I grew up cheering for Tim Tebow at the University of Florida. Perhaps that is why I have never much cared for Mark Sanchez as an athlete. He first started all season in front of Tebow on the Jets. Then he came to my adopted NFL team, the Philadelphia Eagles, and performed poorly. Unfortunately, now I have to feel sorry for him. Sanchez is famous for running face first into the behind of his own offensive lineman and fumbling the football in a game against the Patriots. Commentators coined a new phrase for the unprecedented act: the butt fumble. I am taking the liberty to create a new phrase now that a financial advisor defrauded Sanchez and other professional athletes out of $33 million: butt fumbling money. It happens when you overly trust your financial professional and fail to know if they are acting in your best interest.
How Did Sanchez lose $7 million to a single dishonest advisor?
Ash Narayan of RGT Capital Management was not just a fiduciary financial advisor to wealthy pro athletes. He was also the chief fundraiser of a company named The Ticket Reserve. The idea behind the company was to sell extra face value tickets to fans for sporting events. The problem is that The Ticket Reserve had virtually no teams willing to work with them and their balance sheet was awful.
Narayan also happened to own 3 million shares in the company’s stock and served on its board of directors. Real venture capitalists are sharks with their money. They look for user trends, revenue growth figures, and demand intense transparency with reporting and results. Narayan probably could not get any of them to invest money in a company whose own CEO wrote, “[…]our revenue sucks. Our balance sheet is a disaster.”
Narayan doubtlessly wanted to increase the value of his shares. He probably thought at first that he could get away with placing a few hundred thousand from client each account into The Ticket Reserve stock. Such a tactic would result in a few million in extra capital for the struggling business. Several of his wealthier clients agreed when Narayan suggested they invest in the company. Sanchez said he was good for $100,000, but Narayan took more than $7 million out of his account. By not noticing a larger than agreed upon transaction, Sanchez was butt fumbling money from the start.
and to think this guy was supposed to be a fiduciary advisor
Regular readers of this blog will know that I am a strong advocate of ONLY working with financial professionals who will agree to the fiduciary standard. This requires them to consider the client’s best interest first when managing money. However, this only works for advisors who are not actively dishonest scumbags. At least Sanchez and others can sue him for breach of this standard rather than have to agree to binding arbitration as with brokers who deceive you.
If a guy’s a crook, he can claim anything he wants because he just will not stick to it. That seems exactly what Narayan did when he took the $33 million out of his clients’ investment accounts to pump up the prospects of his company. In fact, Narayan earned about $2 million in finders fees for the money he brought into The Ticket Reserve.
How did a rgt capital, a company with billions under management, allow a managing partner to do this?
I looked up a report on RGT Capital, and they have over 70 clients and manage over $4 billion in assets. Such a large firm should have compliance professionals reviewing every client account to make sure advisors are not doing anything illegal. Before butt fumbling money, Sanchez probably thought a firm that managed so much money would be a safe place to invest.
I can’t speak to whether or not RGT Capital knew or should have known. Narayan was not some lower level shmuck. He managed their California office. The company probably took a while discovering what he was up to because of his high rank within the firm. RGT Capital fired him eventually.
Why Did Mark Sanchez trust him? beware advisors using faith to win business
Narayan lied and told Mark Sanchez that he was a CPA. Also, the advisor stressed that he was a strong Christian and very devout in his faith. He talked about how he loved being charitable in his personal life. He played to Sanchez’s emotions and sense of trust.
If an advisor is a Christian, that’s great. If they are stressing that fact to win your business or to gain referrals, RUN! Someone who is a true Christian does not need their faith as a crutch to convince someone to pay them for financial advice. The job they do should speak for itself. Some advisors want to build a faith based business, and I get that. However, the fact that they are Christian should be just that, a fact.
If you want to use faith as a screening tool for your advisor, that’s your choice. It should not sway your judgment or cause you to ask fewer questions. Dishonest advisors, salespeople, or politicians use faith sometimes to get their audience to suspend critical thought. Sanchez was likely not paying close enough attention when he was butt fumbling his money, probably because he got lulled into a false sense of security.
Ways to avoid butt fumbling money
In my recent article detailing how to pay for financial advice, I showed that there are three key things to look for in an advisor. You want him or her to be a fiduciary, charge 1% a year or less, and use mostly passive low cost mutual funds. I seriously doubt that this firm passes this three part test.
Human beings are greedy creatures. We do not want to watch our money double over 10 years. We want it to double tomorrow. That leads unsophisticated investors such as professional athletes to invest in all sorts of foolish businesses. After all, the famous Red Sox player Curt Schilling tried to found a video game company on his own. What do pitchers know about programming, selling, or developing video games? Narayan probably told Sanchez that he could expect double digit returns from this business, and he agreed because it sounded like a good deal. It is not Sanchez’s fault that the advisor took far more than the $100,000 amount he consented to. However, if he avoided advisors who pitch stocks in the first place, he would not have been victimized either.
Rather than risk working with an active manager or stock picking advisor, the vast majority of people would be better off with robo-advisors such as Wealthfront or Betterment. They charge rock bottom fees, invest in well regarded low cost Vanguard funds, and tax loss harvest better than any human advisor ever will.