RPF0092-Michael_Kitces

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00:00:28.000 | Today, I'm thrilled to bring you an interview the likes of which

00:00:31.000 | you've never heard.

00:00:32.000 | Would you be interested in hearing two knowledgeable

00:00:35.000 | and experienced financial advisors talk candidly

00:00:39.000 | about the history of the industry,

00:00:42.000 | where the industry currently stands,

00:00:44.000 | and the future direction?

00:00:46.000 | Would you like to have the curtain peeled back

00:00:49.000 | and some of the mystery removed from the financial advisory

00:00:53.000 | business?

00:00:54.000 | If you've ever purchased a wine storage

00:00:57.000 | and you've ever purchased financial advice,

00:01:00.000 | ever planned to purchase financial advice,

00:01:03.000 | or if you've ever delivered or plan to deliver financial

00:01:06.000 | advice to others, I think you really

00:01:08.000 | benefit from today's show.

00:01:09.000 | [MUSIC PLAYING]

00:01:26.000 | Welcome to the Radical Personal Finance Podcast.

00:01:28.000 | My name is Joshua Sheets.

00:01:29.000 | Today is Thursday, October 30, 2014.

00:01:32.000 | And today, I will be bringing you

00:01:34.000 | an interview with a financial planning thought leader named

00:01:39.000 | Michael Kitsis.

00:01:40.000 | And we're going to talk about the financial planning

00:01:42.000 | business from every aspect, pull back the curtain for you,

00:01:45.000 | and give you some deeper understanding.

00:01:47.000 | [MUSIC PLAYING]

00:01:51.000 | Now, I've gotten a lot of questions

00:01:53.000 | since I've started doing this show about the business

00:01:56.000 | of financial advice.

00:01:57.000 | I've had many people ask me, how do you figure out

00:01:59.000 | how to hire a financial advisor?

00:02:01.000 | I've had many people ask me if I do financial advice anymore.

00:02:04.000 | I've had many people-- I've had people share stories.

00:02:08.000 | You've noticed in many of the guests

00:02:10.000 | that I've brought on the shows, some have had great advisors,

00:02:13.000 | some have had terrible advisors.

00:02:15.000 | And I've had people share their stories.

00:02:17.000 | And I've had people share their stories.

00:02:20.000 | And I've had people share their stories.

00:02:22.000 | And I've had people share their stories.

00:02:24.000 | And I've had people share their stories.

00:02:26.000 | And I've had people share their stories.

00:02:28.000 | And I've had people share their stories.

00:02:30.000 | And I've had people share their stories.

00:02:32.000 | And I've had people share their stories.

00:02:34.000 | And I've had people share their stories.

00:02:36.000 | And I've had people share their stories.

00:02:38.000 | And I've had people share their stories.

00:02:40.000 | And I've had people share their stories.

00:02:42.000 | And I've had people share their stories.

00:02:44.000 | And I've had people share their stories.

00:02:46.000 | And I've had people share their stories.

00:02:48.000 | And I've had people share their stories.

00:02:50.000 | And I've had people share their stories.

00:02:52.000 | And I've had people share their stories.

00:02:54.000 | And I've had people share their stories.

00:02:56.000 | And I've had people share their stories.

00:02:58.000 | And I've had people share their stories.

00:03:00.000 | And I've had people share their stories.

00:03:02.000 | And I've had people share their stories.

00:03:04.000 | And I've had people share their stories.

00:03:06.000 | And I've had people share their stories.

00:03:08.000 | And I've had people share their stories.

00:03:10.000 | And I've had people share their stories.

00:03:12.000 | And I've had people share their stories.

00:03:14.000 | And we had to play tag for a little while

00:03:16.000 | because Michael is crazy busy.

00:03:18.000 | He's on the road constantly speaking all over the place.

00:03:21.000 | It's pretty amazing the schedule he keeps.

00:03:23.000 | But finally we were able to connect.

00:03:25.000 | And so I'm thrilled to bring you this discussion.

00:03:29.000 | And you need to hear this discussion today

00:03:33.000 | if you've ever engaged a financial advisor

00:03:36.000 | or if you've never--or if you plan to engage a financial advisor.

00:03:40.000 | I'll tell you straight up.

00:03:42.000 | I do not see how most people in our society--

00:03:49.000 | most is probably a little bit strong.

00:03:51.000 | I see how some people in our society can handle their own financial planning.

00:03:55.000 | I really do.

00:03:56.000 | I think that in the world of do-it-yourself

00:03:59.000 | that there are some of you who are listening to this show

00:04:02.000 | who can do your own financial planning.

00:04:04.000 | And I'm trying to equip you with this show,

00:04:06.000 | trying to equip you with the technical knowledge,

00:04:08.000 | the detailed financial planning knowledge.

00:04:11.000 | And I'm also trying to equip you with the philosophy

00:04:14.000 | and the insights that you need.

00:04:16.000 | So that's why we're going on the one end

00:04:18.000 | to talking with people who have retired and what it's like

00:04:21.000 | and people who are working towards that

00:04:23.000 | and talking about the stuff like how do you actually arrange your budget

00:04:27.000 | in such a way to be able to retire.

00:04:29.000 | But then we're flipping around and we're going to go through--

00:04:31.000 | I've been going through the detailed literature.

00:04:33.000 | So I'm going to talk through some of the formal academic papers

00:04:36.000 | on financial planning.

00:04:38.000 | I mean the scope of this subject is massive.

00:04:41.000 | But I don't want to be misunderstood about the fact of--

00:04:46.000 | about the value of a financial advisor.

00:04:48.000 | And if you go online, many times you'll read articles

00:04:51.000 | where it seems as though people are just extremely critical

00:04:54.000 | of the value of the financial advisor.

00:04:56.000 | And I'll tell you my personal opinion straight up.

00:04:58.000 | A, I don't understand why anybody wouldn't want to hire a financial advisor

00:05:03.000 | simply because of the savings of time.

00:05:06.000 | If you remember back to the show I did where somebody said,

00:05:08.000 | "Joshua, I'm interested in should I get a financial planning designation

00:05:13.000 | purely in order to do my own planning because I'm interested in learning

00:05:18.000 | about financial planning.

00:05:20.000 | Should I get an industry designation?"

00:05:22.000 | And my thought was doing that would be like saying,

00:05:25.000 | "I'm going to go get a medical degree so that I can diagnose

00:05:28.000 | my eight-year-old child's sickness properly."

00:05:30.000 | Like it just doesn't make sense as an efficient use of time.

00:05:33.000 | And yet I understand the desire to do that.

00:05:36.000 | But you're far better off, I think, just hiring an advisor for $500 or $1,000

00:05:41.000 | to save you hours and hours and hours of time.

00:05:44.000 | But the problem is sometimes you don't know what you don't know.

00:05:47.000 | And so it's very difficult for me to say without looking at somebody's

00:05:50.000 | individual situation, "Oh, here's all the things that you missed

00:05:53.000 | that you could have gotten."

00:05:55.000 | So it's very difficult for me to understand why anybody would not want to have

00:05:59.000 | a financial advisor from the perspective of I were their advisor just because

00:06:03.000 | I know who I am and I know how I think and I feel very strongly about the value

00:06:07.000 | that I could bring.

00:06:08.000 | But when I look at the industry as it stands, I understand why people would

00:06:12.000 | think that way because the term "financial advisor" can mean a world

00:06:16.000 | of different things.

00:06:18.000 | So today we're going to talk through that.

00:06:20.000 | And Michael and I are going to share with you some of the history

00:06:22.000 | of the financial planning profession.

00:06:24.000 | We're going to talk about where things stand currently and where things

00:06:27.000 | are going in the future.

00:06:28.000 | And Michael was the best person.

00:06:30.000 | I'm going to bring a lot of financial advisors on this show as time goes

00:06:33.000 | forward.

00:06:34.000 | I'm going to try to keep you very current on where things are because even

00:06:37.000 | though this show is designated as, in my mind, I'm specifically speaking

00:06:42.000 | not to a financial advisor audience.

00:06:44.000 | I'm speaking to a layperson audience.

00:06:46.000 | I'm speaking to you who is interested to--you have above average interest

00:06:51.000 | in your finances and building and maintaining your wealth.

00:06:56.000 | But in order to do that, you need to know what's kind of going on in the

00:06:59.000 | industry.

00:07:00.000 | So financial advisors are not my target audience, but I'm going to keep you

00:07:03.000 | abreast of what's going on in the industry, and there's a lot of change

00:07:05.000 | happening right now.

00:07:07.000 | So Michael is a leader.

00:07:08.000 | I'll bring other people on in the future as well that I think will really

00:07:12.000 | benefit you and will continue to stay current on everything that's going

00:07:15.000 | on in the industry.

00:07:16.000 | Michael Kitsis is a fascinating guy.

00:07:19.000 | He is one of the most knowledgeable, respected, again, thought leaders in

00:07:24.000 | the financial planning business.

00:07:26.000 | He has an undergraduate degree, Bachelor of Science in psychology,

00:07:30.000 | actually, nothing related to financial planning.

00:07:33.000 | He didn't come from that specific background, but he started as a

00:07:37.000 | psychology major with a theater minor, and I believe he started his life

00:07:43.000 | as a financial advisor.

00:07:45.000 | I think he mentioned in the interview he started as a life insurance agent

00:07:48.000 | with a large national life insurance company.

