Professional athletes are a special breed of client for financial advisors. They typically hit their prime career-wise in their 20s, during which they can earn enormous salaries and bonuses. For young professionals who are not financially sophisticated, the tendency towards financial mismanagement can be very strong indeed.
“The first thing we do with a young player is the education component,” said Stew Gavin, retired Toronto Maple Leafs player and founder of Gavin Management Group, in a video interview with BNN. He established his firm after seeing how many young athletes are exploited because of their financial inexperience.
“With an NHL player’s salary, entry level US$1 million, they come into a lot of cash. We help them learn how to move that cash,” he continued, noting that many of his clients – about 80% of the firm’s clients are hockey players, according to him – don’t know the difference between stocks and bonds.
Another reason why such players tend to lose a significant portion of their earnings is their natural competitiveness, which leads them to indiscriminately chase gains. “The mistake is getting into high-risk investments through friends and the guys are gullible and naïve and so they get sold on the opportunity,” Gavin said. “Players want to win, so you really have to temper them to take a gradual learn. And in two, three years they’ll see it actually works.”
He advises his clients to play the way hockey should be played: with strategic diversification and smart defense. Most of his NHL clients aim for capital preservation, investing in low-volatility stocks that yield conservative returns.
“Some of these guys will make up to $100 million in their hockey careers. So if they can just save and not lose it and modestly grow it, they’ll be very well set up to transition from hockey into their next stage of life,” Gavin said, explaining further that the ideal post-career situation is financial independence with no need to work.
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