Tag Archives: windfall

Ex-NFL player, Mega Millions winner press $7.8M claims against Morgan Stanley

What do sports super-stars and lottery winners have in common?  Both are in financial danger.

That’s a strange thing to say about people who are often multi-millionaires.

The problem is that neither the talented athlete nor the lottery winner is usually any good at managing money.  That’s a harsh judgment to make but too many star athletes and lottery winners end up broke.  They end up broke for many of the same reasons:

  • They believe that the financial windfall they have received is inexhaustible.
  • They attract too many groupies and hangers-on who are after their money.
  • They spend the money they have received instead of investing it for their old age.
  • The money they do invest is often lost because of poor, or dishonest, advice.

From Financial Planning magazine:

Former NFL cornerback Asante Samuel and Mega Millions lottery winner James Groves are jointly seeking $7.8 million in damages against Morgan Stanley related to investment recommendations made by a now-barred broker, according to regulatory filings….

Samuel and Groves filed their claims in FINRA arbitration in July, according to a copy of Parthemer’s CRD. From 2003 to 2013, Samuel played for several NFL teams, including the New England Patriots and Philadelphia Eagles. Groves won $168 million in the Mega Millions lottery in 2009.

In this case, Asante Samuel was persuaded to buy a night club, probably hoping to capitalize on his fame as a football player.  It’s fairly common for professional athletes to open restaurants or night clubs.  The problem is that even for professional restauranteurs, the failure rate is shockingly high, and athletes don’t have the training or time to run these businesses.

The story of many lottery winners is one example of ruined lives after another.   Bud Post’s story is not unusual.

When William “Bud” Post won $16.2 million in a 1988 lottery, one of the first things he did was try to please his family, according to this Bankrate article.

Unfortunately, his kin was of the unfriendly sort. Post’s brother hired a hit man to kill him, hoping to inherit some money. Other family members persuaded him to invest in two businesses that ultimately failed. Post’s ex-girlfriend sued him for some of the winnings. Post himself was thrown in jail for firing a gun at a bill collector.

Over time, Post accumulated so much debt that he had to declare bankruptcy. He now relies on Social Security for income. “Lotteries don’t mean (anything) to me,” he is quoted as saying—after he lost all his money.

Is there no hope for professional athletes and lottery winners?  Yes, but it requires them to know their limitations, which may include hiring professional help before they begin spending their new-found wealth.

If you’re a sports star or lottery winner who would like to retire rich, and you want to have someone to talk to about the way you can fend off the vultures that your wealth and fame attract, contact us.  You don’t want to spend your time in court trying to get back what you lost.

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You and your Super-Yacht.

The OceAnco – Igor Lobanov Y708 85.60m Superyacht – Superyachts ...

Have you ever glanced at the pictures of the rich and famous having a party on the deck of a Super-Yacht somewhere in the Caribbean or Mediterranean?  Have you wondered what would it cost to party like that?  Well, it is expensive, but not impossible.  You see, they probably don’t own the yachts, they rent them.

In the April 15th issue of Private Wealth, they discuss what it takes.

Lounging in the Caribbean aboard a beautiful, 100-foot superyacht sounds pretty great, but it might be hard to relax when you’ve got a hefty engine repair bill to pay and crew payroll paperwork to review. The annual cost of operating a 180-foot vessel is $4.75 million, or about 10 percent of the yacht’s original cost. With high maintenance costs in mind, ultra-high-net-worth individuals looking to explore the high seas are increasingly turning to charters.…

A week on a superyacht can cost $115,500 to $190,000, on average, the report found, while the average purchase price is a bit more than $10 million …

Of course that puts it out of the price range of all except the ultra-high-net-worth individuals; those with a minimum worth of $30 million.

But the number of ultra-high-net worth people keeps growing and they often decide to rent a yacht or lease a jet rather than buying one.  It’s a business that keeps growing.

And for people who are climbing the financial ladder (or win the lottery), it doesn’t hurt to dream big.

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What Rich People Need to Know

I ran across an article at Market Watch titled “Ten things rich people know that you don’t.”  It listed the usual things:

  • Start saving early
  • Automate your savings
  • Maximize contributions to 401(k)s
  • Don’t carry credit card debt
  • Live below your means
  • Educate yourself about investing
  • Diversify
  • Hire a qualified financial advisor

All of that is something to take to heart when you’re young and just starting in life.  But what do people who are already rich need to know?

Lots of people get rich without following the rules.  They may start a successful business, enter a highly compensated profession, climb the corporate ladder, win the lottery, become a sports star or inherit a fortune.   Once you are rich, the number one objective for most people is to stay rich.  One very successful financial advisor with just 28 very wealthy clients said

“People don’t come to me to get rich, they come to me to stay rich.”

That’s the role of a good financial advisor.   Their job is to  do more than manage their client’s portfolios, it’s to take care that all of the other boxes are checked off:  to diversify the client portfolio, to educate the client about investing, to see to it that they live within their means.  In many cases they take care of family issues, lifestyle issues; the kinds of things that family offices do.