00:07:50.000 | Since then, he went on to grow, and he has accomplished numerous other

00:07:56.000 | advancements in his knowledge and his credentials.

00:08:00.000 | He has a Master's in science and financial services from the American

00:08:03.000 | College of Financial Services in Bryn Mawr, Pennsylvania.

00:08:06.000 | He also has a Master's in taxation degree with honors from the University

00:08:11.000 | of Tulsa in Tulsa, Oklahoma.

00:08:13.000 | In addition to those two formal academic degrees, college degrees, he

00:08:18.000 | additionally has a large number of other industry designations, including

00:08:22.000 | a certified financial planner designation from the CFP board, a

00:08:27.000 | chartered life underwriter designation from the American College,

00:08:30.000 | chartered financial consultant designation from the American College,

00:08:33.000 | registered health underwriter and registered employee benefits consultant

00:08:37.000 | from the American College, chartered advisor of senior living from the

00:08:40.000 | American College, and a certified wealth preservation planner designation

00:08:45.000 | from the Wealth Preservation Institute.

00:08:48.000 | Additionally, he has a graduate certificate in customized asset management

00:08:51.000 | and a graduate certificate in estate planning.

00:08:55.000 | Michael has worked in a traditional commission model financial practice

00:09:00.000 | in the life insurance business, has also worked in a blended fee and

00:09:03.000 | commission practice, and currently serves as the director of research for

00:09:07.000 | the Pinnacle Advisory Group, which is a private wealth management firm

00:09:10.000 | located in Columbia, Maryland.

00:09:13.000 | He contributes to various industry organizations.

00:09:16.000 | He is an editor of the Practitioner Editor for the Journal of Financial Planning.

00:09:23.000 | He also publishes on his blog at Kitsis.com.

00:09:27.000 | He publishes the Nerd's Eye View, and then he also publishes the Kitsis

00:09:31.000 | Report, where he talks about and leads financial planners through in-depth,

00:09:35.000 | comprehensive, continuing education credits that are available for their CFP

00:09:40.000 | curriculum.

00:09:42.000 | The great thing about Michael, however, is he doesn't hold any punches.

00:09:44.000 | He knows what he's talking about, and he doesn't hold back any information.

00:09:48.000 | So with that, sit back, relax, and enjoy seeing the curtain pulled back

00:09:53.000 | on the financial planning industry.

00:09:56.000 | [SFX]

00:09:58.000 | So, Michael, welcome to the Radical Personal Finance Podcast.

00:10:01.000 | I appreciate your being here.

00:10:02.000 | Thank you. Good to be here.

00:10:04.000 | So I've been wanting to do this for a while.

00:10:06.000 | We were supposed to do this a couple months ago at FinCon, but you flaked

00:10:09.000 | out on me. I'll forgive you.

00:10:11.000 | Yes, I do not. No one wants a schedule that looks like mine.

00:10:16.000 | Let's put it that way.

00:10:19.000 | I'm always careful with what you wish for.

00:10:23.000 | I certainly don't want business to be slower, but business is a little crazy

00:10:27.000 | these days. It's good to have things going well.

00:10:30.000 | Right. You are a busy man.

00:10:32.000 | I am a busy man. That is true. But I'm glad to be here.

00:10:35.000 | I appreciate it.

00:10:37.000 | I'm glad to be here.

00:10:39.000 | What I'd like to start today is I want to give people some insight into the

00:10:44.000 | financial advisor space.

00:10:46.000 | I come from it. You come from it.

00:10:48.000 | Both of us have a good bit of experience.

00:10:51.000 | We've done a bit of studying.

00:10:53.000 | I think you and I may be a good team to talk through, in a very straightforward

00:10:58.000 | way, the advantages and the disadvantages of various financial advisors,

00:11:02.000 | various financial advisor practices, et cetera.

00:11:05.000 | That's what I'm excited to do is to give people, a layperson, a peek behind

00:11:09.000 | the curtain as far as what it's actually like to run a financial advisory

00:11:12.000 | practice.

00:11:14.000 | In order to start, I think we need some historical context because a lot of

00:11:19.000 | times people have a very short memory of where we've come from as far as an

00:11:24.000 | industry and where we're going.

00:11:29.000 | The first question would be, give us a historical outline of the business of

00:11:35.000 | dispensing and providing financial advice.

00:11:39.000 | The business of dispensing and financial advice, frankly, has gone through a

00:11:45.000 | couple of phases.

00:11:47.000 | The earliest versions that we have of financial advice is basically investment

00:11:53.000 | advice.

00:11:55.000 | The laws that we still have around advice are all buried in the roots of

00:11:59.000 | investment advice.

00:12:01.000 | If you really want to go all the way back, the roots of investment advice in

00:12:05.000 | our country are basically trust companies in Boston in the 1600s and 1700s

00:12:11.000 | where literally if you were a merchant in the New World and you were going to

00:12:16.000 | take your merchant ship out to sea for six months or a year at a time to take

00:12:20.000 | your goods across the ocean and back again, you needed someone at home who

00:12:24.000 | would watch over your financial affairs and make sure that your family fortune

00:12:28.000 | didn't tumble down to the ground while you were gone at sea for a year who knew

00:12:32.000 | if you were coming back.

00:12:34.000 | That's the early origins of trust companies and banks that would manage money

00:12:40.000 | and the origins of a lot of the laws that we still have in place today.

00:12:46.000 | The legal term is being a fiduciary, but the idea is if you're going to manage

00:12:50.000 | this person's money and financial affairs while they're off to sea for a year,

00:12:55.000 | you're not selling them stuff.

00:12:57.000 | You're actually running it as though you were them and you should be doing

00:13:00.000 | everything as though it's in their interest because you're literally acting

00:13:04.000 | in their stead while they're not there.

00:13:06.000 | And this would go back to even a biblical concept of stewardship.

00:13:08.000 | So if you get into Christian teachings on management, everything goes back to

00:13:16.000 | the concept of stewardship.

00:13:18.000 | The ruler goes away on a trip and he appoints a steward over his affairs

00:13:21.000 | while he's gone, and when he returns he holds that steward accountable for the

00:13:25.000 | results of their actions.

00:13:27.000 | Absolutely.

00:13:28.000 | And so that idea of someone to be a steward for your financial affairs generally

00:13:34.000 | around the management of assets was what much of financial advice--I'm putting

00:13:41.000 | it in air quotes so no one can see it--but financial advice, sort of this

00:13:45.000 | steward of investments was kind of the central process right up through the

00:13:51.000 | 1920s.

00:13:52.000 | And then the '20s had a bit of controversy around this because the lines got

00:13:58.000 | blurry between stewards of investment management and stockbrokers, like

00:14:04.000 | literally good old-school brokers of stocks whose job was to sell the stocks

00:14:09.000 | that their investment banks had to sell and trying to peddle it out to anybody

00:14:14.000 | who would be a buyer.

00:14:16.000 | And the lines got so blurry that a lot of people were--looked like stewards of

00:14:21.000 | investment advice and management but were really peddling stocks for sale,

00:14:25.000 | which of course didn't go very well when the Great Depression showed up and

00:14:28.000 | the stock market fell by almost 90% from top to bottom.

00:14:32.000 | And so in the aftermath of that, we kind of redrew these bright lines in

00:14:38.000 | ultimately culminating in what's still kind of the dominating law today, what

00:14:43.000 | was called the Investment Advisors Act of 1940, which was meant to draw this

00:14:47.000 | clear line between investment advisors who were stewards for people's money and

00:14:52.000 | were subject to the appropriate legal standards of acting in someone's

00:14:56.000 | interest because you're stewarding their money, and then everyone else was a

00:15:01.000 | broker responsible for the sale of financial products, i.e. stocks at the

00:15:05.000 | time.

00:15:06.000 | And so we kind of redrew the lines there.

00:15:09.000 | And that kind of continued forward for several decades.

00:15:14.000 | So investment managers generally either stayed in trust companies or did things

00:15:19.000 | like created mutual funds, and most mutual funds on the back end is basically

00:15:23.000 | an investment advisor that's responsible for running that money.

00:15:27.000 | And most individual folks who were working in financial services were

00:15:33.000 | primarily responsible for the sale of financial products.

00:15:36.000 | They would sell life insurance, they would sell health insurance for a period

00:15:40.000 | of time, they would sell disability income insurance, they would sell stocks

00:15:45.000 | and bonds, and then eventually mutual funds as the mutual fund industry rose.

00:15:49.000 | And so they were sellers of financial products.

00:15:52.000 | And so by the time you get to the 1960s and the 1970s, you have kind of good

00:15:58.000 | old stockbrokers in the truest sense of the word and insurance agents.

00:16:02.000 | Right. And this would be the era where pursuit of happiness, it would probably

00:16:08.000 | be one of the more well-known businesses.

00:16:10.000 | Yeah. You're probably even a little bit early even still.

00:16:15.000 | Pursuit of happiness was kind of really early 1980s as the industry started

00:16:20.000 | to shift a little bit more.

00:16:22.000 | Here you are, frankly, in kind of the golden era of the salesperson as a

00:16:31.000 | rising professional, but still very much focused on the sale of products.

00:16:36.000 | Right. And what started to emerge out of this time was a subset of people

00:16:41.000 | who were responsible for selling products that said, you know, I'd really

00:16:45.000 | like to do more than just these particular products that I've got in my quiver.

