment to putting the athlete’s needs first.
Tax planning for professional athletes
Professional athletes received large deductions for their agent’s fees, union dues, and training expenses in the past. These days, however, these deductions may be more difficult to justify and explain, mainly if the athlete receives outside income. So here’s what athletes should do to avoid getting caught up in this tax-planning minefield. And remember, the right tax planning can mean the difference between winning and losing the game.
An athlete should consult a financial advisor, CPA, or banker when first starting out. These individuals should discuss various tax-planning strategies with the athlete and the timing of their salary and bonuses. It’s also a good idea to talk about tax planning before starting to invest. A tax planning expert can also help athletes determine whether or not they qualify for a QBI deduction under Section 199 Cap A.
Educating pro athletes about the pitfalls of fame
Educating professional athletes about the pitfalls of fame in wealth management is essential to their financial future. The first real paycheque athletes receive is often a signing bonus, and professional services can be costly. In addition, many athletes struggle to say “no” because they feel they must be able to make everyone happy. In a recent study by Sports Illustrated, 78% of former NFL players faced financial problems within two years of retirement. Similarly, 60% of former NBA players experienced financial difficulties five years after retirement. Athletes often spend three or four years in the NFL or NHL, while MBAs may have careers that last 4.6 or five years.
Pro athletes, like other people, tend to spend extravagantly while young and not plan for the future. Some spend lavishly on upscale clothes, expensive restaurants, and luxury cars, while others fall behind on taxes and divorce, often incurring costly alimony and child support obligations. Despite being rich in material terms, pro athletes should save and invest wisely for their retirement. Their high income should be stretched out over their lifetime, not spent on frivolous activities.
Conflicts of interest for financial advisors
Many financial advisers are becoming more aggressive in their marketing strategies and using social media to attract athletes as clients. For instance, former NBA player Tim Duncan lost millions of dollars to a fraudulent financial advisor, who pleaded guilty and was sentenced to prison in 2017. In addition, the director of the NBA players association’s financial advisory firm was arrested for forging client signatures. A recent exposé on CBS’ 60 Minutes revealed that the NFL Players Association did not adequately vet its financial advisors and some players lost $43 million in an investment scheme.
A conflict of interest emerges between an adviser and a client when the interests of both parties are at odds. Generally, financial professionals sit down with their clients to determine investment objectives, risk tolerance, time horizon, and other factors impacting their investments. They also identify any limitations that their clients wish to place on the investments they make. In addition, they generally hold discretionary authority in making financial decisions for their clients.
Managing a pro athlete’s money
Professional athletes are young, and their newfound fame and wealth can come with many responsibilities. While they might not be savvy when it comes to financial planning, they must be aware of how to protect their wealth. They should choose their financial advisors carefully. They should also be mindful of any conflicts of interest between them and professional athletes. In addition to the risk of losing their career, many professional athletes must plan for the fact that their earnings will be lower later in their careers. Financial planners help clients build cash reserves during their peak earning years to maintain their lifestyle even after retirement. These cash reserves will vary depending on what the athlete plans to do with their money after retiring. Injuries and other circumstances can make it necessary to build up cash reserves.