Recently, I had the opportunity to chat with Steve Baack, a former NFL player and current financial advisor with Morgan Stanley Smith Barney LLC. Baack works within a four-person wealth advisory team and offers investment and other financial services to a variety of clients. He has handled an array of portfolios boasting great results and has valuable insight for athletes seeking to select an advisor. His performance and mindset as a financial advisor can be attributed to his experiences as an NFL athlete.
After being drafted by the Detroit Lions in 1984 to play on the defensive side of the ball, he found himself playing on the offensive line. The obstacles Baack encountered during his position change didn’t stop him though. He was versatile enough to play tight end and even running back at one point, and was featured in an article in Sports Illustrated as one of the best utility players in the league.
Despite his success on the field, he encountered problems off the field. Baack, like a number of professional athletes, was misled by an advisor during his tenure in the NFL. "It was uncomfortable for me when I was put into the investments that I was put into," said Baack, as he recalled the unpleasant experience he had from his playing days. "They were improper for me, [but] I didn't ask the questions."
His experiences in the NFL eventually motivated him to become a financial advisor who aims to provide the best care for his clients. He has taken a negative experience and turned it into a vehicle for change. Baack represents his clients with the utmost integrity and strives to instill sound investment values in the athletes he advises, so they will have the ability to manage their financial well-being long after retirement. "It is good to exercise the discipline while you're making money to be able to not have it be such a shock to you when your income falls off drastically," said Baack.
Baack was nice enough to answer some questions about his investment and financial services, as well as offer some great tips to professional athletes.
Q&A with Steve Baack
AA: It is really unfortunate, yet not uncommon to read or hear stories about athletes getting taken by a greedy family member, agent, manager, or advisor. Athletes often have many advisors vying to work for them, making it difficult to set yourself apart as an advisor. How have you set yourself apart from the other firms?
Steve Baack: First, we have the expertise that comes from many years in the business, as well as some added designations. We are a four-person wealth advisory team, with a Registered Investment Advisor (RIA) designation and a combined experience level of nearly 75 years. We manage four specific portfolios for a variety of client profiles, individuals as well as institutions. The RIA designation comes with a higher level of responsibility, specifically a fiduciary responsibility. As fiduciaries within Morgan Stanley, our team manages the portfolios ourselves. Most advisors in the business allocate a client's assets within a framework that entails utilizing different money managers. We would be considered one of those managers that a given advisor would choose. So, outside of being a registered investment advisory team and having fiduciary responsibility, we have many years of hands-on experience managing money. In addition, we have created a team of resources comprised of nearly every professional a client would require to ensure that all aspects of their financial well-being are coordinated and accounted for. This can include tax and legal professionals, insurance, real estate, etc.
AA: Becoming a professional athlete is a career, and just like almost every other career, it has some strenuous demands that accompany the opportunity. Along with having little time to handle financial intricacies, a lot of professional athletes, especially those just beginning their career, can feel overwhelmed with the large sums of money being earned and need to be educated. What types of things should athletes search for in an advisor?
Steve Baack: Certainly one thing you should request to see is as the ADV form (alpha-delta-victor form). That's something that every advisor is required by law to file with the state agency and SIPC (Securities Investor Protection Corporation). It's a full disclosure form that will tell you how the advisor gets paid, information on other incentives, business and education background, and what designations they may have. For instance, some can be Certified Financial Planners (CFP) or Certified Financial Advisors. Those designations will be disclosed on that form. Also, if you can, ask for the U-4 form (umbrella four) and that will disclose if there have been any complaints about the advisor or their firm. Those are the two primary pieces of information you should ask for (in addition to several references).
AA: It is important that an athlete and a financial advisor have an honest and trustworthy relationship. To have a successful business relationship, it is up to both parties to create a budget that is structured to fit the athlete's lifestyle. As an athlete, how do you create and decide which investments are good for you?
Steve Baack: I use what I like to refer too as a painless and brainless approach. Brainless refers to getting set up with the proper accounts that are funded on a regularly scheduled, electronic schedule, so you don't need to remember to write a check or do something outside of a regular routine. By the 'proper accounts', I mean an account appropriate for the intention of the funds and investment choices that would go into it (i.e. an IRA account for a person's retirement).
The painless part refers to an amount you can part with from your paycheck that's not going to make you feel like you're going to be pinched. It's been my experience that when you feel that 'pain' you have a greater likelihood of ceasing the contributions. If you pay yourself first, but keep the sum to an amount you don't feel squeezed by, you're much more likely to stick with the plan. I like to use exercise as an analogy for clients. You don't get fit in a month or even a few months worth of workouts. You train over a period of time, building your fitness level with each workout. The same can be said for investing on behalf of your retirement or other investment goals. Stay disciplined and don't try to get there all at once.