00:16:49.000 | I'd like to actually start giving people advice.

00:16:51.000 | And so we saw the birth of what's now called financial planning.

00:16:55.000 | And, you know, we kind of officially date this back to a gathering of what

00:17:01.000 | were basically life insurance agents in 1969 who gathered together in a hotel

00:17:06.000 | in Chicago and said, we should create this program of more comprehensive

00:17:12.000 | financial advice and actually make a designation out of it.

00:17:15.000 | And what they made was ultimately called the CFP, the Certified Financial

00:17:19.000 | Planner marks. The first class went through the curriculum in 1973.

00:17:24.000 | And that was kind of the birth of financial planning as a separate sort

00:17:29.000 | of movement unto itself, this idea that you would actually give people

00:17:33.000 | advice about more than just the product you had to sell.

00:17:36.000 | And so financial planning started to started to grow when we go through

00:17:42.000 | the early stages there.

00:17:44.000 | You know, the reality for sort of the rest of the 70s and most of the 1980s

00:17:49.000 | was we saw this rise of financial planning, but delivery of financial

00:17:55.000 | planning was still basically I gave you a bunch of advice, the culmination

00:18:00.000 | of which was you should do the product I'm trying to sell you.

00:18:03.000 | Right. And the plans are designed ultimately to deliver the advice that

00:18:09.000 | leads to the sale of the product.

00:18:11.000 | Yes. And kind of literally you weren't going to get paid for the advice

00:18:15.000 | until someone did the product.

00:18:17.000 | Right now, you know, kind of two things happened out of that at the same

00:18:21.000 | time. On the one hand, the industry actually discovered, you know, when

00:18:24.000 | you go through a process that deep of understanding someone's needs and

00:18:27.000 | financial situation and frankly, you just listen to them a little about

00:18:31.000 | what they're trying to go through at the end of that process.

00:18:34.000 | They're often much more interested in buying the solution anyways, even

00:18:37.000 | if like it was actually right for them in the first place.

00:18:40.000 | If as a salesperson, I just come to you and say, hey, I got this thing

00:18:43.000 | for you. It's going to be great.

00:18:44.000 | Trust me, no one really wants to buy it.

00:18:46.000 | When we go through an in-depth analytical process that culminates in

00:18:50.000 | demonstrating how this really is the right solution for you to help you

00:18:53.000 | move forward, you buy the thing.

00:18:56.000 | Right. It's actually to demonstrate to you that it is the right thing.

00:18:58.000 | You know, the fact that I get paid for the solution at the end doesn't

00:19:01.000 | necessarily mean it wasn't actually the best thing for you.

00:19:04.000 | Although that's obviously kind of a danger for abuse.

00:19:09.000 | And, you know, I think we'll come back to that soon.

00:19:11.000 | So we kind of saw the rise of financial planning as a means to

00:19:17.000 | ultimately implement and sell a product where often it was just a better

00:19:21.000 | way to understand what product you really needed and then to sell it to

00:19:24.000 | you. And the caveat that sometimes it was more about just getting the

00:19:28.000 | product sold. And basically, no matter what you said, your fact pattern,

00:19:31.000 | your situation was, the recommendation was always going to be the same

00:19:35.000 | product. It was my product. It was just like a really long sales gimmick.

00:19:39.000 | Right. And the industry kind of came out this simultaneously from two

00:19:44.000 | directions at once. So there were advisors from the insurance side of

00:19:49.000 | the industry who found that this was a great way to qualify and then sell

00:19:53.000 | insurance. And there were people that were coming through in the rise of

00:19:57.000 | the investment industry, in particularly the mutual fund industry, who

00:20:02.000 | were getting pushed this direction as well. And that's driven by primarily,

00:20:06.000 | I think, by a regulatory change that we made in 1975, where for the

00:20:11.000 | first time we deregulated the commissions for buying stocks. They had

00:20:18.000 | always been fixed and basically were set by the stock exchange and

00:20:21.000 | everybody sold stocks for the same price. And the commissions got

00:20:25.000 | deregulated. Basically, we're allowed to float so brokers could charge

00:20:28.000 | whatever they wanted. And sure enough, they started undercutting each

00:20:31.000 | other. And suddenly being a stock broker and selling stocks was not as

00:20:36.000 | profitable as it once was. And so the industry began to shift. Suddenly

00:20:41.000 | advisors had to find other things to or not even advisors, stock brokers

00:20:45.000 | had to find other things to sell. So they started selling mutual funds.

00:20:48.000 | They started selling other investment opportunities. And then along with

00:20:52.000 | that, as the process got more complex, the investment side of the industry

00:20:55.000 | also started taking on this financial planning advice and mantle for

00:21:00.000 | them. It was very handy because we could talk about how you needed to

00:21:04.000 | save and accumulate in order to save for retirement and have a successful

00:21:07.000 | retirement. And oh, by the way, in order to get you to retirement, you

00:21:11.000 | need to buy the mutual funds I have to sell you. Right. Because those

00:21:14.000 | are the investment products that are going to get you there. So the

00:21:17.000 | insurance and the investment sides both started coming into financial

00:21:20.000 | planning through the 1980s from sort of different directions, but they

00:21:23.000 | were getting there at the same time. And mention the importance of Glass

00:21:26.000 | Stiegel, because to me, that's a major factor that many people are not

00:21:30.000 | aware of. Yes. So so we kind of build this momentum. So we go through

00:21:34.000 | the 1980s, you sort of the heyday of the mutual funds and life insurance.

00:21:41.000 | Universal Life was kind of the big thing of the day, at least in the

00:21:44.000 | early 80s, because interest rates were still high. Then eventually the

00:21:47.000 | industry begins to morph a little bit more and you see a subset of

00:21:50.000 | advisors who start coming forth and saying, you know, forgiving all this

00:21:54.000 | financial advice, it's still kind of conflicted when everything at the

00:21:57.000 | end of the day is about the thing that we're going to sell the product

00:22:00.000 | we're going to sell at the end. We should really just start on doing

00:22:03.000 | financial advice and getting paid for financial advice. And so this

00:22:07.000 | movement started to say, what if financial advice just got paid for

00:22:10.000 | fees and all the advice was the interest in the interest of clients?

00:22:13.000 | So the early one to kind of put a stake in the ground for this was a

00:22:17.000 | group called NAPFA, National Association of Personal Financial

00:22:20.000 | Advisors. They're still around today, having just celebrated their

00:22:23.000 | 30 year anniversary. And they were kind of the first ones to draw the

00:22:26.000 | slide in the sand and say, what if all financial planning advice was

00:22:30.000 | done on a fiduciary stewardship basis and was done solely for fees?

00:22:34.000 | So you weren't getting paid for all the products that you implement.

00:22:37.000 | Now, early on, that was very unpopular because, frankly, the product

00:22:40.000 | side was doing pretty good, just as they were. But through the 1990s,

00:22:44.000 | you start to see this shift where more firms began to do advice for a

00:22:48.000 | fee, or at least they started getting away from some of the high

00:22:52.000 | commission insurance and investment products, and they started going

00:22:55.000 | into more steady assets under management style businesses. So you'll

00:22:59.000 | just pay me a percentage of your fees under management, and then I'll

00:23:02.000 | manage all the fees and I'll give you the advice altogether at once.

00:23:05.000 | And I no longer have an incentive to keep selling you the stock of the

00:23:08.000 | day because you pay me a flat fee no matter what. So I may as well just

00:23:12.000 | try to do a good job managing investments for you so that you stick around.

00:23:15.000 | Right.

00:23:16.000 | And so that continues straight through the 1990s. And you saw the early

00:23:21.000 | rise of this assets under management style model and a little bit more

00:23:24.000 | getting paid fees. Then the tech crash happened. And I think the tech

00:23:29.000 | crash was sort of the next big transition in our environment. And along

00:23:33.000 | with this, we did a bunch of changes, including, as you noted, we got

00:23:37.000 | rid of Glass-Steagall. So Glass-Steagall was the rule that it always said

00:23:40.000 | investment banks and traditional banking and brokerage firms, all

00:23:47.000 | these pieces had to remain separate. When we got rid of Glass-Steagall

00:23:50.000 | in 1999, we allowed these things to merge back together again, which

00:23:53.000 | they started doing almost immediately.

00:23:55.000 | And that's important, my understanding, and confirm or deny, either

00:23:59.000 | way is fine. That's important because you often had this clear

00:24:04.000 | distinction between you're either an insurance agent or you are a

00:24:08.000 | stockbroker or mutual fund broker or investment advisor of some kind.

00:24:13.000 | And there was a clear differentiation. So that led to a lot of

00:24:16.000 | backbiting between the insurance people saying, "Look, you've got to

00:24:19.000 | use my insurance product as your investment vehicle." And the

00:24:23.000 | investment people then saying, "Well, the insurance is a bad fit

00:24:26.000 | because my investment is better." So you have, whether that's on a

00:24:29.000 | simple basis of buy term and invest, buy term, buy whole life insurance

00:24:34.000 | instead of buying mutual funds, or buy annuity instead of buying

00:24:38.000 | mutual funds, or just this constant tension between the different

00:24:42.000 | sides of the industry.

