Littleton, Colorado financial advisor Kiran Devarapalli (CRD# 6416586) was recently fired by LPL Financial in connection with alleged rule violations....Read More
Financial Advisors Are Now Paying College Athletes Through NIL
In the last few months, I have seen evidence of at least three financial advisory firms offering NIL endorsement deals to college athletes. In other words, the financial advisor is paying the athlete for an endorsement. There are likely additional firms doing the same already and it will almost certainly become a new trend in the space. One term sheet I saw required an athlete to open an account, sit for a meeting, and allow the firm to create a financial plan for the athlete. Another financial advisor is having college athletes promote him on Instagram. The obvious hope for the financial advisor is that the athlete will become a client after going pro.
Major financial institutions such as Chase, Visa, and Mastercard have been doing sponsorship deals with professional athletes for years. Financial advisors have also been paying college athlete for years – but under the table. There is little reason why an athlete shouldn’t accept money from a reputable institution. There is also no reason why a college athlete should not capitalize on the value of their brand. However, there are some things the athlete should consider before doing these deals, and more importantly, before hiring the same financial advisor to manage their money. Below are a few points to consider:
Don’t Be Blinded By The Money. Historically, many of the financial advisors that gave college athletes cash under the table turned out to be criminals. Of the ones that didn’t actually end up in jail, many of them ended up selling horrible investments that cost the athletes tens of millions of dollars. This is not to say that they were all bad, but the majority were.
As an athlete, you have to recognize that it is simply a business transaction – the financial advisor is paying you money in hopes that you become a client and they make more money off of you than what they spent on acquiring you as a client. You cannot automatically assume that the financial advisor is your friend or even cares about you. You have to think to yourself, if they are spending x amount to get me as a client, how are they going to make that money back? The math might work if the endorsement is small, but the larger the money is, the more questionable it becomes how they will get their money back other than selling investments that pay a very high commission, which usually tend to be bad.
Perform Due Diligence. Performing due diligence on a financial advisor you are endorsing or doing business with is a must. At a minimum, check the financial advisor’s background on FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure website. Once you are going pro, the leagues, unions, and teams will often run free background checks as well.
Consider What You’re Endorsement Means To Others. One potential problem with endorsing a financial advisor is that it may make your teammates and other athlete friends think that the advisor is legit since you, a great player, are endorsing him or her. If you become a client as part of the NIL deal, it will allow the advisor to reach out to your teammates, former teammates, and friends claiming that you are a client, and they should become a client too. You give the advisor credibility even if you don’t mean to. If the advisor turns out to be bad, you may have inadvertently helped the advisor recruit and hurt your friends.
Consider What You’re Endorsement Means to Your Brand. Just as endorsing any company, you should keep in mind that if the advisor turns out to be a bad person, your association with them could damage your brand as well.
You Do Not Have To Use The Financial Advisor. Just because a financial advisor gave you money in college and perhaps had you open an account with them does not mean that they have to be your financial advisor after college. Keep in mind that you are always free to interview new advisors, compare services and their pricing, and use whoever you want. The advisor took a chance by offering you NIL money, hoping you will become a client. However, you do not owe them anything (other than what the endorsement contract calls for) and you are certainly free (no matter what the contract says) to use whoever you want as a financial advisor.