AA: A financial advisor can set an athlete up with numerous investments, but among the most imperative is a retirement account. This is especially critical for athletes, as injuries and other limitations can abruptly end their career, as well as their hefty income. How do you approach planning for retirement?
Steve Baack: I view retirement as a deliberate balance of three legs of a stool. If possible, contribute to your company's retirement plan first. Take an amount from your check that will enable a maximum match from your employer. IRA accounts are the next important 'leg', either a traditional IRA or a Roth IRA or both, depending upon what you can qualify for. I also like certain variable annuities. In the past, there has been some negative connotation associated with these; however, there have been recent innovations to these products that can make them an effective compliment to IRA(s). There are features that are specific to variable annuities that will allow you to create a self-funded pension that will pay you for life, even if the bulk of the funds in the contract were to diminish significantly. Conversely, you can deplete funds in an IRA and potentially leave yourself with nothing. Lastly, as any advisor should tell you, don't put all your assets in one investment vehicle either and don't expect to be able to fund everything at once. You have a lifetime. Be disciplined, start early, and invest often, even if it is in smaller amounts. This means you shouldn't have to panic as you draw nearer to your retirement date nor will you have to take unnecessary risks to hit a financial home run to get there.
AA: For some athletes, it is important to understand the investments that they are making and it is essential that the advisor can communicate these investment vehicles to the client. What should a financial advisor do to ensure the client that they are working in their best interests?
Steve Baack: Regular communication is very important. An advisor should provide a service level agreement that represents the frequency and type of meetings the client can expect during the course of the year. Quarterly performance reporting is a typical meeting agenda an advisor and their client(s) would put on a calendar. Our team consists of 6 people (four advisors and two client service associates) that are available nearly every day of the year, so that there is always someone a client can reach if they have a question or concern. This means our clients feel well taken care of...
AA: For advisors, it is important that athletes understand the basic investments that they are involved with to develop a sense of trust and comfort. More often than not, once the client is comfortable with the advisor, they will leave decisions completely to the advisor. How do you educate your clients on their investments?
Steve Baack: One of the things I favor in my practice is education. I try to ensure, to the degree that the client wants to know, they have a grasp of what it is that we are doing and why we are doing it. Often, I will reference some of the very same websites or educational materials that I have used over the years. Investopedia is a site I have sent people to that is a very good and easily understood, and it goes into some of the most common vernacular that is used in our industry. Timely industry information sent via email or regular mail is also something we try to provide, especially if it's pertinent to the individual client. A retired client with a sizeable portfolio would be more interested in an industry article on charitable giving, than a 35 year old client who is just starting a family. This means our clients can depend on us to recognize them and their needs in a customized way.
AA: There is an extensive amount of performance tools that professional financial advisors use to help measure, predict, and analyze client investments. Since performance is of utter importance in an advisor's profession, how do you measure your company's performance in relation to your competitors?
Steve Baack: There are many tools that financial advisors use to analyze their performance. One of the primary ways of measuring performance is to compare it to industry indices. The most recognizable are the Dow Jones Industry Average (DJIA), the Standard & Poor's 500 (S&P 500) and the NASDAQ Composite. These indices are comprised of various stocks that reflect the particular industry or sector the index represents. The S&P 500 is one of the primary indices and as the name suggests, consists of 500 companies from a diverse range of industries. We use the S&P 500 to benchmark one of our best performing portfolios. This has a year-to-date performance of 22.06%.
AA: If the S&P 500 has experienced around a 22% growth this year. How does growth for your clients at Morgan Stanley Smith Barney LLC compare to that and other industry indices?
Steve Baack: Our top performing portfolio was created to take advantage of a slow recovery. Its primary objective was income, with growth as a secondary objective. As of December 21, it is up 39.37% on the year with a cash flow yield of 10.25% That's a total return of over 50% year to date. So with a $100,000 dollar investment at the beginning of the year, you would be at $139,370. The cash flow generated on that $100,000 would have been $10,250. In comparison, the S&P 500 was up 22.06%, the Dow was up about 17.5%, and the NASDAQ composite was up about 39.9%. This is stellar performance and something our clients are thrilled about, and we're proud of too. What it means for our clients is that we don't adhere to the same old strategies that formerly worked in this business. We've found that the business of money management has changed and as advisors, we have to be open to looking at different ways of managing our clients' money. Not only will we explore different tactics, but we can and will act on them if it's in our clients' best interest.
AA: Are there any other tips or suggestions you care to share?
Steve Baack: Don't put off the decision to get your investment and/or retirement plan in place. It's your money and nobody is going to look out for your money like you do. Ultimately, you will either find yourself in a place with some piece of mind or some measure of regret. Do your best to avoid the pain of regret.
On behalf of Access Athletes, we thank Steve for taking the time to participate in this interview. If you have any questions or comments for Steve, you can email them to me at firstname.lastname@example.org and I'll pass them along to him.