00:24:44.000 | Honestly, I actually, I'll disagree with you a little. I don't think

00:24:47.000 | that was really Glass-Steagall driven. The Glass-Steagall driven

00:24:52.000 | things were issues like AIG and the challenges that AIG had in the

00:24:59.000 | financial crisis probably would not have occurred if Glass-Steagall

00:25:03.000 | had still been in place because the division that was writing all of

00:25:06.000 | these crazy, basically, options on markets would not have been part

00:25:13.000 | of the same company that was doing life insurance, which would not

00:25:15.000 | have been part of the same company that was doing other diversified

00:25:17.000 | financial services. So these mega conglomerate firms, many of which

00:25:21.000 | toppled during the financial crisis, would have been smaller,

00:25:25.000 | separate entities had Glass-Steagall still been in place. But the

00:25:30.000 | challenges across the channels, I think, frankly, you can date back

00:25:33.000 | earlier even than the repeal of Glass-Steagall, these debates of

00:25:37.000 | should I buy whole life insurance or just buy term insurance and

00:25:43.000 | invest the rest? I think that just comes from the different channels

00:25:46.000 | that were sort of building this simultaneously. Again, you had the

00:25:49.000 | financial advice coming out of the stockbroker channels, you had

00:25:52.000 | financial advice coming out of the life insurance channels at the

00:25:54.000 | same time for different reasons. And a lot of those debates were

00:25:58.000 | really just driven by whichever channel you started on, that tended

00:26:01.000 | to be your natural bias about what you wanted to recommend. And

00:26:04.000 | because most financial advice was still getting compensated by

00:26:07.000 | selling the product, you kind of had an incentive to beat your

00:26:10.000 | version of the drum.

00:26:11.000 | So I want to clarify, and if I'm wrong, I want to know. Because my

00:26:15.000 | observation, when I got into the industry six years ago, my

00:26:18.000 | observation was that I couldn't find an old-time insurance agent who

00:26:22.000 | really had much of an investment practice, and I couldn't find an

00:26:26.000 | old-time investment advisor who had much of an insurance practice.

00:26:29.000 | And I never viewed them as in competition. I just viewed them for

00:26:32.000 | me. I was like, they're perfectly integrated, necessary solutions to

00:26:37.000 | different client needs at different points in time. But my understanding

00:26:42.000 | is that if you were a Merrill Lynch stockbroker back in the day, you

00:26:46.000 | weren't going to be selling insurance. And if you were a New York

00:26:50.000 | Life life insurance salesperson, you may have had a variable annuity

00:26:53.000 | practice, but you weren't necessarily going to be managing an

00:26:56.000 | individual stock portfolio. Whereas today, that's all changed. Is

00:26:59.000 | that not Glass-Steagall?

00:27:01.000 | That was not Glass-Steagall. That was predominantly just the evolution

00:27:05.000 | of the industry overall. In the early days, you were a product

00:27:12.000 | salesman. If you were hired to sell life insurance, your job was to

00:27:16.000 | sell life insurance. So who gave a crap about investments and anything

00:27:20.000 | else? Your job, literally, you were a life insurance agent. Your

00:27:24.000 | business card said life insurance agent, and you sold life insurance.

00:27:27.000 | So that was it. That's all you did. And likewise, if you came into

00:27:32.000 | the business to sell stocks, your job was to sell stocks. You didn't

00:27:37.000 | have conversations about life insurance and other stuff because your

00:27:40.000 | job literally was to sell stocks. It's as the industry has gone more

00:27:45.000 | and more towards advice and holistic advice, the more you go advice

00:27:49.000 | based, the more you look at a client's entire household picture, the

00:27:53.000 | more you look at a client's household picture, the more you suddenly

00:27:55.000 | look at all these products because they can all be relevant, as you

00:27:59.000 | said, for different people at different life stages. And I think

00:28:02.000 | that's actually what's driven a lot of these kind of mergings where

00:28:05.000 | you look at a lot of advisors that come in today, and it's only

00:28:08.000 | natural that you're kind of looking at everything, whereas someone

00:28:11.000 | that was in the business 20 or 30 years ago is very unlikely to be

00:28:15.000 | looking at everything and much more likely to just be focusing on

00:28:18.000 | their channel. Again, to me, that's actually why it's so important

00:28:22.000 | to look at the history of where the industry has been and where

00:28:26.000 | people have come from, because that is one of the primary divides.

00:28:29.000 | If you were in this business more than 20 years, there's no way you

00:28:33.000 | started as a financial advisor. That is not what your business card

00:28:36.000 | said. That is not the first job you were hired to do. You were

00:28:39.000 | hired to be a life insurance salesperson, or you were hired to be a

00:28:43.000 | stock broker, where literally you got paid to sell and broker

00:28:47.000 | stocks.

00:28:48.000 | And it doesn't mean you haven't developed. It just means that you

00:28:50.000 | didn't start that way.

00:28:51.000 | Right. Many of them have developed to different places, but frankly

00:28:54.000 | because we're often products of prior experiences to no small

00:28:59.000 | extent, I think you can still often tell who started as a stock

00:29:04.000 | broker and who started as an insurance agent 20 or 30 years ago,

00:29:07.000 | because it is often still reflected in where they at least spend

00:29:10.000 | much of their time giving advice.

00:29:12.000 | Now, every year that goes by and it becomes less about the products

00:29:16.000 | and more about the advice, the more those lines have blurred.

00:29:19.000 | So it was much clearer to me 10 years ago in the business than it

00:29:23.000 | is today.

00:29:24.000 | But I think that just reflects this evolution away from product

00:29:30.000 | centric and increasingly towards advice centric in what we do.

00:29:35.000 | Now, we've been calling ourselves financial advisors a lot longer

00:29:38.000 | than that, but we've only really been actually focusing on the

00:29:41.000 | advice for a shorter period of time.

00:29:43.000 | I'll give you an anecdote and then we want to go back to the tech

00:29:45.000 | crash because I want to finish this timeline before we go to where

00:29:48.000 | things are going. But a couple of months ago I was in Pennsylvania

00:29:51.000 | finishing my MSFS residency and there were two advisors in the room

00:29:56.000 | and I was struck.

00:29:58.000 | One advisor, an awesome guy up in New York, was 75 years old,

00:30:02.000 | had been in the business for 40 years.

00:30:04.000 | And he was finishing his MSFS, had a very high fee-based practice,

00:30:10.000 | very high net worth only, big dollar financial planning fees.

00:30:14.000 | And he had tried to retire and missed it and got back in.

00:30:17.000 | He was just an awesome guy with 40 years of experience.

00:30:20.000 | But then at the table behind him was a young man who had an undergraduate

00:30:25.000 | degree in financial planning, had taken his CFP exam right after college.

00:30:31.000 | He wasn't able to use it yet because he'd only been in the business

00:30:33.000 | two years.

00:30:34.000 | But two years out of his undergraduate degree, had just finished his MSFS

00:30:39.000 | and was practicing in his first two years, had already finished his MSFS

00:30:43.000 | and his CFP and had an undergraduate degree in financial planning.

00:30:47.000 | Those two advisors, as far as what their careers looked like,

00:30:50.000 | are unrecognizable as far as the difference between what it would have

00:30:53.000 | been like for the guy who started 40 years ago versus this young man.

00:30:56.000 | It's so different.

00:30:58.000 | I mean, even in my world, so I'm not quite the young dude that I was.

00:31:04.000 | I'm merely 36 now and I've been in the business for 14 years.

00:31:10.000 | Even when I started my career, I sat in a cubicle and I had a phone book.

00:31:16.000 | Even when I started 14 years ago, I was cold calling.

00:31:20.000 | I was smiling and dialing.

00:31:21.000 | We didn't have a do not call list yet.

00:31:24.000 | And so even over my time, as short as I've been in the industry compared to

00:31:32.000 | some real veterans of the industry, I still got hired as a life insurance agent

00:31:37.000 | to do cold calling for life insurance sales.

00:31:40.000 | That was my start in the financial advice world.

00:31:44.000 | And once again, I'm putting in air quotes here because I wasn't giving advice.

00:31:46.000 | I was selling life insurance products.

00:31:49.000 | Even for me, I started as a life insurance agent and then a couple years

00:31:53.000 | into my career, I realized that there was an opportunity to do a whole lot more

00:31:57.000 | when you actually just give people advice that helps them rather than trying

00:32:00.000 | to peddle your product to them.

00:32:02.000 | So I morphed to advisor, but when I went to college in the '90s,

00:32:07.000 | there were virtually no financial planning programs.

00:32:09.000 | I couldn't go to college for financial planning.

00:32:12.000 | I was a psych major, theater minor, who graduated from school and didn't want

00:32:16.000 | to go into psychology or theater, so I got a job as an insurance agent.

00:32:19.000 | Good major choice.

00:32:21.000 | Yeah.

00:32:22.000 | God bless liberal arts.

00:32:24.000 | They taught me to think and prepare me for nothing in particular,

00:32:27.000 | but I'm a great critical thinker.

00:32:29.000 | So let's go back to the tech crash, 2001, and continue the history through.

00:32:33.000 | All right.

00:32:34.000 | So by the time we get to the tech crash, the industry is starting to look different.

00:32:37.000 | And I think actually the driver that we probably don't give enough credit for

00:32:42.000 | is truly what the rise of technology and the internet has done to our business.

