Want to Work With Pro Athletes? Try a 3-Bucket Strategy

Q&A November 09, 2022 at 05:42 AM

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The New York Times calls Joe McLean, chief growth and innovation officer at MAI Capital Management, a "sports therapist" in providing financial guidance and advice to star pro athletes. But he'd rather be thought of as their big brother.

Right now, he is building a clubby "locker room" environment around them where they can share their personal financial experiences, he tells ThinkAdvisor in an interview. "The clients get to know each other and [find] it beneficial [to] learn from each other. They have dinners together, play golf together, go to conferences together," McLean, 48, says.

A former basketball player himself who played for the University of Arizona in the mid-1990s and later as a pro in Europe, he specializes in advising both athletes and folks in the entertainment arena.

On his client roster are stars like the NBA's Isaiah Thomas and MLB's Dexter Fowler, as well as, reportedly, the NBA's Klay Thompson; NFL's Jameis Winston and Whitney Mercilus; and MLB's Nolan Arenado.

In 2014, McLean launched an advisory firm, Intersect Capital. This summer he merged it with registered investment advisor MAI. The combined assets under management total $14.1 billion, as of June 30.

McLean was seeking scale. Now, with MAI, he can "maintain a boutique feel" within a larger firm, he notes. There are 60 to 70 other MAI advisors throughout the country that serve pro athletes.

True to his title, he has some innovative ideas about "the future of advice," which he sees as client and advisor enjoying "a co-piloting experience."

In the interview, he also discusses his method of forcing his athlete clients to save money. If they don't go along with that system, he fires them. The process is a way of getting them to "compete to save," McLean notes.

He charges a management fee plus a retainer if his work includes serving a family office.

He once was a pro basketball player for European teams but "got cut 11 times in 11 countries," he recalls. "I was pretty bitter." However, after he started a new career as a financial advisor, several former teammates called for financial advice, and he was happily drawn back into the sports world.

Joe McLean and the University of Arizona men's basketball team

ThinkAdvisor recently interviewed McLean, who was on the phone from his base in San Francisco.

"I grew up with posters on my wall of NBA players that I wanted to be [like] — Larry Bird, Michael Jordan and Magic Johnson," he fondly recollects.

Here are the highlights of our interview:

THINKADVISOR: The New York Times calls you a "sports therapist." Are you?

JOE MCLEAN: There are [client] transactions that take place almost daily, so it's important to have a trusted relationship so people can share their hopes and fears and collectively get to the next milestone. There are extreme highs and extreme lows.

Just being there and not judging anybody but helping them and maybe just learn how we progress together.

A [player] said to me: "You don't need to be my father anymore; you just need to be my big brother." That means that over time they've matured and grown.

What's the most challenging aspect of advising pro athletes?

Getting someone to think longer term when most of the time they're not thinking past next Friday.

It's understanding that the mindset of what has made an athlete very, very successful is not necessarily the same mindset or attributes you need to be a successful investor.

As an athlete, you're willing to bet on yourself and spend an enormous amount of time before you succeed. You're willing to take an extraordinary amount of risk to accomplish your goal.

Those characteristics quite often don't make you a great investor. Now that you're wealthy, you don't need to take those types of risks. You don't need to try to hit the home runs.

So sometimes it's about tempering that enthusiasm to want to hit the next home run over night.

Please explain what you call "the future of advice."

Partnering with a client and having a co-piloting experience vs. a traditional investment management-only relationship where you're learning about somebody's goals and then investing their money.

I truly believe that the future of advice in the industry is giving together, saving together and investing together over time.

What do you mean by "together"?

We have a shared platform where a lot of our clients know each other in what I call the networked client experience. The clients get to know each other, and we as advisors help facilitate that.

For advisors and then for clients, it's sharing the same custodian, the same compliance [team], having one chief marketing team [and so on].

Please tell us more about the "networked client experience."

The athletes are not necessarily sharing every detail of what they're doing [financially], but a lot of clients have found it beneficial to share their experiences, so that everybody can learn from each other.

By what means do they share this info?

We have dinners together, play golf together, go to conferences together. We bring in thought leadership on different topics, like investing, giving and saving, and the [clients] are there, side by side, learning.

We also do it in-house. It's important for all clients to know that it's a collective team effort. That's the "locker room" we want to help build around them.

Please explain the "locker room" concept.

