Intersect Capital’s Joe McLean: Advising Sports Royalty by Playing the Coach
Part of Joe McLean's job as a financial advisor is to steer the wealthy athletes he serves through situations that might hurt them financially, such as when they're tempted into an auto dealership to look at a flashy car. "I'm typically on the phone telling them , 'Back away slowly from the dealership - walk out,' " says McLean ,
managing partner at $1.4 billion-asset Intersect Capital, in San Ramon, Calif.
Speaking with Barron's Advisor from his home in Danville, Calif., McLean, who played basketball for several years for European teams, talks about building a practice whose clients include NBA stars Klay Thompson and Isaiah Thomas, golfer Sergio Garcia and baseball star Dexter Fowler. McLean explains how an expansive professional network boosts his team's service capacity (and ensures his clients end up with fair deals when buying cars, homes, and more), and why he thinks "co-pilot ed" investing relationships are the future.
Since you were young, you wanted to play in the NBA. Tell us about that journey.
We moved out to California when I was 11 years old and from that point on my passion was to play professional basketball. I met a young guy my age named Jason Kidd (who would go on to become a legendary NBA player who later coached, as well). I was a benefactor of playing with him and aspiring to the level that he was at. I never achieved that, but I did play for the University of Arizona, including in the Final Four in 1994.
I then played professionally for about four years, but after having basketball be my dream, all of a sudden I wasn't good enough. I played in 11countries in Europe and Asia and one season with the Dakota Wizards in Bismarck, N.D. The closest I ever got to the NBA was making it through training camp in 1998 with the Sacramento Kings, only to be cut on my way to the bus to go to the first game of the season . Eventually, I got to a point where I saw a lot of other players in their mid-to-late -30s continuing to try to chase the dream and dragging their families all over the world. I decided that wasn't for me.
You started your next career with Franklin Templeton, as a wholesaler. And over time you became a financial advisor, but didn't immediately work with athletes. Why?
I wanted to get completely away from sports; I was pretty bitter that didn't work out for me. It wasn't until, gosh, 15 years into my career that I got back into sports.
How did it happen?
I frankly just had old teammates watching my journey come back to me when they were getting ready to retire and say, "I think you're in that financial thing, can you look at my stuff?"
Fast forward to today: What's your client breakdown?
Intersect works with 400 households, and 70% are entrepreneurs , tech executives, and retirees. The other 30% are athlet es and entertainers. It's nearly equally split between Major League Baseball , NFL, NBA, and PGA.I definitely got my first clients in the NBA, and then I discovered the mutual admiration club that exists, and that's what the power of Intersect is: Bringing all these different types of people together.
I definitely got my first clients in the NBA, and then I discovered the mutual admiration club that exists, and that's what the power of Intersect is: Bringing all these different types of people together.
Are you the main guy at your firm for the athlete segment?
Ninety percent of my time for sure is in that space. And then personally I'm going through a period of time where all of this was meant to be much bigger than me, and so other advisors now have come into Intersect to continue that story and build out their own personal brand.
Joe Lum , who was with me as a younger advisor when we started this, now has one of the largest books of business. We've got an advisor in L.A., Jonathan Drubner, who's made that same mark in entertainment. So it continues to grow beyond me. But it's all based on what we saw in sports and entertainment, that everybody was trying to monetize a human being. And we're trying to run far, far from that.
How many employees do you need to run what sounds like a very high-touch business?
We are at 16, and that's recently increased; we just had a couple new hires. We've always been very lean, and we use our network to be much larger in scale. Half our business is full family office, where we help with bill pay and bookkeeping and tax planning and buying houses and cars, property management, project management, sourcing planes , all that stuff. That's a very labor-intensive side of the business. But we have a good network of peopl e that I trust and that I've built over the past 15 years.
You have very clear rules for athletes as far as saving their money. What are they?
If it's a rookie contract, they've got to save a minimum 40 cents of every dollar. For the everybody that these are the rules of engagement.
What if a client breaks the rules?
We've unfortunately had to let some clients go, and that's the hardest thing that I've gone through in my career. Because we're in this to help everybody. I always say we've all been knuckleheads- an d you can save a knucklehead. But when there is not mutual respect, it doesn't work.
What about the stereotype that athletes and entertainers are difficult clients, that they ignore good advice? Is that true?
I don't think it is at all.
As a player, you go into the huddle and most coaches draw up the play, they don't make suggestions, they tell you where to go. Early on as an advisor I found that to be helpful for clients for me to draw up a very detailed game plan for success day in and day out. Each client was highly competitive and wanted to succeed and execute the plan.
Over time I realized as each client matured and became a true pro, there must be flexibility in the process to allow for uniquely successful people to explore what their personal investment philosophy is. High-level performers are not looking to be told what to do anymore; instead, they want to be a part of a co-piloted experience. When I added some flexibility in the process, I began to learn just as much from the client as they were learning from us.
What do you mean by a co-piloted investing experience?
Once a client has executed on the fundamentals of their financial plan that enable them to have a sustainable lifestyle, many of them move to an entrepreneurial mindset. Often the client drives those decisions, and we are there to help co-pilot each endeavor.