00:32:47.000 | So up until the '90s, if your stockbroker had recommended some investments for you,

00:32:57.000 | the only way you even knew how you were doing was that literally you bought a copy

00:33:02.000 | of the Wall Street Journal, you turned to the financial section,

00:33:05.000 | and you looked up yesterday's closing price for your stock.

00:33:08.000 | That was the only way you had any idea how it was doing.

00:33:11.000 | And once a quarter, you would get a statement.

00:33:14.000 | And because the markets basically went up for 20 straight years,

00:33:17.000 | everybody thought anyone they were working with was doing a great job

00:33:21.000 | because every time they opened their statement, it had more money than last time.

00:33:24.000 | Right.

00:33:25.000 | And we had no other way to really measure this.

00:33:27.000 | Plus, if it's being funded, that discrepancy is even more because,

00:33:31.000 | regardless of the performance of the portfolio,

00:33:33.000 | if you're putting money in there regularly, then it's always going up.

00:33:36.000 | Right. Yeah. It's always going up.

00:33:38.000 | Most people are very content with the astronomically high fees

00:33:41.000 | that they pay from their 401(k) plans because every time they open a statement,

00:33:44.000 | the balance is higher, so they don't really realize what a drag the fees are having.

00:33:48.000 | And it's not because their balance is higher because their investments are so great

00:33:51.000 | and affordable. Their balance is higher because they added savings to it.

00:33:54.000 | Right. Right.

00:33:55.000 | It's all them. But we even mistake that sometimes.

00:33:59.000 | But the transition that started happening in the 2000s

00:34:02.000 | is that suddenly the average consumer had a lot more information.

00:34:05.000 | So, you know, when an insurance agent came and said,

00:34:08.000 | "You should buy my permanent life insurance product.

00:34:10.000 | It's just like an investment, but it's got all these other advantages,"

00:34:13.000 | you could go online and look it up and find out that there were actually

00:34:16.000 | some problems with that strategy for other people.

00:34:18.000 | Right.

00:34:19.000 | And, you know, someone was trying to peddle you a mutual fund,

00:34:22.000 | but you could go online to Yahoo Finance and type it in

00:34:25.000 | and then click up the little button next to the S&P 500

00:34:28.000 | and find out this thing was doing a terrible job.

00:34:31.000 | And so I think consumers are certainly becoming more selective

00:34:36.000 | and more aware and more capable of evaluating what they were looking at,

00:34:41.000 | including the rise of some online firms that just started to do a form directly,

00:34:45.000 | particularly on the investing end.

00:34:46.000 | So, you know, Schwab had their online platform by then.

00:34:50.000 | You know, E-Trade all showed us that trading stocks is as easy as a...

00:34:54.000 | it's so easy a baby can do it.

00:34:56.000 | And so we saw this continued transition where being an advisor

00:35:02.000 | that just sold products was getting harder and harder.

00:35:05.000 | And so the industry has been shifting more and more towards, you know,

00:35:09.000 | we actually have to really give some decent advice if we want to get paid

00:35:12.000 | for what we do because you can buy the product online.

00:35:15.000 | Right.

00:35:16.000 | And I think the other factor that's really driven the industry a lot

00:35:20.000 | over the past 10 or 15 years, kind of through the 2000s,

00:35:24.000 | on top of sort of the disruption of the tech crash,

00:35:28.000 | the realization markets don't always go up,

00:35:30.000 | consumers start looking out their information more what they can get

00:35:33.000 | because it's all online.

00:35:35.000 | You have like simply put the rise of the baby boomer.

00:35:38.000 | And, you know, the baby boomer had been around for a long time.

00:35:41.000 | But by the 2000s, baby boomers were somewhere between their, you know,

00:35:46.000 | 40s and early 60s.

00:35:48.000 | And they were getting close to retirement.

00:35:51.000 | They built up a lot of money.

00:35:52.000 | And so the industry started increasingly shifting towards these assets

00:35:57.000 | under management style models.

00:35:59.000 | It got away from products.

00:36:01.000 | It was from our business and its recurring revenue.

00:36:03.000 | So, you know, the problem with being in a product business is every January 1st,

00:36:07.000 | I wake up and as an advisor, I have no money until I go sell some products.

00:36:11.000 | So, you know, there's always pressure to sell.

00:36:14.000 | If I'm just managing the assets for my clients and giving them ongoing advice,

00:36:18.000 | then when I wake up on January 1st, I've already got a base of clients.

00:36:22.000 | I'm already getting paid.

00:36:23.000 | All I have to do is give them awesome advice so they don't leave.

00:36:26.000 | Right.

00:36:27.000 | Which means now like instead of my incentive being ignore everybody I've ever done

00:36:30.000 | business with and go find new people,

00:36:32.000 | now my incentive is just give awesome service to the people that you work with.

00:36:36.000 | Right.

00:36:37.000 | So from that end alone, I actually think it's a more consumer-centric model.

00:36:41.000 | But, you know, when baby boomers started accumulating enough assets that you

00:36:45.000 | could do this and manage baby boomer wealth and make a pretty good living as an

00:36:49.000 | advisor, this whole model really caught steam.

00:36:53.000 | And so the past 10 or 15 years or so has really been the rise of assets under

00:36:57.000 | management and the rise of getting paid to give advice by managing your assets

00:37:02.000 | and then giving you lots of other financial advice quote for free along with it.

00:37:07.000 | It's part of your bundled assets under management fee, but, you know,

00:37:11.000 | the advisor is incentivized now to give you good advice and to really help you

00:37:15.000 | on an ongoing basis because that's what makes you stick around as a client.

00:37:18.000 | As long as you stick around as a client, you know,

00:37:20.000 | I have a successful business as an advisor and I'm helping you get to your

00:37:23.000 | goals and everybody's winning.

00:37:25.000 | Right. And it's much more, I think this model is much more client-centric.

00:37:29.000 | My problem with it is that instead of necessarily truly having to be excellent

00:37:33.000 | as an advisor, I've just got to be good enough to keep you happy.

00:37:37.000 | And so therefore it's like I just got to keep you as a client happy.

00:37:42.000 | And as long as I keep you as a client happy and you don't move, then I'm okay.

00:37:46.000 | And I still don't, I would still like to, no.

00:37:50.000 | Yeah, I mean there are a few problems to it, you know, to be fair.

00:37:55.000 | I mean first, as a lot of people inside the industry point out,

00:37:59.000 | the amount of work I have to do, as you put it, to keep you happy,

00:38:03.000 | you know, a reasonable number of meetings, a reasonable amount of contact time,

00:38:08.000 | you know, the appropriate advice to help you out when it's necessary.

00:38:12.000 | I don't actually have to spend all that much more time to do that for a client

00:38:16.000 | that has a million and a half dollars than me than I do a client who has half a

00:38:21.000 | million dollars with me, except because your fees are a percentage of your assets,

00:38:26.000 | I actually get paid a whole lot more to do it for the person that has a million

00:38:29.000 | and a half dollars than the person who has half a million.

00:38:31.000 | Right.

00:38:32.000 | And that has created this incentive for the industry.

00:38:35.000 | Now, to be fair, most advisors don't charge three times the 1.5 million client

00:38:39.000 | as they do the 500,000 client.

00:38:41.000 | Our fee schedules tend to be graduated and they step down.

00:38:44.000 | But, you know, the higher asset client still pays more, typically,

00:38:48.000 | all else being equal for, we'll call it a comparable amount of advice time.

00:38:53.000 | And so that's kind of created the temptation for the whole industry.

00:38:57.000 | Not only are we wanting to manage assets under management,

00:39:00.000 | but we all want to manage the biggest pots of money that we can,

00:39:03.000 | because that's generally the most profitable clients for the business model.

00:39:06.000 | Right.

00:39:07.000 | And so advisors have kind of drifted further and further up market.

00:39:12.000 | And to me, that's kind of the good lead in on where the industry is now

00:39:17.000 | and as we start to look forward.

00:39:19.000 | So, you know, certainly the assets under management model isn't perfect,

00:39:24.000 | although to me, like it is so much more client centric than anything

00:39:29.000 | we've really had widely used in the industry in the past.

00:39:32.000 | It's a massive improvement.

00:39:34.000 | And, you know, while we can always do sort of straight fee for service things like,

00:39:38.000 | "Hey, let's forget all these assets.

00:39:40.000 | You can just every time you call me, I'll charge you for the advice that you give me."

00:39:43.000 | The problem is, you know, deep down, most consumers don't really like that.

00:39:47.000 | Like nobody likes feeling like they're on the clock every time they call their lawyer

00:39:51.000 | or their accountant or now their financial advisor.

00:39:53.000 | It basically incentivizes you not to call.

00:39:55.000 | You only call when you got a problem that's so serious you have to part with your money to do it,

00:40:00.000 | which means people don't call, which means they don't get the advice,

00:40:03.000 | which means they end up hurting themselves.

00:40:05.000 | So, you know, again, like I'm a pretty big fan of the asset under management model,

00:40:09.000 | given what else has come before and what else is out there,

00:40:12.000 | that it's a pretty darn good alignment of goals and interests.

00:40:16.000 | The big fundamental problem, though, is it only works when you have a pile of money to invest.

00:40:22.000 | Exactly. Exactly.

00:40:23.000 | And that's what I didn't want my comment to be.

00:40:27.000 | So I love the AUM model, and that's where prior to leaving Northwestern Mutual and coming here,

00:40:33.000 | that was what I was building my business on.

