Gerald Graves. Gerald Graves.

“The thrill of victory and the agony of defeat” — “ABC’s Wide World of Sports” beamed those dramatic accounts for nearly four decades. What they didn’t feature was the misery of bankruptcy and the sting of other financial woes. That’s what 78% of National Football League players reportedly suffer within two years of retirement. Further, about 60% of National Basketball Association players reportedly go broke within five years of leaving the court.

Today, financial advisors specializing in serving pro athletes are trying to prevent such misfortune.

Gerald Graves, executive managing director-West Coast for Boston Private Wealth, is one of them. In an interview with ThinkAdvisor, he describes helping young NFL and NBA players budget their money, recognize outrageous investment pitches and learn how best to respond to relatives looking for handouts, if not ongoing financial support.

Indeed, Graves, formerly chief operating officer of Charles Schwab’s Institutional Services for investment managers, is teaching athletes to be good financial stewards of their income — often a lifetime’s income earned in a short career starting when they’re fresh out of college.

Some star players, able to retire before age 30, need exceptionally long long-term financial plans to see them through for, possibly, 70-plus years.

But by virtue of their youth, these and other players are unprepared for making critical financial decisions on their own.

In the interview, Graves emphasizes the need to educate and train them about budgeting, spending, agents’ fees and taxes.

Though today’s high-profile athletes are more wary about scams than were earlier generations, being bombarded by myriad investment offers and schemes puts them in a tough spot: They’re tempted, Graves says.

Accordingly, he teaches them how to differentiate between an investment that’s good and one that’s too good to be true. The record shows that, among the slew of scammers who have taken advantage of rich athletes, there has been no shortage of unscrupulous financial advisors.

Graves is a 30-plus year veteran of wealth management services who, after more than 15 years in senior leadership posts at Schwab, was a managing partner of LEAP Partners. Through a mutual friend, in around 2005 he met 6-foot-11-inch Chris Dudley, recently retired from the NBA after a 16-year career and now a certified financial planner. The two joined M Financial Wealth Management, where Graves became president, before they launched their own firm, Filigree Advisors.

Three years ago, the FAs folded the practice into Boston Private, where Dudley, who has a degree in economics and political science from Yale, is a senior wealth advisor and director of sports and entertainment.

ThinkAdvisor recently interviewed Graves, on the phone from his Beverly Hills office. Apart from NFL and NBA players, he serves Southern California entertainment and media folks. As for athletes, a big issue is “lumpy” compensation. In the call, he explains how these clients can overcome lumpy, bumpy pay to achieve a smooth ride.

Here are highlights of our conversation:

THINKADVISOR: Why do pro athletes need a financial advisor with expertise working with this client niche?

GERALD GRAVES: The really talented athletes that come out of school will make a life’s income in just a few years. But nobody comes out of school ready for making real-world financial decisions and tough choices. So the need for guidance and advice is [substantial] because this sudden wealth can create challenges most people don’t have.

Seventy-eight percent of NFL players reportedly go bankrupt or are severely stressed financially within two years after retirement, and about 60% of basketball players are cleaned out within five years of leaving the NBA. Do these athletes just blow through their money?

It’s a little more complicated than they just “overspent.” It could be bad investment advice from people they trusted. Another big element is that one of the first things a lot of athletes do is start taking care of family and friends. Divorce has a big impact, too.

Are young athletes hip to what has unfortunately happened financially to many sports stars in the past?

More and more are aware of these really ugly statistics. I think there’s a lot more awareness around potentially being taken advantage of, so they tend to be a lot more cautious. But sometimes it’s very hard not to succumb to the temptations.

What sorts of temptations?

High-profile athletes are constantly being asked to invest in things — whether it’s private equity, restaurants, who-knows-what. Charities are also very aggressive. So it’s really important to educate them on how to handle this firehose of attention — and how to have conversations with their family about their wealth.

Please elaborate on how trusting the wrong person can be disastrous to these clients.

A lot of what we do is help athletes not become [a sad financial story] you read about in Sports Illustrated. Part of our job is teaching them that, when they’re approached with [deals] that don’t look right or smell too good to be true, instead of going, “Wow, I can make 300% if I invest in this startup today!”, they should realize this doesn’t sound like a good investment.

How to spot a bad investment?

A lot of athletes with a very high profile might be pitched investments that have exaggerated returns. So you need to help educate them that risk and return are related. If something sounds like an amazing return, it probably means there’s an amazing amount of risk, or downside, associated with the investment.

What’s your overarching goal as an advisor to pro athletes?

It’s important to educate them to own their wealth and be responsible for it. It’s teaching them to be good financial stewards of their income and helping them achieve their goals through financial plans and sound investment strategies. For a young person that gets a big salary right off the bat and who can potentially retire before the age of 30, there’s a whole lifetime of planning to do, which is a hard thing.

Do you educate them about the quirks of athlete compensation plans?

Yes. Receiving what I call very “lumpy” compensation as opposed to a [regular] paycheck every other week, say, creates a different need for financial planning. So budgeting is a key for success. Budgeting is probably the [critical] thing to keep in mind when you have this kind of lumpy income.

To what extent is it “lumpy”?

Football players and most basketball players are paid only during the season. That means you have to have a budget because you’re paid only during a certain amount of weeks or months per year. It’s really important to highlight the need for budgeting. But not every 22-year-old is ready to budget. So education and training are big.

What do you teach them about investing?

I remind them that they have a lot of time ahead of them and that one of the two pieces of “magic dust” in investing is time. So here are some very fortunate investors that not only have money but time too. But since they’re so young, they have a very long period of time to make their money last. That’s much more exaggerated than when someone retires at 65 or 70.

Does their making money through investing start with keeping a budget?

Budgeting can lead to investments that can lead to very long-term success.

Do you educate college football players about the pro-player financial landscape?

Yes. We recently did an educational forum for some football players training for the NFL [Scouting] Combine. When we put up examples of annual first-year income and expenditures, they were surprised to see the impact of taxes and agents’ fees. We showed them that if you’re paid only four or five months out of the year and then quit getting income, how fast that money can go.

What’s some insight about taxes that you impart?

We try to highlight what it really means at the end of the year if they have, say, a contract that pays $1 million or $5 million. After taxes, agents’ fees, lifestyle spending [etc.], they can expect that that [income] will equal [much less] — even if they don’t purchase anything [major].

Anything special about state taxes?

Athletes are taxed in each state they play. So you can imagine what the tax return looks like for a pro athlete who plays all over the country! State tax is complicated — especially if you’re filing 15 or 20 different returns.

Do you get into estate planning?

We absolutely provide some — constantly. We call it “wealth strategy” and tell these clients that estate planning is critical to their success, especially if they’re traded from a high-tax state, like California, to a no-state-income tax state, like Texas or Florida. There are lot of different factors involved that constantly require estate planning.

What if a pro athlete is resistant to your advice or just ignores it? How do you handle that?

You have to call them out. If it’s not a good fit, you have to not work with them because part of giving investment advice is having clients take your advice.

Do you prospect for players that have just been traded and therefore signed a new contract?

In the NBA, the second contract is potentially much bigger than the first. So if you can get in early and build that rapport, and create a great client relationship, that’s a good thing. But with us, it’s more about being introduced to people we think we can help regardless of whether they’re a 10-year veteran or a rookie. It’s about finding clients that want to succeed, who want to hire an investment advisor and do the right thing — and then helping them succeed.

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