Adam Lipton is a senior wealth adviser and shareholder at Truepoint Wealth Counsel, a Cincinnati-based wealth management firm. Lipton advises families and professional athletes, strategizing, structuring and managing portfolios with a minimum value of $3 million.
Who are your main clients?
Our clients include multigenerational families with portfolios north of $100 million. I also work with NFL athletes at different stages of their careers.
How do these players come to work with you?
We’ve developed a relationship with a sports agent over time, and he’s now one of our clients. He refers some of his clients to us. I’m the same generation as most of them, which creates a relatable connection. I also have a lot of knowledge about the demands and expectations placed on these athletes.
What’s the biggest misconception about an NFL player’s net worth?
It’s a myth that players earn enough to support themselves for the rest of their lives after even a few years in the NFL. On any given game day, a team is dressing 53 players, of which the people earning massive contracts may be 10.
The average NFL player is going to have a career of three to four years, maybe a bit more depending on the position they play and their skill level. The income they can make in that period can be significant, but the window is small.
What about sponsorship deals and roles as on-air commentators?
Consumer recognition is a key factor that drives sponsorship deals. Positions like quarterback, running back, wide receiver and maybe ends and linebackers have the most visible impact on the field. The higher a player’s profile, the more attractive they are to sponsors. An offensive or defensive lineman in the trenches doesn’t attract the same fan appreciation.
What are your priorities when advising pro athletes?
The majority of these players will need to go on to some other career. That’s something we talk about early on to help them think about life planning. A lot of players earn an average salary of less than $2 million. Consider that they may earn that for three years, of which a significant portion is taxed. They may retire with $3 [million] to $6 million at the age of 25 to 30 — which is not as significant as it might sound, unless they seek alternative income sources after their playing careers. Responsible budgeting and portfolio management, rather than a glamorized lifestyle, become paramount.
What’s your investment approach with these clients?
We take a three-bucket approach: an operating account, a reserve account and a long-term account. We allocate one year of spending needs in their operating account and two to three years of spending needs in the reserve account. Anything beyond that, we think about as long-term, investable funds with a more aggressive profile.
The operating account is holding cash— money markets, something with no risk profile and interest rate earnings. The reserve bucket is more stable, short-term investments, typically bond investing. The long-term investment is heavily, if not entirely, a stock-based portfolio with an eye on the long term.
The underlying investment philosophy is a passive-mutual-fund and exchange-traded-funds strategy that is much more fact- and evidence-based than discretionary. We are not using stock picking or market timing.
The risk of their careers ending abruptly is significant. We want to ensure they’ve got access to capital that is not highly volatile, that they can use to bridge the gap between professional sports and the next phase.
What’s the most common investment mistake pro athletes make?
One of the biggest risks is they get approached by family members and friends with investment opportunities that might not be brought to the average investor. These guys are viewed as uniquely positioned to invest in projects that do not have a risk profile that makes sense for them. Many of them come from lower means, if not poverty, and they have a desire to help elevate their communities out of those environments. Investing in friends and family members makes them feel good. We have to help them understand the risk to their financial well-being, especially if they haven’t established a solid base, a portfolio and net worth that is conducive to their long-term success.
Do your clients seek your guidance in vetting family and friend investments?
I wish they always did. Unfortunately, we often learn about decisions after the fact. It happened recently where a client chose to make a significant investment with a family member, which forced us to scramble to make it as viable as possible. We had to free up capital, which has implications on the diversified nature of the portfolio. We also had to create legal entities — in this case a couple of different LLCs to ensure any liability associated with the investment has limited impact on him and his portfolio.