00:40:35.000 | But the problem is that my minimum account size was basically in my mind half a million bucks.

00:40:42.000 | Because if I'm going to--let's say that I sit down and I figure out what number of households can I effectively serve.

00:40:49.000 | Well, whatever that number is, it's usually somewhere between 100 to 200, maybe 400 if someone has a big staff.

00:40:55.000 | But it's around that 100 to 200 number for most advisors of the number they could probably effectively serve.

00:41:02.000 | If I'm going to effectively serve 100 families, and they have 100,000 bucks each, that's 10 million bucks.

00:41:11.000 | Versus if they have a million bucks each, that's a billion.

00:41:13.000 | So I'm going to go for a million bucks each.

00:41:16.000 | That's the fundamental problem.

00:41:19.000 | A, it really only works for people who have pots of money.

00:41:23.000 | And B, it works best for the people who have the biggest pots of money.

00:41:26.000 | So not only do we tend to have things like asset minimums, but we all want to--as advisors,

00:41:31.000 | we all want to creep them up because the higher our asset minimums are, the better our business models work.

00:41:36.000 | And the best advisors go upmarket.

00:41:38.000 | Because the best advisors are the ones who are going to be able to A, capture the level of financial planning knowledge that they need.

00:41:46.000 | B, increase their business ability as far as their marketing staff, their ability to appeal to a client.

00:41:52.000 | And they're going to go upmarket because that's where the money is.

00:41:55.000 | So if you have money, you can get world-class financial advice if you have a lot of money.

00:42:01.000 | And so--and frankly, I mean, just even when we get down to--I'll call them low minimums.

00:42:08.000 | So like advisors who will work with you because you have like merely a quarter of a million dollars or merely $100,000.

00:42:16.000 | Like things that in our world are like crazy low minimums, you know, like by the time we get down to $100,000 to invest,

00:42:24.000 | it's like congratulations, your minimums are so low.

00:42:27.000 | Now you're only excluding like two-thirds of all Americans instead of excluding like 90% of all Americans.

00:42:33.000 | Exactly.

00:42:34.000 | You know, it's a huge challenge because the model just becomes so exclusionary by its nature.

00:42:40.000 | And so the evolution that I think we're on the cusp of right now are basically our other business models, our other ways to do this.

00:42:49.000 | So one model that's been tried for many years by advisors, which we just touched on briefly before, is charging for advice by the hour.

00:42:57.000 | So, you know, when you got a problem, call me up or once a year or twice a year, you'll come in and we'll just review things.

00:43:04.000 | You can do like your once a year financial checkup the way that you get your once a year physical with your doctor.

00:43:09.000 | Hopefully, you know, both of them are just good preventative maintenance kind of care for you.

00:43:14.000 | But the challenge, even for that model, for the advisors that do it is, you know, OK, if I'm going to charge my clients like $150 an hour and they're only going to meet with me for an hour or two a year because they're just doing these checkups.

00:43:26.000 | Now, as an advisor, in order to make that work, I need like 500 clients or 750 clients a year in order to actually make my living as an advisor and cover my costs to run my business.

00:43:40.000 | And that's kind of tough.

00:43:42.000 | Like super tough.

00:43:44.000 | Most of us have no idea where to find 500 clients.

00:43:46.000 | I mean, for a lot of advisors, if you get like a dozen clients in a year, it's a blowout year for you.

00:43:52.000 | Right. Right. You have a major marketing problem.

00:43:54.000 | And then without the ability to go and market mass market, which you can't do unless you're in the RIA channel, you have no ability to market on a public basis.

00:44:04.000 | And so you can't. There's no way to find 500 clients.

00:44:07.000 | And even in the RIA channel, I mean, there are both compliance challenges to mass marketing and there are simply capital limitations.

00:44:16.000 | I mean, just right. Most advisors don't have a lot of money to plow back in their business on marketing costs.

00:44:21.000 | Right. Especially not at 150 bucks an hour.

00:44:23.000 | I mean, that sounds like a massive amount of money to somebody who's making $30 an hour.

00:44:28.000 | But it's $150 an hour is what you're charging when you are face to face with a person or on the phone with them.

00:44:35.000 | That doesn't include all of the other time needed to actually find the client, attract the client, prepare for the client, meet with the client, prep for the client afterwards.

00:44:45.000 | Like that $150 when broken down. I can't conceive of how someone could build a business at that.

00:44:51.000 | And that's why I like all the things that you had just said, you know, that that's that's basically the exact same explanation that the insurance industry in particular is used for years and years to explain why commissions are as high as they are on many types of insurance products.

00:45:07.000 | Like it's the same thing because it's so difficult to get clients in the first place.

00:45:12.000 | It's so time consuming that when you amortize the amount of money a product gets paid over how long it takes to get a client, like you're not even making that great of a living at a relatively high commission.

00:45:24.000 | But the problem is what that basically means is the clients who do business with you have to pay a lot of money to cover all the time you spent with the other people who didn't become your client.

00:45:33.000 | Right. And that doesn't make sense. But that's the reality of the business.

00:45:37.000 | So that's why, you know, welcome to kind of the free market reality. Like, you know, from the advisor's end, if you want to run a business, these are the challenges that you face as a consumer.

00:45:46.000 | Unfortunately, if you want to get advice, this is the challenge of the person you're trying to get advice from.

00:45:51.000 | Exactly.

00:45:52.000 | Who's got a business to run coming back to you.

00:45:54.000 | So, you know, what work. So, you know, part of what I see going forward, though, is still the the industry needs to solve this problem.

00:46:03.000 | The industry wants to solve this problem. You know, if you if you look at the financial planning sort of as an emerging profession, frankly, like the whole profession kind of has a non trivial amount of what I'll call professional guilt.

00:46:16.000 | Where advisors in the aggregate, I think, actually feel a little bit guilty and a little bit sad that they have gone up market as much as they have and that they can't serve a wider base of consumers than they do.

00:46:26.000 | I think we want to be there. We actually want to get there. It's just been it's just been challenging to get there.

00:46:34.000 | It's been very difficult for them to get there. And so, you know, as we look at like what kinds of models might emerge in the future.

00:46:42.000 | So, you know, one of the ones that I've actually been an advocate of and we're now trying to basically pioneer is what would it look like if you got financial planning on a on an ongoing monthly fee basis?

00:46:55.000 | So just like, you know, you pay a monthly fee for your gym, you go as much as you want to or need to. Some people use a lot. Some people use it less.

00:47:02.000 | You know, we pay a monthly fee for our cell phones and cable TV and all the other things that are out there.

00:47:07.000 | What would it look like if you paid for financial planning on a monthly basis and just, you know, you call your advisor as needed?

00:47:14.000 | They're always available for you. Certainly, there's some information that they'll push out to you as you need it as well.

00:47:20.000 | But but, you know, sort of financial planning on just an affordable monthly fee basis.

00:47:25.000 | Yeah, and that's that's so you started XYPN, which I haven't actually talked about on the show yet.

00:47:32.000 | So, I mean, this is a good time as I need to talk about it. But I designed in my head a couple of years a year.

00:47:37.000 | I don't remember a couple of years ago, something like that. I was sitting down looking at all the problems in the industry and I'm like, this should be solved.

00:47:43.000 | But people so all of the literature says, you know, all the literature and personal finance says, well, fee is the way to go.

00:47:52.000 | So people say, OK, you should charge fees. The problem is that people don't want to pay fees.

00:47:57.000 | And so it's like it's the funniest perversion of it's awful.

00:48:03.000 | You know, our industry, because we have such a history of commissions and unfortunately the abuses that come from commissions that, you know, like the big buzzword within our industry is, you know, I don't charge commissions.

00:48:15.000 | I'm I'd be only you only pay fees because like that's a that's a good thing because I don't have the conflicts of interest of of, you know, wanting to sell you these commission based products, as we saw in the in the 70s, 80s and 90s, as advice was coming up.

00:48:27.000 | And of course, the caveat from the consumer's perspective, like these suck, right?

00:48:32.000 | Likes feet like nobody likes their airline more because they charge them baggage fees.

00:48:37.000 | They're like, wow, this airline gives me great baggage value because they charge me a separate fee for it.

00:48:41.000 | Right. Like we hate fees. These are bad.

00:48:45.000 | There hasn't been a massive growth of the number of people calling their attorneys to go get their wills done because of the fact that their attorneys charge hourly fees.

00:48:54.000 | Like it's it's the most perverse, weird thing is that you talk to every attorney.

00:48:59.000 | I don't know an attorney who doesn't hate hourly billing, but somehow their whole industry has become an hourly billing industry and they're doing their best to serve their clients.

00:49:08.000 | But I don't know an attorney who doesn't despise it because of the the the serious psychological issues we have as clients.

00:49:16.000 | Yeah. And, you know, and frankly, fee for service is blamed for a lot of woes in the in the medical industry as well.

00:49:22.000 | Right. You know, when you pay me a fee for services, then I'm incentivized to order every possible test that we can come up with because you wouldn't want to get a test and just be safe.

00:49:32.000 | And, hey, I make more of a fee every time you take another test.

00:49:35.000 | Like, you know, the fees actually have a lot of problems in most other industries.

00:49:39.000 | We kind of pulled them out as like the paragon, which arguably they still are better than a lot of the conflicts that the traditional commission business represents.

