Today, I turn Succeed in Football over to Richard Leader of First Houston Capital. An ITL client for several years, Richard is a seasoned financial professional who not only works with players in the league but also writes a weekly newsletter that I’ve found exceptionally informative; has penned a book discussing basic financial principles in easy-to-understand language (and even got profiled in the Wall Street Journal because of it); and even writes a blog that’s published by the Houston Chronicle. He emailed me this morning out of alarm with the news that broke yesterday, so I asked him to write today’s blog post, addressing the matter.
On Tuesday, news broke of an alleged Ponzi scheme run by a Dallas-based investment firm.
The SEC has charged Ash Narayan, formerly associated with RGT Capital, with transferring money from client accounts without their knowledge or consent using forged or unauthorized signatures. Victims include Denver Broncos QB Mark Sanchez and San Francisco Giants pitcher Jake Peavy, along with former Astros pitcher Roy Oswalt, with possible losses of more than $30 million.
This hits close to home to me for two reasons: I’m based in Houston, so I share a state with Narayan, and like him, I’m part of the NFLPA’s program that licenses and regulates financial professionals.
Obviously, this is disturbing news for any fiduciary handling money for others. Nothing is more important than client trust, and this sort of news gives the financial industry a proverbial black eye. The fact is, however, that such a scheme is easily avoided in the first place by taking precautions.
Money managers should employ a well-regarded and well-capitalized custodian (typically a regulated bank or trust company) that provides clear separation between the decision-making investment manager and the client’s money. Client assets should be held in the client’s name for safekeeping, with the custodian not connected with the investment advisor/manager.
At First Houston Capital, we use Pershing LLC, a unit of BNY Mellon, one of the largest financial institutions in the United States, with net capital of over $1 billion and almost $1 trillion in assets held in custody. Pershing’s financial strength provides the first measure of protection for our clients.
Secondly, Pershing is a member of the Securities Investor Protection Corporation (SIPC). As a result, securities in ours account are protected up to $500,000 by the federal government. On top of that, Pershing provides private insurance coverage in excess of SIPC limits from underwriters at Lloyd’s of London. This insurance provides protection for assets held in custody with a loss limit of $1 billion over all of clients’ accounts.
A simple background check of both the investment advisor and the investor’s custodian would help professional athletes and their agents avoid the devastating financial consequences of events like the news Tuesday morning. There are additional safeguards which can also be considered on the advice of the client’s attorney. The bottom line, however, is that none of this has to happen, and with a few simple steps, it won’t.