What do Tim Duncan, John Elway, Johnny Damon, Michael Vick, and Mike Sweeney, to name a few, have in common? Besides being successful professional athletes, they all fell victim to trusting the wrong person – causing them to lose hundreds of thousands of dollars.

The Hook: “Trust Me”

Trust is an easy feeling to define. It’s simply a belief that someone is reliable, good, honest and effective. But how can we validate trust? In everyday situations, most of us give trust freely and test it against the person’s actions and words. We trust a friend with a secret. We give the car keys to our newly licensed teenager. Or we give a new service provider an opportunity to bid on your business.

However, when presented with an opportunity to invest your money, either in the financial markets or as a partner in a business, do we give trust just as freely? The answer for many professional athletes is all too often “yes.” Unfortunately, the answer for those of us who aren’t pro athletes is the same.

The Lines: Have You Ever Said This?

1.      “It’ll Never Happen to Me”

Before you think to yourself, “nope not me,” consider this: how did you choose your financial planner, investment broker or retirement counselor? They’re often referred to us because a spouse, family member or friend uses them, and shared that they are the “best” and beyond reproach.

Now imagine you are a professional athlete, you have signed your first long-term contract worth significant money, enough in fact, to take care of you and your family, potentially for generations to come. You’re filled with excitement and pride. But you quickly start to receive phone calls from your college roommates, old childhood friends, extended and immediate family members, and many others who emerge from the woodwork looking to market themselves to your new found wealth.

2.      “But, I’ve known Him for So Long”

When you’ve known someone for years, and already have established a trusting relationship with them, it’s easy to extend that trust into a financial relationship as well. These “bad actors” will do and say anything to keep the trust. Without validation, this trust will eventually exploit the investor’s personal gain while the athlete experiences substantial loss.

The Sinker: “I Wish I Had Known About the Bankruptcy”

It may seem harmless to give a little trust and money to a longtime contact, but, unfortunately, in many cases, the end result can be a significant amount of money. Imagine losing $15 million like Elway did in a Ponzi scheme or the $20 million Duncan lost as a result of an advisor’s questionable investment practices. But you don’t have to be a millionaire to experience these scenarios. Regardless of the dollar amount, this happens every day and it can and should be avoided.

The Fix: Conduct a Discrete Due Diligence Investigation Before You Pull Out the Checkbook

So what do you do if you are a professional athlete, or anyone for that matter, before you invest your trust and hard-earned dollars to a financial advisor, consultant, planner or business opportunity? You verify your trust through a due diligence investigation that validates the reputation, character and past of the individual or business.

Due diligence investigations will provide information and insight into areas of someone’s past that will allow you to make an informed decision on whether this person has truly earned the trust and responsibility that you are about to give to them. This goes beyond a topic I addressed in an earlier blog: a simple Google search. This type of due diligence goes beyond the various database checks and can include information within prior litigation, corporate filing, licensing documentation and interviews of past clients.

The Scope: Don’t Forget About Social Media

These days everyone is tweeting, friending, connecting and sharing. We’ve all seen it on our news feeds: someone posting something that can have an impact on their own or someone else’s reputation. So knowing what is in the public record and within open source information is the Holy Grail. No doubt due diligence investigations can take time and resources, but if conducted professionally, they can provide you valuable assurance in a timely and effective manner. If you had to spend $5,000 to save $100,000 would you do it? What if that $5,000 saved you $2,000,000?

Over the course of the past two years, our team at Hillard Heintze has had the pleasure of working with the NFLPA, The Trust, to help former retired players understand financial advisors, investors and potential business partner’s backgrounds before they invest. Over the significant number we have performed, a vast majority have had “red flags” that gave the former players pause about moving forward. Given that losses can range from $250,000 to seven figures, we are honored to do our part to help these professional athletes protect what they have earned!

 

Pre-transaction due diligence: is a Google search enough?
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