Since the NFL draft, I have participated in multiple virtual events with future collegiate and NFL players as well as accountants and attorneys. The topic? How to decipher the different types of financial advisors.
The NFL Players Association’s (NFLPA) approved adviser list has been around since 2002. The group started the list to help players invest their money with someone trustworthy, after many athletes were defrauded. Originally, it was mostly made up of individual advisers or smaller offices, and recently some of the largest financial institutions have been approved.
The list of institutions approved by the NFL Players Association (NFLPA) has grown from one to four, giving these large firms access to the current and former player database to offer financial services. According to the NFLPA Financial Advisors section
However, what fails to be pointed out is that these approved firms are broker-dealers that aren’t bound by the oath of acting in their clients’ best interests. This contradicts the reason why the NFL created the financial advisor program: “To provide players with an additional layer of protection — not just from poor financial advice but outright fraud.”
One of the problems with the NFLPA’s list is that there are at least 45 different types of investment licenses and the term “financial advisor” is often misrepresented or overused. The three most common include the Series 6, 7 and 65. Many Americans don’t know the difference between them.
With so many titles out there, such as financial planner, wealth advisor and portfolio manager, it’s tough to know who does what. The title with the most potential conflicts is the broker affiliated with a broker-dealer. If you look at the NFLPA’s list, the majority of registered financial advisors work for the largest brokerage firms not abiding by the fiduciary rule.
I reached out to the NFLPA multiple times for comment on this article, but have not heard back.
What is an NFLPA Registered Financial Advisor?
In short, the NFL Players Association puts together a list of financial advisors that they have vetted. The NFLPA charges each advisor an initial cost of $2,500 and then a $1,500 renewal fee every year after that. It may charge larger firms more than that.
After getting approved, the financial advisor has free range to reach out and solicit any sports agent of their choice, who can then get them access to athletes. Non-registered advisors can work with any NFL player, but the NFLPA strictly prohibits these advisors from working with sports agents – or it will cost them their license.
While it’s good that financial advisors with civil, criminal or regulatory issues related to fraud are not allowed to be a part of the financial advisor program, it hasn’t completely eliminated problems. Mismanagement occurs and several players I’ve spoken with over the years don’t keep tabs on their finances – a problem on its own – much less what the advisor is doing with their own money.
Fiduciary vs. suitability standard
One of the simplest ways to know more about a financial advisor and the firm they work for is the licenses or certifications they possess. There are two main categories of financial advisors: broker-dealers and Registered Investment Advisors, also known as RIAs.
Brokers report to Finra, a self-regulatory agency, and sell investment products. To do so, they’ll need a Series 6 or 7 license depending on what they’re trying to offer, such as stocks, bonds, mutual funds, options or variable insurance products (e.g. annuities and life insurance). The Series 3 is for commodities and options. A Series 65 license allows an investment advisor to partake in general financial planning advice.
“Registered Investment Advisors,” on the other hand, register with the Securities and Exchange Commission and must abide by the fiduciary standard, which states advisors must act in the best interest of their clients. Comparatively, brokers abide by a suitability standard, meaning they sell investments that have to be suitable or “good enough” to be sold – but not in a client’s best interest. As you can see, determining what a financial advisor does is not always easy.
Insurance agents sell insurance products including life, health, long-term care and disability insurance as well as annuities and require a state insurance license – but are not financial advisors.
There is also an alphabet soup of certifications, but the most well-known is the Certified Financial Planner. A CFP can conduct comprehensive financial planning, including providing advice on investments, insurance, taxes, retirement and an estate.
One of the most legitimate ways to find out if a financial advisor is a broker or investment adviser (or both) is through Investor.gov. To learn more about a specific broker-dealer, there is FINRA’s BrokerCheck.
Are there differences between NFLPA registered advisors and financial advisors not on the list?
The NFLPA performs a background check and has its own requirements, but there is no mandatory special education or exam administered to obtain or keep the title. There’s a chance players can end up overpaying for the same type of service from a non-registered NFLPA financial advisor. Here is the code of conduct governing player financial advisors.
CFPs and CFAs
Since entering the financial industry in 2005, I’ve heard countless times about how becoming a CFP would improve my credibility. I chose to bypass becoming a CFP and continuously learn more on my own. Plus, this designation costs between $5,000 and $15,000.
While I praise people who have gone through the extensive process of obtaining the CFP, there is no proof that there are fewer complaints against CFPs or that they have more knowledge. The Aite Group study “Building a Wealth Management Practice: Measuring CFP Professionals’ Contribution” found that the designation is achieved 83% of the time by brokers of large financial firms not necessarily abiding by the fiduciary standard versus 15% to 17% that do. Another shocking statistic is the percentage of disciplinary actions against CFPs and non-CFPs is similar.
Again, most CFPs – about 85% – are brokers not abiding by the fiduciary rule. And the website’s “Find A CFP Professional,” which previously let consumers find a financial advisor by how they’re paid – such as commission, a flat fee or a combination of both – no longer discloses this pertinent information.
The Chartered Financial Analyst (or “CFA”) designation is for portfolio managers or “asset managers.” Outside of choosing investments for portfolios, the designation has nothing to do with financial planning. For players only seeking advice on investments, a CFA is the right choice. Besides that, they’d be better off investing with index funds or ETFs and skip unnecessary money management fees.
There is no proof that working with a registered NFLPA financial advisor improves a player’s financial well-being or that they’re less likely to be the victim of fraud. As evidenced by the Ernst & Young study “Athletes targeted by fraud
In the next article, I’ll discuss where athletes can check to see if an advisor or firm is a fiduciary as well as what questions to ask.
Carlos Dias Jr. is a wealth adviser, public speaker and founder of MVP Wealth (a division of Dias Wealth LLC), in the Orlando, Fla,. area, offering strategic financial planning services to current and former professional athletes nationwide.