When the lights go out

Globe Investor Magazine, September 18, 2008

Continued from Page 1

The basic investment philos­ophy is capital preservation-focused on saving, modest returns and little exposure to downside risk. In exchange, the firm col­lects an annual fee that starts at 1% of assets under management and declines as the client's asset base grows. There's also a con­sulting fee for non-investment services, which in­­clude a fair bit of hand-holding.

This conservative approach is the norm for pro-athlete wealth managers, who know their clients don't have much room for error. Steven Conville, Markham, Ontario-based vice-president and associate port­folio manager at Blackmont Capital Inc., does financial plan­ning for a handful of NHLers. He uses a "dog years" analogy: A single lousy year for a hockey player equals seven for a less time-strapped investor. "You don't really realize how much damage that one bad year has on that player's future until after they've retired," Conville says. "You make three or four of these mistakes and you're broke."

Jarome Iginla has lived by the Gavin system since 1996. The Calgary Flames superstar began working with Gavin as a 19-year-old rookie, when Iginla was naive about finance and worried about making the same mistakes as many players before him. The two met through vet­eran centre Dave Gagner, Iginla's linemate, who had played with Gavin a few years earlier in Minnesota. "I could tell [Dave] was into the financial side and watched that stuff," Iginla says. "He told me he had this friend, Stew, who would be a good guy to meet."

Iginla, 31, now earns $7 mil­lion (U.S.) a year patrolling the right wing for Calgary. But he's careful with his money-a trait inherited from his Nige­rian immigrant father and his single mother, who raised him in a modest suburban household in the Edmonton area. Ever since Iginla entered the league, he has tried to avoid the flashy extravagances and big-spending ways that have been the Achil­les heel of many wealthy pro athletes.

Well, except maybe that car. By his second season, Iginla was wrestling with the urge to yield to his one great young-and-rich temptation: a Porsche 911. It would set him back $115,000. "I had read and heard stories of players blowing their cash on spur-of-the-moment things and leaving the game not set up for their future," he says. "So purchasing the car was a big decision for me."

The young Iginla nervously took the idea to the two people who served as his financial con­science. He was surprised when his dad, Elvis, encouraged him to buy his dream wheels. Get­ting past Gavin took some tight­er checking. The money man­ager gave his consent, but he explained how splurging on the Porsche would affect Iginla's financial goals. "Being able to see the long-term plan helped me feel good about my purchase and enjoy it more," says Iginla, who still uses this method for big-ticket items.

As he does with all his clients, Gavin started out by devising a financial forecast for Iginla-a blueprint designed to ensure he can retire from hockey with enough wealth that he'll never have to work again. Over the years, Iginla's financial plan has been adjusted to incorporate a family. He married his high-school sweetheart, Kara, in 2003, and the couple had their third child this summer.

Every off-season, Gavin sits down with Jarome and Kara for their annual financial report-a three-hour review that measures their current status against the master plan. The Iginlas receive quarterly performance reports on their investment portfolio. They also keep in touch with Gavin and his associate, Matthew Bacchiochi, through­out the year by phone and e-mail, to discuss any finan­cial issues that arise. These might include investment ideas, business opportunities or large purchases. Bacchiochi says that for forecasting and planning purposes, Gavin Management assumes a client's play­ing career will last about eight years. "We try to con­struct a plan whereby he would accumulate a sufficient pool of capital to finance his lifestyle without eroding the principal," he explains. "With our long-term fore­cast, we can generally illustrate that if a player exhibits reasonable cash-flow management and has an average career, an after-tax return of 6% will allow him to achieve financial independence."

For players early in their careers, the portfolio begins as a glorified savings plan, weighted heavily toward short-term money-market instruments. As a client accu­mulates more to invest, Gavin and Bacchiochi gradually add longer-term fixed-income products, equities and alternative strategies such as hedge funds and private equity. Gavin estimates that a typical player will need to accumulate a liquid capital base of at least $3 million in order to maintain his lifestyle after retirement. A portfolio for a fairly young player-Bacchiochi uses the ex­­­­­­­­ample of a three-year pro who still earns below the league av­­erage-would look shockingly defensive to the average inves­tor in their early 20s. More than half of the player's money would be in cash and fixed in­come, 25% in long-term growth equities and 20% in al­ternative assets.

On the other hand, Iginla's portfolio is consistent with what Bacchiochi prescribes for "a player who has meaningful net worth and could conceiv­ably be considered financially independent." Its equity weight­ing approaches 50%, balanced by 25% in long-term bonds, 15% in alternatives and 10% in cash.

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