00:49:49.000 | But like it's a terrible label that that the industry's brought upon itself.

00:49:54.000 | Right. Right. So I'm looking at these problems and looking at these issues and I'm saying, you know, the best thing would be to pay just a straight monthly fee.

00:50:03.000 | Because if you could just simply pay a straight monthly fee where it's not an hourly fee, because an hourly fee you have to if it's an hourly fee, the client has an incentive to not see the advisor, which means the advisor doesn't get a chance to actually give good advice.

00:50:18.000 | They also have an incentive to cut the advisor short. So the advisors, they ask a complicated question that needs a complicated answer.

00:50:25.000 | And two minutes in, client holds up their hand and said, hey, hey, hey, I want the short version. I'm sorry. There is no short version.

00:50:30.000 | Yeah, like, you know, we're on the clock now. So I feel like I have to get the short version so I can end the clock and stop my billing pain.

00:50:37.000 | Right. And then you have the problem of the client seeking advice when they need it on a specific basis.

00:50:44.000 | And that's not a problem if there is a limited scope engagement.

00:50:47.000 | So let's say I've just sat down and I said I just turned 50 years old. I've got $40 million. I need to sit down and do an estate plan.

00:50:55.000 | Great. We can set out the scope of a limited engagement. But then we're still dealing in the high net worth, ultra high net worth market, which has nothing to do with the day-to-day woes of the average person and their need for good financial advice.

00:51:08.000 | And so I said, well, the best thing is if you could do it on a straight monthly basis and if you could just simply pay, then like – and you could cut the cost by going and cutting out some of the cost for the advisor.

00:51:22.000 | And by changing the business market, we take advantage of the internet, then that would be a win-win. It would be a win for the advisor and a win for the client.

00:51:29.000 | And then – so I had designed that actually. I could show you my notes from it. And then like two months later I find – what's her name? Gen Y. Sophie, right?

00:51:38.000 | Sophia Bera.

00:51:39.000 | Yeah, Sophia Bera. I find her website. And I think it – I don't remember where I came across it, but I find Gen Y Planning and Sophia Bera.

00:51:45.000 | I'm like, wow, there's somebody out here that's already done this, kind of this basis. And then that was when – I think it must have been through you when you and Alan were launching XY Planning.

00:51:54.000 | And I said, wow, there's actually a group of young advisors that are kind of trying to work and pioneer this. And we'll see if the market is responsive. I don't know. We'll see.

00:52:03.000 | Yeah, I mean I'm very excited about it. And certainly we've had a pretty darn good uptake for advisors that are excited to do this and consumers that are interested in it.

00:52:13.000 | I mean I think there's a little bit of challenge. Like it's such a new and different way to buy advice and access to an expert that I think there's still a newness to this that everybody is getting familiar with.

00:52:24.000 | But the whole point of it is we're trying to get some of those alignments, some incentives there.

00:52:30.000 | Frankly, as an advisor, it's easier for me to run a business where clients by default simply continue to be on a regular recurring payment schedule where I'm going to get paid as long as I'm doing good job servicing them, whether it's assets or management or a monthly fee model.

00:52:45.000 | The monthly fees to charge to make it work as a business, frankly, get palatable right now. Like I don't have to charge you thousands of dollars in a retainer that you write a check for once a year.

00:52:56.000 | You can make it pretty bite-sized on a monthly basis. You know, frankly, once we're charging on a monthly basis, the incentive for you as the client, your goal should be to ask as many questions as you can because that's how you actually leverage the value of what you've done.

00:53:10.000 | So your incentive is to get as much good advice as you can. And the incentive for the advisor is to give you all of that advice because that's what makes you continue to be a client.

00:53:19.000 | So everybody's on the same page about moving forward for the incentives for that. And it's a powerful thing. I mean, I'm a firm believer in that microeconomics point of view.

00:53:35.000 | At the end of the day, people respond to incentives. Incentives are incredibly powerful. And so just how you structure business relationships and relationships with your advisor is really significant. It really matters.

00:53:51.000 | I want to boogie on from XY because I want to go to advisor differentiation, but I want to transition on exactly what you just said is that the biggest frustration that I have had as an advisor is people putting me in their box of, "Oh, the way that I'm going to judge you as an advisor is based upon the fact that you outperformed the S&P 500 index."

00:54:17.000 | And I'm like, "Come on. I don't have a clue how to outperform the S&P 500 index, but that doesn't mean I can't send you massive amounts of value."

00:54:26.000 | Or you go back to the Northwestern days and like anyone that you sold Northwestern product to, to them, you're always the life insurance guy.

00:54:32.000 | Right, right. And I was able to get out of that pretty quickly because I saw that trap. But here's an off-the-wall example.

00:54:38.000 | I learned about something called mortgage credit certificates. And when I learned about mortgage credit certificates and I found out that my state offered one, this blew my mind that I had never known this.

00:54:51.000 | And I got so frustrated that from then on, any time I would have a client call me and say, "Ah, we bought a house six months ago." I'm like, "Why didn't you call me and ask me for advice surrounding the sale of your house?

00:55:03.000 | I could have saved you thousands and thousands of dollars by telling you about mortgage – and what mortgage credit certificates are is some states have these programs where they offer additional tax credits.

00:55:12.000 | And they are a total sweet spot where they're far better than an interest deduction. You get a tax credit on a certain amount of value and you still take your mortgage interest deduction on the way you're accustomed to normally taking it as an itemized deduction.

00:55:26.000 | Or you take the mortgage credit certificate and you go ahead and take your standard deduction. And so if you're ever buying a house, make sure that you research mortgage credit.

00:55:34.000 | I could have saved any one of my clients that bought a house that was eligible for the program thousands of dollars every single year if they would just call me and tell me I'm thinking about buying a house.

00:55:43.000 | But because I was lumped into the – oh, Joshua is where I get my insurance. And he does a really good job for me on insurance.

00:55:49.000 | Yeah, I love his insurance stuff.

00:55:51.000 | Yeah, exactly. He's caring. He's wonderful. But I just want to talk to him once every few years when I need an insurance policy.

00:55:57.000 | And then because I would get lumped into investments, Joshua does a good job and he runs my portfolio.

00:56:02.000 | And once a year we sit down and every quarter he sends me this little thing and I don't really read it. But once a year or so we talk.

00:56:08.000 | Well, wait a second. I can't deliver – I can't promise myself. I don't have the skill to promise you 182 basis points of alpha on your portfolio.

00:56:17.000 | But that doesn't mean I can't deliver vast multiples of the fees that I'm earning with these other areas.

00:56:24.000 | And that's where I think we've shot ourselves in the foot by restricting our advice and even still I'm a victim of this industry where all of our advice has been restricted to the sale of insurance products and the sale of investment products instead of comprehensive advice.

00:56:37.000 | And I think we're slowly evolving away from that. So there are challenges to that as well.

00:56:46.000 | It kind of comes in a few different realms. First of all, if I go to consumers and I say like – what am I going to say?

00:56:56.000 | I'm not necessarily going to help you with your insurance or investments, but just like I'm going to give you advice about all your stuff and you're going to end up saving lots of money.

00:57:03.000 | A, that's a tough sale to make. Like who believes – I mean just in the real world. Like what consumer believes that?

00:57:11.000 | And B, like if that's the angle that I have to go with it now, then someone comes in and be like, "All right. So I'm going to pay you $1,000 this year. I'm going to start the clock on January 1st.

00:57:22.000 | And I'm just going to start adding up how much money you've saved me all year long. We'll see whether you recover that $1,000 fee."

00:57:29.000 | I know clients that would actually have a spreadsheet for this and just track it all year long.

00:57:35.000 | So spinning it from that angle is tough. And then I think we make it worse for a lot for ourselves as advisors because we have such a tendency –

00:57:46.000 | and this is kind of one of my soapbox items that I preach about within the industry as well.

00:57:54.000 | We have such a tendency as advisors to be these giant generalists that does everything for everyone.

00:57:59.000 | It's like no matter what you do, no matter what your situation is, no matter what you're dealing with, I got advice for you.

00:58:05.000 | And first of all, I don't think anybody realistically can deliver that.

00:58:09.000 | The needs of a 29-year-old parent who just had twins is completely different than the needs of a 64-year-old who just finished their empty nest and is about to retire.

00:58:21.000 | And B, I don't think consumers buy it at the end of the day.

00:58:25.000 | Like, "Hey, work with me. I know everything about finance for everyone at every age." Nobody believes that.

00:58:30.000 | Absolutely.

00:58:31.000 | And even if it's true, when every advisor says that, nobody believes any advisor.

00:58:38.000 | So it still doesn't make you stand out. Like what are you going to say?

00:58:40.000 | "No, no. I really am smarter than everybody else and know more things than everybody else."

00:58:46.000 | Like, "Good luck selling that" is a compelling value proposition.

00:58:52.000 | So I think when I look at the ways that the industry is likely to change and how the delivery of advice to consumers is likely to change.

00:59:00.000 | So the first change that's coming, which I think we're pushing with programs like XY Planning Network, is changing how consumers pay for advice.

00:59:10.000 | Frankly, I'm a partner in a wealth management firm that does do assets under management plus comprehensive financial advice for people who have some significant wealth accumulated and are trying to make it work for their entire retirement.

00:59:26.000 | We do that work for clients. I think we do wonderful work. We have wonderful retention rates for our clients.

