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Wealth Managers Specializing in Professions Can Score Big

By serving niches such as sports and medicine, advisers gain an advantage over big banks and generalist firms.

John Carney spent 22 years with the National Football League, but he knows that most players hang up their cleats much sooner. “The average NFL career lasts only three years, so players think about their postplaying finances a lot,” says the former San Diego Chargers field-goal kicker, who retired from the sport in 2010 and holds several league records.

Carney’s financial adviser, David White, a senior vice president with WheelerFrost & Associates, specializes in helping professional athletes make the shift to civilian life. It can be challenging for ex-players to spend less now that they earn less, says White, whose San Diego–based RIA oversees more than $250 million in assets. “But, fortunately, many understand they will probably never achieve the earnings level they experienced during their playing days, so they are much more committed to spending within the confines of a reduced budget.”

For anyone who fails to learn such a lesson, the results can be grim. By some estimates, as many as 60 percent of retired National Basketball Association players have filed for bankruptcy within five years of leaving the game.

Many multifamily office and independent registered investment advisers have adopted specialized offerings for families whose wealth flows from sports, medicine and other niche industries. By focusing on the unique challenges and opportunities that come with such professions, these firms have a competitive advantage over major banks and generalist advisers, but to meet clients’ needs they must do their homework.

When their careers end, pro athletes have to go through an adjustment period to prepare for the future, White says. Pensions for NFL players start at age 55; Major League Baseball pensions begin at 62, with the option to receive retirement benefits early at a significantly reduced rate. Therefore the average player may need to develop a second career, a move than in many cases requires education expense.

Carney, who is based in Carlsbad, California, where he runs a successful football training and education franchise for high school and college players, had unsatisfactory experiences with multiple advisers before signing on with WheelerFrost. “They have been there every step of the way with our family to help navigate the financial impact of life events,” he says.

White oversees the athlete practice for the firm, which is a charter member of the Phoenix-based Sports Financial Advisors Association. Managing money for athletes is among the most highly specialized wealth management disciplines because it often involves oversight from industry bodies. In 2012, for instance, the NFL Players Association introduced stricter requirements for custody, liability insurance and professional track records for advisers applying to join the organization.

One of the most common industry specializations in wealth management is medicine. For generations, physicians have been a staple of both the mass affluent and the high-net-worth marketplace. Thomas McFarland, founder of wealth manager Darrow Co. in Concord, Massachusetts, notes that the medical profession has always been bifurcated but that the separation has become more dramatic in recent years. “Basically, you have two kinds of doctors: those who work at large institutions and those in private practice,” he says. Darrow manages the investments of more than 100 wealthy families; besides doctors, the firm serves biotech professionals and entrepreneurs.

According to McFarland, even as the Patient Protection and Affordable Care Act and other industry changes have made it harder for private practice partnerships to thrive, large hospitals have curtailed contractor relationships and turned their entire medical teams into employees. Hospitals typically offer generous retirement benefits, but the equity value of private practices and special retirement benefits available to partnerships, such as defined benefit pensions, were often primary wealth generators for doctors in the past.

Those private practices that remain present another challenge for financial advisers: When the partners don’t see eye to eye, working with them can be as demanding as with a family. “They wanted to be doctors, and now they find themselves as reluctant business owners and operators,” McFarland says. In his experience, private medical practices with a single leader tend to fare better in financial planning discussions than those run by committee.

When it comes to professions that create wealth, the military probably doesn’t spring to mind. But senior officers, who typically have impressive educational and professional credentials, often enter lucrative second careers after retiring from active duty and have significant pension and benefits packages.

Long deployments, family separation and the stress of physical danger create a unique culture for military families ­— and a need for specialized financial advice. United Services Automobile Association, better known as USAA, is one of most unusual retail financial institutions in the U.S. Founded in 1922 by a group of Army officers who pooled their resources to insure one another, San Antonio, Texas–based USAA now manages $122 billion in assets and still takes new clients exclusively from the ranks of active and retired military personnel and their families.

Heidi Schmidt, a wealth manager in the firm’s financial advisory division, says that military veterans face complex decisions regarding benefits that can have a major impact on their ultimate recompense for their service. “We focus on strategies for pension maximization that take advantage of later-life earnings,” she says.

Career officers may be as young as 45 when they retire from active duty, Schmidt notes, allowing for a full second career and the opportunity to delay economic benefits in the near term so they can reap greater rewards in retirement through strategies such as the substitution of purchased insurance for spousal benefits.

Firms focusing on private wealth derived from niche industries often work with clients who have the security of guaranteed income later in life. For advisers, this can be a double-edged sword. The secure cash flow from a defined benefit pension is much easier to plan around than the defined contribution benefits that corporate executives usually receive, notes WheelerFrost’s White.

But many clients lean too heavily on their pensions, he laments: “I have seldom communicated with an active NFL or NBA player who contributes to the 401(k) plans offered.”

Although the retirement benefits paid by major professional sports’ defined benefit plans are generous by private sector standards, White says they pale in comparison to the salaries that players command during their playing days, when they could be maximizing tax-deferred accounts.

It’s not only pro athletes who tend to slack on savings when a pension is guaranteed; physicians can be just as guilty. “Doctors with generous retirement packages through a hospital typically save little before retirement,” says Darrow’s McFarland. “It’s very typical to find a physician with a retirement plan with $5 million in benefits but not much in the bank.”

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