Why high earners still struggle with money

Key Concepts

• Financial Literacy: Understanding how all the pieces of your financial life work together and how to optimize them.
• Fee-Only Financial Advisor: An advisor who only collects fees for services rendered, without commissions from product sales.
• Certified Financial Planner (CFP): A financial planner who has met specific education, examination, experience, and ethical requirements.
• Fiduciary Duty: The legal obligation to act in the best interest of a client.
• Whole Life Insurance: A type of life insurance that includes a cash value component, often with higher premiums than term life.
• Term Life Insurance: A type of life insurance that provides coverage for a specific period.
• 529 Plan: A tax-advantaged savings plan designed for educational expenses.
• Index Funds: A type of investment fund that aims to match the performance of a specific market index.

From Olympic Gold to Financial Freedom: A Conversation with Lauren Williams

This episode of Financial Freestyle features an in-depth conversation with Olympic gold medalist Lauren Williams, detailing her journey from a peak earning potential of $200,000 per year to a $12/hour internship, and ultimately, to becoming a financial planner dedicated to empowering others. The discussion centers on the importance of financial literacy, the pitfalls of working with misaligned financial advisors, and practical strategies for building a secure financial future.

The Dramatic Shift in Financial Circumstances

Lauren Williams’ transition from professional athlete to financial novice was a stark one. After achieving success in both summer and winter Olympic games, beginning in 2004 with winning the NCAA championships and running the second fastest time in the world, she entered professional athletics with a baseline contract of $200,000 annually, often exceeding that amount due to performance bonuses. However, by 2013, she found herself unprepared for life after sport. She lacked substantial work experience and, crucially, had not effectively managed her earnings due to working with advisors who prioritized their own commissions over her best interests. This led to a significant income reduction, accepting a $12/hour internship to gain experience in the financial industry and understand her own finances.

The Perils of Misaligned Financial Advice

A significant portion of the conversation focuses on Williams’ negative experiences with financial advisors. She detailed two instances where advisors demonstrably did not act in her best interest.

• Case 1: Excessive Life Insurance: One advisor sold her a $1 million whole life insurance policy, requiring annual premiums of $5,000-$6,000 while she was a 20-year-old, single athlete. Williams now believes whole life insurance is generally unsuitable for most people, and particularly unnecessary in her situation at the time. She estimates the advisor earned approximately $25,000 in commission on this single product.
• Case 2: Investment in a Failed Casino: A second advisor, working with NFL players, invested funds in a casino project that ultimately collapsed, resulting in significant losses for the athletes involved. This situation was likened to a CNBC/60 Minutes exposé. Williams herself avoided the largest losses due to having less capital invested, but still paid $10,000 annually for bill pay services without receiving meaningful financial guidance.

Williams emphasizes that many advisors are incentivized to sell products and earn commissions, rather than providing objective financial advice. She highlights the importance of understanding how an advisor is compensated. As she stated, “You got to truly understand the incentives as to why.”

Identifying a Trustworthy Financial Advisor

Williams provides a clear framework for selecting a competent and ethical financial advisor:

1. Fee-Only: Prioritize advisors who are “fee-only,” meaning they are compensated solely by fees for their services, eliminating commission-based incentives.
2. Certified Financial Planner (CFP): Seek advisors with the CFP designation, which requires rigorous education, examination, experience, and adherence to a code of ethics. She compares the CFP certification to the training and qualifications required of a physician, emphasizing the need for expertise and ongoing professional development.
3. Fiduciary Duty: Ensure the advisor operates as a fiduciary, legally obligated to act in the client’s best interest. She expressed disbelief that not all financial professionals are legally bound to this standard.

Lessons Learned and the Importance of Due Diligence

Williams recounts a particularly painful experience where she lost $100,000 to a scammer who presented himself as an investor. This individual, introduced through a family friend, promised high returns on an overseas investment with little to no documentation. She acknowledges that her lack of experience and trust in the referral led to this loss, even after briefly discussing the investment with her existing financial advisor who failed to raise concerns.

She stresses the importance of:

• Thorough Due Diligence: Never trusting anyone without proper paperwork and verification.
• Recognizing Inexperience: Acknowledging that a lack of experience can lead to poor decisions and a vulnerability to scams.
• Questioning Everything: Asking detailed questions and seeking independent verification of investment opportunities.

Planning for the Future: Parenting and Financial Security

The conversation shifts to financial planning for families, particularly in light of Williams’ recent motherhood. She recommends two foundational steps:

1. Emergency Fund: Establishing an emergency fund covering 6 months of essential expenses.
2. 529 Plan: Utilizing a 529 plan to save for future education expenses, taking advantage of potential state tax deductions.

Williams also advocates for opening custodial brokerage accounts to begin investing for children’s future, emphasizing the power of early and consistent saving to mitigate the rising costs of education.

A Call for Financial Literacy and Empowerment

Williams’ personal experiences led her to pursue a CFP certification and launch her own company, dedicated to providing financial literacy and planning services. She advocates for “financial retreats” to provide individuals with the knowledge and tools to take control of their finances. She believes that financial literacy is as important as physical and mental wellness.

Concluding Remarks:

Lauren Williams’ story is a powerful testament to the importance of financial literacy, the dangers of unchecked financial advice, and the potential for reinvention. Her journey from Olympic athlete to financial advocate provides valuable lessons for anyone seeking to build a secure financial future. The key takeaway is the need for proactive financial planning, critical evaluation of advisors, and a commitment to continuous learning.