The case for wooing clients away from the big banks might have just gotten more difficult due to an $11 million lawsuit against two independent financial advisors.
The case for wooing clients away from the big banks might have just gotten more difficult due to an $11 million lawsuit against two independent financial advisors.
Jorge Posada had a 17-year baseball career (entirely with the New York Yankees) that paid him $120 million in total compensation. Unfortunately, Posada and his wife Laura knew absolutely nothing about investments so they went to Carlos Collar and Anthony Fernandez, two Cuban-American money managers based in Miami who specialized in providing financial advice for Latin American baseball players.
That was in 1999.
According to Vice Sports, Posada gave Collar and Fernandez “absolute control over his finances.” That’s a mistake that far too many entertainers and athletes make due to a complete lack of interest when it comes to financial matters. In reality most people are like this.
Advisors, no matter how tempting complete control might be, need to remember that advice is a two-way street. Part of serving clients is ensuring that they understand why they’re invested in a particular way. While they don’t have to know everything about every single investment it’s important that they at least understand the investment policy statement, which represents how you and your client will work together, and then agree to the IPS by signing it.
Clearly, the Posada’s didn’t have one.
Over the course of 11 years the Posada’s lost $11.2 on investments made by Collar and Fernandez. Interestingly, none of the “alleged misdoings” occurred until the duo left Merrill Lynch in 2005 to form their own firm, Quantum Family Office Group. Had the Posada’s remained with Merrill Lynch it’s quite possible that the damage done wouldn’t have been nearly as egregious because of compliance in place at the wirehouse that’s now owned by Bank of America.
Former MLB pitcher Jose Contreras, who also got involved with Collar and Fernandez, invested almost a million dollars along with $3 million from Posada into Sunset Trails LLC, a company created by the two advisors to make real estate investments. Paying $13.5 million for a piece of Florida land that only one day earlier sold for $8.4 million, the property according to a complaint filed by Contreras was intended for “developing an elite equestrian-themed community for the wealthy.”
In hindsight, the $5 million difference in price should have been the first clue that something was amiss. Then, to make matters worse, Posada invested $8.1 million in a hedge fund managed by Collar and Fernandez, neither of whom had any experience operating a hedge fund. As Posada’s lawyer Barry Lax states, “They had no track record, they had no experience running a hedge fund. It’s really a joke.”
ESPN reported last week that a settlement is in the wind.
Whatever happens, it’s a gentle reminder that advisors maintain arm’s length relationships with their clients, something that’s more easily maintained while working at the big bank firms such as RBC Dominion Securities and BMO Nesbitt Burns.
Jorge Posada had a 17-year baseball career (entirely with the New York Yankees) that paid him $120 million in total compensation. Unfortunately, Posada and his wife Laura knew absolutely nothing about investments so they went to Carlos Collar and Anthony Fernandez, two Cuban-American money managers based in Miami who specialized in providing financial advice for Latin American baseball players.
That was in 1999.
According to Vice Sports, Posada gave Collar and Fernandez “absolute control over his finances.” That’s a mistake that far too many entertainers and athletes make due to a complete lack of interest when it comes to financial matters. In reality most people are like this.
Advisors, no matter how tempting complete control might be, need to remember that advice is a two-way street. Part of serving clients is ensuring that they understand why they’re invested in a particular way. While they don’t have to know everything about every single investment it’s important that they at least understand the investment policy statement, which represents how you and your client will work together, and then agree to the IPS by signing it.
Clearly, the Posada’s didn’t have one.
Over the course of 11 years the Posada’s lost $11.2 on investments made by Collar and Fernandez. Interestingly, none of the “alleged misdoings” occurred until the duo left Merrill Lynch in 2005 to form their own firm, Quantum Family Office Group. Had the Posada’s remained with Merrill Lynch it’s quite possible that the damage done wouldn’t have been nearly as egregious because of compliance in place at the wirehouse that’s now owned by Bank of America.
Former MLB pitcher Jose Contreras, who also got involved with Collar and Fernandez, invested almost a million dollars along with $3 million from Posada into Sunset Trails LLC, a company created by the two advisors to make real estate investments. Paying $13.5 million for a piece of Florida land that only one day earlier sold for $8.4 million, the property according to a complaint filed by Contreras was intended for “developing an elite equestrian-themed community for the wealthy.”
In hindsight, the $5 million difference in price should have been the first clue that something was amiss. Then, to make matters worse, Posada invested $8.1 million in a hedge fund managed by Collar and Fernandez, neither of whom had any experience operating a hedge fund. As Posada’s lawyer Barry Lax states, “They had no track record, they had no experience running a hedge fund. It’s really a joke.”
ESPN reported last week that a settlement is in the wind.
Whatever happens, it’s a gentle reminder that advisors maintain arm’s length relationships with their clients, something that’s more easily maintained while working at the big bank firms such as RBC Dominion Securities and BMO Nesbitt Burns.
