Distributing to advisers with a niche: how one $5bn RIA serves pro athletes

Fund firms need to understand an adviser’s client base, says Peter Lee, founding partner of Summit Trail, whose firm uses asset managers to help vet private deals for athletes

This offseason, the record for the largest Major League Baseball contract ever signed was broken not once, but twice over the course of three weeks.

The record deals of Bryce Harper and Mike Trout, $330 million and $430 million respectively, have vaulted athletes’ contracts to the forefront in conversation and in the media, raising the question: how does one manage all of that money?

At Summit Trail Advisors, we have developed a niche practice working with athletes to provide comprehensive wealth education, guidance and management. Understanding that client group, and their specific investment requirements, is key for the asset managers who work with us.

Although the extraordinary numbers involved in the deals of players like Mike Trout and Bryce Harper are what make the headlines, the wealth management process begins much earlier on for athletes.  When we partner with an athlete as a client, they are most often coming right off of their first professional contract.

One of our highest priorities is to educate these young athletes on the importance of saving, the power of compounding, as well as healthy habits for financial wellbeing.  We have very honest conversations with our athlete clients on not immediately buying an expensive car or house and instead saving that extra money.  We explain how even saving an additional 1-2% annually has a profound impact on their long term wealth.

From an investment perspective, we help our athlete clients build a strong foundation for their wealth.  These investments typically include a broad array of exchange traded funds and mutual funds to give clients proper diversification across regions and asset classes.

Exchange traded funds and mutual funds not only serve as building blocks for an athlete’s portfolio but also for their investment education.  Most of the athletes we work with are new to investing so the simplicity of these products allow for a smooth introduction to investments from an educational standpoint.

The kind of money you see in the headlines typically comes from the second or third contract for professional athletes so it is especially important the client’s portfolio is balanced and diverse during the early part of their career.

Then, over time and after the hopeful second and much larger contract, we start adding other investments that complement the foundation we’ve already built.  At this point, we look to transition portfolios to primarily include separately managed accounts.

Our clients typically invest in hedge fund and private equity investment strategies as well.  Less liquid investments play an important role given the diversification benefits and illiquidity premium these investments aim to achieve.

The managers we work with across all strategies have a strong understanding of our investment philosophy and our client base.  We look to invest with managers for the long term so poor performance in a year or two is fine as long as the team and strategy did not experience materials changes.  This allows the managers we partner with to focus on their strategy and not worry about a client leaving over one poor year of performance.

Our managers also understand most of our clients are long term taxable investors, so they spend a lot of time focused on efficiently managing taxes and not actively trading.  Also, our managers recognize that we aim to educate our clients about investments and actively take part in that process.  We hold roundtables with our managers where they meet our clients in person to explain their investment strategies in more detail and answer additional client questions.

Our athlete clients are also regularly pitched investment ideas directly, so it’s our job to deeply vet these deals and usually be the “bad guy” that has to say no.  Our investment managers, primarily the private equity managers, provide their thoughts on these deals too as they are usually clued up on the industry and competition.

Education and investments are only two slices of the pie.  Other critical areas we focus on include setting up a 401(k) and helping educate clients on trust and estate planning, taxes and insurance, among other areas.

We also foster connections across our family of clients and friends in the community, which primarily include business owners, private equity, venture capital and real estate investors and athletes and entertainers.

By pairing comprehensive financial education, guidance, and management, we believe we are able to provide athletes with superior advisory services. That, in turn, represents a unique opportunity for asset managers willing to understand the different facets of our method.