It’s what we do.  It’s what our clients expect.

Have a wealth maintenance question?   Contact us.

 

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What Sports Stars and Lottery Winners Have In Common

According to a story in Yahoo Finance:

Former NBA player, Antoine Walker, 38, earned over $110 million throughout his NBA career, more than four times the average player in the league. All that money, though, didn’t stop this All-Star from going broke.

Walker’s financial problems began his first year in the league as a 19-year-old rookie with the Boston Celtics in 1996. Although he had a financial advisor help him establish a plan for his long-term finances, Walker had other ideas about what he wanted to do with his newfound wealth.

“Through my young arrogance, being ignorant to a degree and being stubborn and wanting to do my own thing with my money, I went against a lot of his wishes,” Walker told Yahoo Finance.

The rest of the story is predictable. Walker spent lavishly on his relatives, buying them multi-million dollar houses and expensive luxury cars. He spent lots of money on himself and got himself a “posse”

His generosity extended beyond his family to his many friends and acquaintances. From lavish all-expenses-paid trips to luxury gifts for his friends, Walker made sure everyone in his circle enjoyed the lifestyle he led. With his fellow NBA players, Walker gambled extensively – losing $646,900 in just two years.

He then made things worse by going into debt, “investing” in real estate. For a financial rookie he poured money into things he didn’t understand, undoubtedly persuaded by sales people who saw a naïve man with lots of money.

…Walker had a plan to put his income to work and bought more than 140 properties along the South Side of Chicago. Whether it was land to build on or commercial and income properties, Walker had a full-range of real estate investments meant to maintain the lifestyle he had built for his family after retiring from the league.
With the housing bubble and bust, Walker found himself defaulting on loans where he was the personal guarantor, losing value on land, and failed to get a handle on the legal issues that followed.

He finally declared bankruptcy, with liabilities exceeding assets by over $8 million.

This is almost exactly the same path that most lottery winners walk. Unaccustomed to their sudden wealth, they buy things for themselves, their families, their friends and anyone who has a hard-luck story. If they are especially unlucky, they get sold “investments” like real estate that they don’t understand, on credit. That is a recipe for disaster. They imagine that the pot of gold they found is unlimited. It isn’t.

They may find a financial advisor. A good financial advisor will tell them “no.” But people who come into sudden wealth rarely take no for an answer. So they ignore the financial advisor. It really doesn’t take that long to run through millions of dollars.

So what’s the lottery winner or the next highly paid sports star to do? The first thing is to realize that there is no such thing as unlimited wealth. The second thing is to learn to say “no” and get a good financial advisor who will say that for you.

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Sudden Wealth Syndrome

The person who suddenly comes into wealth needs much more than financial planning.  Lottery winners, those who inherit wealth, people who sell a family business often fall prey to the “sudden wealth syndrome” and frequently lose what they have gained.  Sudden wealth recipients’ immediate concerns may have little to do with financial planning or investment strategies. Even people who know they’ll be getting money at some point—such as an inheritance—may significantly underestimate the amount. Failing to address the psychological ramifications of sudden wealth can lead to financial ruin.  The assistance that these people need is often more psychological than financial, at least at the beginning .

Newfound wealth is usually a very emotional thing and people usually make terrible financial decisions when they are emotional.  People who win the lottery or inherit wealth need to give a lot of thought and decide what they want their lives to look like.  Some of the dangers that these people face include:

  • Thinking they have more money than they do.   No matter how much it seems at the beginning it’s always a finite amount and can run out if not properly handled.
  • Windfalls are viewed very differently than money they that’s been worked for and therefore is often spent irrationally.  No one really “needs” a yacht.
  • Many immediately quit their jobs.  The problem then becomes: what are they going to do with their time.  This can lead to a “honeymoon period” where they go on spending sprees and find their lives empty of meaning.
  • They become suspicious, including suspecting their advisors of being more interested in their money than them.
  • They are barraged with business propositions, requests for loans and the like.   This is where a trusted advisor can help.  I recently had a portfolio review with one of my clients who is a doctor.  Physicians and surgeons are constantly barraged with business and investment proposals because they are viewed as wealthy.  I offered to review these proposals for him and tell him which ones were legitimate, reasonable and appropriate for him.  An advisor should be willing and able to do the same thing for those who have acquired sudden wealth.

Advice to those who achieve sudden wealth.  Don’t do anything sudden.

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Learning From Gandolfini’s Estate Plan ‘Disaster’

An article in Private Wealth calls James Gandolfini’s estate plan a disaster.

Tony Soprano may have been an expert at hiding his money from the feds, but actor James Gandolfini, the recently deceased actor who portrayed the fictional New Jersey mob boss on TV, apparently was not.

Moreover, advisors say that wealthy families can take some lessons from the mistakes the award-winning actor made in mapping out his estate plan.