Many athletes and entertainers are understandably suspicious of people offering to "help" them with their newfound riches. How do you gain their trust?
It can be very difficult because there are times when you may be giving advice, and a close family member is trying to get access to their money- and they have to trust me more than they trust their dad.
So it's sitting down with people and helping them pre-experience what's about to happen in their career and in their life. We talk to them about the types of pitches they're going to receive, and we give them the tools to say "maybe" so that I can say "no."
Elaborate on that.
As an example, if someone comes at you and wants you to invest in their "great idea," then the typical response we give a client is to say, "Hey, that's interesting, thanks for sharing that with me. My team has three or four questions that they're going to email over to you. If you could just answer those questions for us, then we'll set up a meeting."
And I'll give them the questions to ask or I'll ask them, and the majority of the time- almost all the time- no one responds. They just go on to the next person. And so our clients don't have to say no.
I learn a lot when we do estate planning, when we start talking about, God forbid, what if something happened? Where would you want your assets to go? Who do you want your trustee to be? Without prying too much into someone's life, that will tell you who they really care about, and what's most important to them. That will also inform you as to who you need to protect them from.
Your fee model is 1% of the first $5 million of assets under management, with reductions for bigger accounts, plus an administrative fee, correct?
Correct. And what's happening now over the past eight or nine years is that some portfolios have grown to such significant levels that the AUM fee pays for all of the other administrative costs. My goal is that, as you save, the administrative costs will go down as well. We have some clients who we're providing with the full service but the AUM fee is subsidizing everything else.
What's your investment approach?
I start with three different buckets in someone's financial life. We have a safety and security bucket that does have to be filled before we invest in other things. And that will be dictated based on clients' spending. So it may be a minimum of six months, up to18 months' worth of cash that's always there to meet all their fixed costs.
The second bucket is the growth bucket. I've been a big proponent for the past several years ofcustom indexing, and that has gotten far more personal than I could ever have expected. I call this the intelligent expression of whatever your investment philosophy is. I'll provide the vehicle that I believe is the most appropriate, like custom indexing. And then we have many clients, for example, building out their own social justice funds- we partner with a company called Canvas to do that- and they're trading their own tilts that weren't expressed really ever before. They're playing a role as to how things should get in or be pushed out of a portfolio.
And their first entry into private investing is multifamily real estate. These are class A buildings paying clients every three months. That begins the story around how you're not going to get paychecks your whole life working for different companies or for a team; eventually, you have to start replacing those paychecks. Our multifamily investments have been in class A buildings, and we were fortunate to never go below 85% occupancy; the property managers worked closely with each tenant and we saw less than 1% stop paying rent (during Covid , when evictions were largely banned).
Once we've filled the safety and security bucket and the growth bucket, and we've begun to understand and develop your own philosophy around investing, the third bucket is what I call the dream or the entrepreneurial bucket.
These are private investment opportunities, where due diligence is vital, right?
You can see100 deals, and maybe five of them are actually things we should consider. What we had to do very quickly is go out and build a board of advisors around these asset classes to determine what's real and what's not. We've now streamlined that on behalf of the client.
How many private opportunities do you evaluate each month and where do they come from?
We are now seeing 20 to 30 private deals per month. They may be coming directly to us at Intersect, or being sent directly to our clients. And now the clients go out and seek other things because they know (an opportunity) may be not just something that they're investing
in, but all of the other clients may get involved strategically, as well. That's created this network of really interesting opportunities in the private space.
We may not have the scale of the largest institutions, but we have very similar access to the kinds of opportunities that they do because of who the clients are. I really believe the future of investing is a co-piloted relationship with clients.
You provide your clients with concierge services, from setting up their credit cards to creating a payroll system for their personal employees, to looking after their homes. But it seems advising on car purchases creates the most anxiety for you.
God forbid someone ever walks into a dealership to try to buy a car. I'm typically on the phone telling them, "Back away slowly from the dealership - walk out. What is it that you're trying to get? Because we have a network of people who we know and trust who will help you with that transaction."
Part of that is building this community where we're all much bigger than any one client. And so we're buying and selling probably SO to 75 different cars every year. I've got a rule of thumb for many of our successful clients: You can have a really nice car, but just get one of them. If you want to get another really nice car, then sell the other one.
It sounds like you're constantly on call. Have you sacrificed too much of your personal life in order to be fully available to your clients?
I did early on, for sure, because I took any client who was willing to sign on the dotted line. And that created a lot of stress. Now my rule of thumb is really simple: If I can't introduce you to my kids, then you can't become a client. And there 's got to be mutual respect and a common ground as to what it is we're trying to accomplish.
I don't believe in a balanced life. It may sound cheesy, but I believe in a harmonized life. It
may be seven days a week, but it's very much integrated into my life because it's super personal.
You've got three kids ages 7 to 11. How do you relax and recharge?
My best day is when I can spend a third of my day in thought - that could be reading or working out- a third of my day charged up to try to hit the next personal milestone, and a third of my day nurturing relationships.
You're 47 years old and 6-foot-6. Can you still dunk a basketball?
I do it on my birthday every year. I usually start working on it a couple weeks prior because I don't want to blow out a knee or an Achilles. My goal is to do it until I'm 60. And I will keep showing my kids.