I had a huge response the other day to a tweet about the former tennis star Boris Becker, in which I shared a newspaper story about how he came to lose his £100 million fortune. One of the catalysts of his demise, according to the Telegraph, appears to have been a series of high-risk investments, including in Nigerian oil firms.
Why, I wondered, did someone as intelligent as Becker appears to be, feel the need to gamble with his wealth, when simply putting his prize money in the bank would have set him and his loved ones up for life?
The comments I received suggested that this is a big problem. For whatever reason, advisers said, top professional sportspeople are not receiving the quality of advice they need.
To find out more, I decided to interview Manny Cabrejas, a financial planner who has specialist experience of working with high-profile International Premier League footballers.
Manny’s story is an interesting one. He worked for several years as a private banker in Europe and the Middle East, where his clients included Royalty and other ultra-high-net-worth individuals. During that time, Manny grew dissatisfied with the industry’s approach to client fiduciary relationships and with high-fee investment management.
He relocated to the UK and set up Mamucium Capital. Based in Manchester, the firm provides holistic financial planning and wealth management solutions placing client at the centre of everything it does.
Here Manny shares his views on the Becker story, explains the broader problem and suggests some possible solutions.
What was your reaction to these latest revelations about how Boris Becker came to be declared bankrupt?
Unfortunately I wasn’t at all surprised by this story as this is a widespread problem bordering on an epidemic. I’m old enough to have seen this happen many times over, including to sporting legends such as Michael Jordan and Mike Tyson, and it is still going on today.
For example, in the US the statistics reveal that by the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress. Within five years of retirement, an estimated 60% of former NBA players are broke. Closer to home, research by Xpro, a charity for ex-soccer players, suggests that three out of five Premier League footballers – who earn an average of £30,000 per week – declare bankruptcy within five years of retirement.
Those are staggering statistics. Is there something about sportspeople that makes them more likely to find themselves in this sort of situation?
It’s not so much to do with them being sportspeople as the fact that they are classified along with other high-net-worth Individuals as being able to afford to take on higher risks with a proportion of their investment portfolios. I believe it is more to do with life stage, investment experience and, most importantly, the advisers they decide to work with. I have seen examples where advisers have not explained the high risk profile of these investments clearly as they were getting paid big commissions.
You wouldn’t expect to see a 20-year-old with no experience being made the chief executive of a company with a £5 million annual turnover and expect them not to make mistakes. Therefore trusted advisers who understand a professional sportsperson’s requirements are worth their weight in gold, especially if it stops them making ill-fated decisions. Having a good team of trusted advisers around them akin to the traditional family office structure we use to see in the Middle East is key.
It would be interesting to find out whether Becker’s advisers clearly explained the risks involved and also whether he fully understood them. I don’t personally know Boris so it could well have been a case where he was fully aware of the investment risks and that the appeal of higher returns got the better of him.
Professional sport is a very competitive environment. Do you think that plays a part?
It is hugely competitive. Those who get to the top of their profession have a level of dedication, determination, sacrifice and skill that the majority us do not possess. I see competition on the playing field, the training ground and also in the car park. However when it comes to investing, common sense needs to rule and that’s where I come in. The old adage ‘if it sounds to good to be true it probably is’ still fits perfectly.
There will always be people out there with no qualifications pitching unregulated high yielding investments. Only last year we saw one foreign exchange company which had sponsored Chelsea Football Club have their plush London offices raided by City of London police investigating a £50 million ponzi scheme guaranteeing 60% per annum investment returns!
What about the role of agents?
The rôle of agents has never been more important, especially with recent deregulation. The obvious problem is exploitation. If you’re a young player and you’ve got two people trying to sign you, you should be signing with the professional lawyer, with all of the resources that he and his legal firm can bring to the relationship, who knows the rules and regulations inside out and will negotiate your image rights, property contracts etc. in a professional way. However we still see some young players signing with the guy who doesn’t even know the rules and regulations but will take them out clubbing, buy the watches and party with them in Ibiza and Vegas! It’s only towards the end of their careers or when they finish playing that they realize their mistakes and then it can be too late.
Almost universally the almighty agent will say, I’m going to take care of everything in your life, your finances, your insurance, your endorsements, your investments, your cars etc. They will give unqualified advice and make unsuitable recommendations that are clearly not in the best interest of the client. I’m still scratching my head as to how Paul Pogba’s agent was able to justify the reported £41 million agent fee he took from him for the Manchester United deal?!
We only work with the most respected and professional football intermediaries in the industry as reputation is everything. They take care of the football side and we take care of the money side. This leaves the players free to focus on what they do best, with the peace of mind that they have a team of trusted professionals working hard for them behind the scenes.
So how did your work with professional footballers come about in the first place? And how satisfying is it?
I used to play a bit myself back in the day and was therefore able to leverage some of my old football contacts and relationships to get started when landing back in the UK. We have steadily built up our reputation by always putting our clients’ best interests first and basically doing the right thing by them. We work closely with all our clients as their trusted advisers to help them build up their wealth pots in the most tax-efficient manner. We only use HMRC-approved schemes. Our aim is to build bespoke and diversified property and investment portfolios that will provide post-football income streams that replace football income.
The financial services industry is undergoing some massive changes, and we are leading the way with our early adoption of cutting edge digital technologies and propositions such as our Personal Financial Portal and our App, which allows clients to see all of their finances on any web-enabled device or mobile and communicate securely with us.
I really enjoy working with the players and never take for granted the trust they have placed in me. The football world operates at such a fast pace. In that sense there are real similarities with the investment capital markets.
We hear again and again about footballers earning huge sums of money and still getting into financial difficulties. Why do you think that is?
There are so many different reasons ranging from life and investment experience, poor financial and investment advice, expensive divorces, high discretionary spending believing the income will last forever, fraud etc. However having a good comprehensive financial plan in place that they stick to will steer most of them away from getting into financial difficulties.
And are the clubs or the player’s union, the PFA, trying to do something about it?
The clubs and the PFA could be doing a lot more than they are currently doing too. I personally believe there should be a duty of care in place for professional sportspeople who are not financially educated and are suddenly hit with the sudden wealth effect at such a young age.
You’re an advocate of index funds. What sort of reaction do you get from your more high-profile clients when you recommend a passive approach?
We prefer to use the term index investing as there is nothing passive about our approach to managing our portfolios. Where appropriate we remove the active manager risk component and high expense charges for long capital growth equity strategies. We actively manage our investment portfolios and asset allocation strategies using low-cost index funds to populate our portfolios instead of expensive poor performing active funds.
As an independent financial advisory firm we assess individual client requirements on a case by case basis. Therefore where we have a client with a requirement for an active manager strategy we can cater for this. However our investment philosophy and focus remains centred around low-cost investing as costs are one of the only components that can be controlled in the investment world.
Finally, what was your response to the FCA’s final report on competition in asset management?
The report sent out a clear message to the industry that it must introduce sweeping reforms to cut costs and improve returns for savers after years of raking in sustained high profits. We have been banging the same drum for the last five years so it’s refreshing that the FCA are now finally catching up. The industry as a whole needs to clean its act up and focus on financial planning and client outcomes rather than the old days of selling products and high commission.