Federal and state tax collectors will take more than $30 million of Gandolfini’s estimated $70 million estate, according to published reports. Gandolfini, who starred in the acclaimed HBO series The Sopranos from 1999 to 2007, died of a heart attack while vacationing in Rome last month at age 51. Estate attorney William Zabel, who reviewed Gandolfini’s will for the New York Daily News, called it “a disaster.”

People rarely plan well for their death.  That’s one of the reasons I wrote BEFORE I GO, to help people plan for the one thing that we can guarantee will happen to us all. 

The reason is psychological.  Planning for death forces us to realize that we are mortal and the end comes for all of us.  In addition, Gandolfini died in the prime of his life, illustrating perfectly that the assumption that we’re going to live to a ripe old age is not well founded.  We can be struck down by a heart attack, a bus, or some fatal disease.  That’s why once we have accumulated a modicum of wealth, we need to meet with a financial planner, an estate planner and a tax expert.  We should also be prepared to involve insurance professionals. 

If 29-year-old Mark Zuckerberg doesn’t have a platoon of professionals looking into these issues, he’s making a big mistake.  His wealth just increased by $3.8 billion … today.

Zuckerberg

 

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Wealthy Investors and Financial Advisors

According to STAT BANK in the Journal of Financial Planning

  • 45% of ultra-high-net-worth investors say friends and family are the biggest influence on helping them find a financial advisor.
  • 75% of millionaire investors say working with a financial advisor improves their knowledge of investing.

Both of these statistics is borne out by our experience.

Referrals are the primary means by which advisors of any kind get clients.  This is true whether it’s a doctor, lawyer or financial advisor.

A good financial advisor is an educator.  Some clients don’t care to understand the process of investing, but most people would like to understand the rationale behind the decisions that are made with their investments.  It is a mistake to think that people with a lot of money are “smart” about investing.  The fact is that the opposite if often the case.  People can accumulate a lot of money by earning it, inheriting, or via a windfall.  None of these require people to be smart about stock and bond investments.  A successful business owner, for example, may be great at building a business, but outside of that area of expertise may not know much about managing the money he has made.  However, he runs the risk of confusing success in one area with knowledge in another.  The wealthy sports star who ends up broke after he retires is a great example.

Like other professionals in law, medicine, engineering or rocket science, expertise in investing is best left to the experts.

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Your Own “Fighter” Jet

If you already have everything and are looking for a little excitement, how about a two-seater sportscar of the sky?

The Saker S-1 is a private jet inspired by fighter jets and will be capable of hitting a top speed of Mach 0.99 and have a normal cruise speed of Mach 0.95.  Its cruise speed is a few knots higher than the fastest private jets currently available.

The S-1 will be a tandem two-seater including the pilot’s seat.  It is powered by a pair of Williams FJ44-4 engines.  Its 500 gallon fuel tank gives it a range of about 1,390 nautical miles. The standard range can be increased to about 2,000 nautical miles by adding two external 100 gallon tanks.

Saker is currently taking pre-orders for the S-1, which is expected to cost between $5 million to $7 million.  The jet will have an operating cost of about $2 per nautical mile.  Deliveries will not start until 2019.

I’m not sure if it includes flying lessons.

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Financial planning for everybody

Did you like the Porsche in the previous post?  There are a few ways you can get it: inherit the money from rich parents, win the lottery, or prepare a plan to get enough money together to be able to buy one.

We have previously noted that the biggest regret that rich people have is that they did not start planning earlier.  What keeps people from getting a financial plan?

  • Not enough time?   This is usually accompanied by not knowing where to start.  After all, if you have never prepared a financial plan before you probably don’t have the expertise to do one that is actually worthwhile.
  • They cost too much?  Lots of financial firms will prepare a financial plan for you but will charge thousands of dollars.  It may be too costly at your stage in life.
  • You want to manage your own money?  Most of the major investment firms that offer financial planning want you to open an account with them before they will prepare a plan.

Whatever the reason, many people spend more time planning a trip than planning their financial future.  If you want to see what we can do for you, get in touch with us.

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Who should have a family office?

A “family office”  is a dedicated group of people who handle a family’s financial, legal and tax needs, including investment management and other services.

The cost of creating and staffing a family office with experts in tax planning, legal advice, financial management and estate planning can be substantial.

“A full-service single family office is a formidable expense,” …  starting with “large” salaries for a chief investment officer and accompanying staff. CIO salaries can range from approximately $500,000 to $1 million or more, industry sources say.

Depending on who you ask, families with assets under $100 million should not consider it.  Over $500 million should definitely consider it.

But there are drawbacks, including cost as well as risk management and compliance issues in a post Dodd-Frank environment. “The analogy I like to use is the private jet,” … “It’s not the most economical way to travel, but if you can afford it, it’s pretty nice.”

If someone wins today’s Powerball jackpot, they may fall into the “maybe” category.

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