When an athlete stops playing, it's not necessarily the game they miss most. It's the bus rides, the locker room, the sense of accountability. It's the goal setting. When you stop playing, all that is gone the next day.

So if we can help build their professional locker room outside of sports and have other people for the athletes to turn to when they [go through] that transition, it makes it a softer landing than departing from sports and not having anybody to turn to.

You require that your athlete clients set aside 40% of every dollar earned in their first contract, 60% in their second and 80% in their third. If they don't, you'll fire them — and have done so. Please explain.

You can't just demand someone to do that. You have to show them why and the benefits. We have clients saving 90%.

It's getting people to compete to save, and if they're able to achieve those milestones, they'll see those longer-term benefits years down the road.

Do the athletes talk to one another about it?

They bring it up as part of our shared client experience. They know that some are saving 80% or 90%, and they like the idea that they [may be] saving more than another [player].

How are you able to give so much time to each client?

The vison is to have this boutique feel, which is what every client, I think, wants, but also to have the skills and resources that the client needs. We maintain a boutique feel within the larger scale.

So we're helping to [provide] all the things clients expect and need. We're helping to buy a client's house, their cars and providing concierge services like paying their bills.

What philosophy do you impart to athletes about making use of their money?

I want to set up a vision for them to become "the pro's pro."

Now that an athlete has accomplished their dream and goals, the money is just a byproduct.

I can't scare somebody into making good decisions: I don't need to tell them stories of other people making bad decisions and how that led to their going broke. The clients will just say, "That's not going to be me."

So what you want to do is help them be "the pro's pro" both on and off the field. [They need] to understand how money comes into your life and goes out of your life and how to set up a spending plan and how to create more paychecks for you to live on both in and outside of your playing career.

Are the financial plans you construct for athletes fundamentally different from those of clients in other professions?

They differ in that most professional athletes stop earning the majority of their income at age 35 vs. a traditional person that earns income over much longer stages of their life.

Knowing that the money is coming in for such a short period of time, you have to make the athlete's plan much longer. We build a plan so that they have the freedom of choice.

How are the plans actually structured?

We build three buckets that are probably different from a majority of the industry.

Every client starts off with a Safety/Security bucket. When they have their forced savings in place, I ask, "Do you know what it costs to be you?" Whatever that number is — hopefully, the appropriate number — is what we have in cash in this bucket.

They buy their first homes — typically with no debt, no mortgage — with the Safety/Security bucket [money].

What's the second bucket?

Once you've filled that, the next one is the Growth bucket. That could be [for] individual stocks, dividend-based stocks, tax-free bonds.

This is the life lesson of beginning to understand how to get money to work for you so you don't always have to work for it.

Early on in a career, we typically allocate no more than 15% for private real estate. This is another way to own something that's tangible but not too illiquid. It's beginning to know how to invest.

The third bucket we call the Entrepreneurial Dream bucket. It could be for a second home you wanted that you shouldn't buy but you can; a second car that you shouldn't buy but you can. It could be your own investment startup you want to get involved in.

It could be more venture capital, private equity, higher-risk opportunities.

So this is a different way to look at asset allocation.

Do the clients readily go along with it?

They want to fill the Dream bucket first. So it's getting them to understand that you're living your dream right now.

Let's fill the other two buckets first because God forbid something doesn't go right in your Entrepreneurial Dream bucket, you're still taking care of yourself and are set.

With the entertainment clients that you have, do you need to keep in mind in planning for them that their careers could very well be short-lived too?

They are short, but they also have very unpredictable income. If you're an actor, for example, on a show or sitcom, you may be having success but all of a sudden not get another job for multiple years. So that income is very inconsistent.

Therefore, as money comes in, we have to really focus on cash flow and their spending and possibly reduce it if we don't know when the next dollar is coming in.

These clients typically have to live a much leaner lifestyle than someone with guaranteed income.

Do you create retirement plans for them? So many actors have gone broke. For instance, Veronica Lake, who was once a big Hollywood star, wound up working as a cocktail waitress and reportedly died "penniless," at 53.

This is the importance of having a spending plan [budget]. That's more important than really anything. You can have a good investment plan and a good retirement plan; but if you're overspending, you're going to run out.

You can retire with $10 million; but if you're spending $2 million a year, you'll run out of money. So it's about really stressing the importance of knowing what it costs to be you, have a plan — and pay attention to it.

(Photo of Arizona Wildcats basketball team courtesy of Joe McLean/University of Arizona Athletics)