The other night I caught another episode of the Suze Orman show on CNBC. One of Suze's guests was Heath Farwell and his wife. Heath is a professional athlete in the NFL who plays for the Minnesota Vikings as linebacker and special teams expert. He and his wife were calling in to Suze Orman seeking financial advice for their situation. Heath and his wife had interviewed a few financial advisors and so-called wealth managers and really weren't impressed with what they said. Most of the advisors they had met, had told them that they would average about 10% in the market, but never really demonstrated how they would do it. When Suze had shared with them how much the market was down at the time, Heath's eyes got pretty big when he realized how much he and his wife could have lost if he would have turned over his money to them.
Heath had accumulated a sizable portion of money and had some pondering questions for Suze. Some of the questions they had included about the possibility of purchasing a third home (everybody needs at least three homes, right?) and what to do with a large sum of money they had in the bank. I was very intrigued by the story for two reasons:
- The information that the wealth managers failed to inquire about
- The advice that Suze had given.
So Called Wealth Managers
First, let's look at what the wealth managers or other financial advisors had told them. The first thing that really caught my attention was that, according to Heath, none of the financial advisors or wealth managers that they had met took the time to really ask them about their situation. For example, there was several questions that were not asked such as:
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- What was their experience with investing
- Money reserved in case Heath would get injured
- What their goals are with their money
- How much they had on their mortgage,
- What was their total debt situation
Instead of these advisors doing the correct fact finding that should go into an initial meeting with a client, these advisors instead just told him how they make them around 10% return. Obviously 2008 is not the year to get the 10% return they quoted and without doing the proper fact finding it makes me wonder as a Certified Financial Planner™ professional, are these advisors really doing their job? Any advisor that leads with “How much they can make you” instead of “What you are trying to accomplish” will fail every time. And it's those type of advisors that you want to avoid like the plague.
I've Got Money, Now What?
I was able to dig a little bit to find out what Heath's salary was for 2007/2008 as being a professional athlete. It looks that in '07 Heath made approximately $435,000 and then got a pretty handsome increase in '08 to $1.41 million. In fact, after the taping I just read on ESPN.com that Heath just signed a 3 year deal for $8 million. Not a bad chunk of change for 27 year old. But with the average career life for a professional football player being 3 1/2 years, it's important that Heath and his wife are smart about their money. They need to sock away as much as they can and be prepared in case his career is cut short. In fact, Heath suffered a knee injury in 2008 that forced him to miss the entire 2008 season. That should be a clear sign that anything can happen at any time and you should plan for the “what if”.
I enjoyed Suze's advice to the young couple. Sometimes her advice I feel is a bit sensualized, but in their case; she was spot on. Here were her recommendations:
- Stay out of debt.
- Own everything outright.
- No more real estate unless they can write a check.
- Cash emergency funds of eight to 12 months.
- Get a will and trust.
- Know the FDIC Limits
In regards to the FDIC limits, Suze reminded them that this year, they were covered for up to $500,000 of FDIC insurance, but let them know that after the year end, the limits revert back to $100,000 a piece. Although the couple didn't disclose, you had the impression that the amount at their bank was well above the raised limits.
My take away from the story is that no matter your situation, careful planning is always key. For those that come into a windfall of money, special attention is needed. Too often people put their trust into so-called “professionals” who they think looking out for your best interest. Be wary of these types and trust your gut. If all else fails, call Suze. If you can't get her, give me a try 🙂