00:59:31.000 | They're very happy with us. I love that model.

00:59:34.000 | Like, our clients are happy with it. We're happy with it. It works great.

00:59:38.000 | I'm just very cognizant that it also excludes like 90% of Americans.

00:59:42.000 | Right. Exactly.

00:59:43.000 | So when I look at what else I think will come forth, I see solutions like monthly retainers and what we're doing.

00:59:50.000 | This is like financial planning for a monthly subscription fee as being a good way to broaden the accessibility of financial advice and what we're doing with XY Planning Network.

01:00:00.000 | And then as we go that direction, my expectation is that you're going to see more and more advisors who specialize into focused niches, focused areas.

01:00:11.000 | So like even when we look within our XY Planning Networks, like Sophia Bera is just specialized in working with Gen Y Millennials.

01:00:19.000 | Like if you're under 30 and you're looking for someone who gives advice, who just gets you and your issues, you know, talk to Sophia.

01:00:26.000 | The traditional advisor is 55 years old, doesn't have any clue what you're going through.

01:00:30.000 | You know, she does. There's another guy, even our network named Matt Becker.

01:00:35.000 | You know, he runs a business called Mom and Dad Money.

01:00:39.000 | He works with new parents. Right.

01:00:41.000 | That's his thing. So like even more focus.

01:00:44.000 | You know, you're having kids and you just had kids.

01:00:46.000 | You're trying to figure out the life insurance and college funds and just all this stuff that goes on when your life gets more complex.

01:00:53.000 | If you've got kids, that's what he does. That's who he specialized with.

01:00:57.000 | That's who he knows how to help. And so I think you're going to see more of that come forward.

01:01:02.000 | You know, there's a guy out there I know who specializes in bass fishermen.

01:01:06.000 | Really? How interesting.

01:01:08.000 | He just works with people who fish competitively for bass.

01:01:11.000 | It turns out like I had no idea.

01:01:14.000 | Apparently, like bass fishing has million dollar prize purses for the big tournaments.

01:01:18.000 | People win a lot of money. He works with all all the big bass fish.

01:01:22.000 | Wow. How cool. And this is really this is not like it's a modern phenomenon.

01:01:27.000 | I remember when I read one of the when I was a brand new advisor, I read all of Tom Stanley's books on marketing to the affluent and prospecting to the affluent and selling to the affluent.

01:01:36.000 | And the number one piece of advice was specialize and then become an ad.

01:01:40.000 | You have to specialize so that you can become an advocate for your specialty, whatever that is.

01:01:46.000 | And so it's not the problem is the entry point.

01:01:50.000 | And my MSFS class, I was talking with an advisor, had a 30 year career, I think, with Mass Mutual and then left.

01:01:56.000 | But he only works with anesthesiologists. Basically, he has this like this this practice where he only serves anesthesiologists.

01:02:03.000 | And he's going through all of these very specific issues that I would never have a clue on that are specific to anesthesiology as a discipline within medicine.

01:02:13.000 | And you see the importance of it.

01:02:16.000 | But the problem is, as a young advisor, there's no entry. There is a there's not a very great entry ramp.

01:02:22.000 | I couldn't when I was 23 years old and I started in the business, I couldn't say, OK, here I specialize in working with anesthesiologists who make seven hundred and eighty thousand dollars a year.

01:02:32.000 | Yeah. And so I think part of this is a challenge in our industry.

01:02:40.000 | We're a little bit behind in kind of giving people sort of call it the training tracks to to get you there in a specialties.

01:02:47.000 | But, you know, from the flip side, like if we look at other industries and what this looks like, you know, you go you go and work for a law firm out of law school.

01:02:56.000 | You first of all, you're not even 23, you're like 26 because it takes a couple more years to go to law school.

01:03:01.000 | So that's already one stage of specialization.

01:03:04.000 | Then after that, you spent a couple of years just being an entry level associate before you even pick what specialization or practice area you're going to go into in the law firm.

01:03:13.000 | Then you spent a couple more years in that practice area as kind of, you know, an underling or a mid-level legal associate until you kind of get to a more senior level.

01:03:21.000 | Like by the time you're specialized, you're well into your 30s.

01:03:24.000 | That's the natural course of it.

01:03:26.000 | If we look at medicine, like it's the same thing.

01:03:29.000 | You know, you finish your undergrad, then it's four years of med school, then four years of residency, then three or four more years into a into a specialization.

01:03:37.000 | Like once again, you're well into your 30s before you get there.

01:03:41.000 | And if we look at accountants, it's very similar again.

01:03:44.000 | Like I, you know, to me, like we kind of brought this on ourselves in the advisory world because we've done such a poor job of building these career tracks and specialization tracks.

01:03:54.000 | We put 23-year-olds in the position where it's like, well, you got your minimum license that you had to sit for for an hour.

01:04:01.000 | Now go find clients.

01:04:02.000 | Right. Right.

01:04:04.000 | It's very true.

01:04:06.000 | And in one way, that is an amazing benefit to the industry because for the individual who wants to get started without how he's viewed when I was getting started is this is a profession that I get to get paid while I learn.

01:04:18.000 | But from the profession, from the characteristic of a mass view of the profession, that really hurts because not only have I seen a bunch of crappy advice delivered by well-meaning 23-year-olds, there's a lot of well-meaning 23-year-olds that made some sales and then got out of the business.

01:04:36.000 | And now you got a lot of unhappy clients.

01:04:38.000 | And now we face the issue of our industry has the lowest satisfaction ratings of any industry I'm aware of.

01:04:43.000 | And so then now we got to deal with that and improve that for our industry.

01:04:48.000 | Well, and I mean, our industry has lots of issues, I think, is, you know, unfortunately, our low satisfaction and low trust ratings are well deserved, unfortunately, I'd say, for the industry overall.

01:05:01.000 | But but to me, I mean, they ultimately boil down to, you know, the as we said earlier, like things like the Aslander Management Model have some conflicts of their own, but the commission model has more conflicts.

01:05:15.000 | There are a lot of people at the end of the day just get mediocre solutions that someone was incentivized to sell them rather than giving them what was actually going to help them get to their goals.

01:05:25.000 | And so, you know, and unfortunately, because of that, our industry attracts a lot of people who have no interest in helping the public.

01:05:32.000 | They just want to do as many sales as they possibly can that pushes the line as much as possible, that gets as much money into their pocket so they can move on and do whatever they're going to do next.

01:05:41.000 | And our industry sanctions this. So, you know, there's a non-trivial number of bad apples that really bring the industry down for everyone.

01:05:49.000 | Right. The second challenge that goes along with it is, you know, kind of the dirty secret to our industry.

01:05:55.000 | The only thing you actually need to call yourself a financial advisor is a high school diploma and a one hour regulatory exam.

01:06:04.000 | And and and the standard for our industry of what it takes to hold out as a financial advisor, consultant, whatever label you want to give it is so ridiculously low.

01:06:13.000 | Like we allow people to go out there and say they're advisors, even though they have not actually ever taken any class in anything that has to do with advice or finances.

01:06:20.000 | So what would you because I don't I actually don't know what your opinion is on this. I can't stand. I don't want more government regulation.

01:06:26.000 | I want us to clean up our industry. And the best way to do that is, I think, for the market to demand it and we'll adjust to it.

01:06:34.000 | And because I don't want I don't want a bureaucrat to sit down and decide, OK, here's the new minimum standard.

01:06:41.000 | Maybe that's it. I mean, but what would you tell what would you tell someone to look for as far as if they're trying to figure out, you know, whether their financial advisor any good or not?

01:06:50.000 | Yeah. So, I mean, things I would tell someone to be looking at, I would be I would be telling them, look for some kind of of actual education that demonstrates they know something about giving advice.

01:07:02.000 | So to me, like the the good starting standard is do they have CFP certification?

01:07:07.000 | You know, ideally, they've gone on to programs like the Masters of Financial Services that you've done.

01:07:12.000 | But I think the CFP mark is a good minimum standard. And like that's a that's a hefty minimum.

01:07:18.000 | That's, you know, multiple college level courses. That's a comprehensive now six hour exam was a 10 hour exam.

01:07:25.000 | Now, a six hour exam that's got a 50 something pass rate. It's a genuinely hard exam like that.

01:07:32.000 | That is a pretty good starting screening process of, you know, if you went through, got your CFP marks and now have them, you know, you you learn that material, you pass that comprehensive exam.

01:07:42.000 | It has an experience requirement built in. So there's a certain level of experience that's applied to it as well.

01:07:47.000 | Now you're at least going down the road. You're certainly not guaranteed to get great advice from every CFP, just like, you know, I don't get great advice from every doctor I go to either, even though they've got a medical degree.

01:07:58.000 | But certainly my odds of good medical advice from a doctor are better than, you know, my brother in law who gives good health advice.

01:08:05.000 | Right. And so, like, likewise, your odds of getting good financial advice from someone who's a CFP certificate looks a heck of a lot better than, you know, the guy who just seems to talk a good talk about finances.

01:08:17.000 | All right. So I think that's the driving point. You know, the next option, I think you at least have to look at is compensation.

01:08:24.000 | You know, the reality is, if only because of kind of this roots of the industry conversation we had earlier, there were a huge number of really good advisors who give great advice, who at the end of the day are compensated by products.

01:08:37.000 | That was how they built their business. That's how their business has always been run. They don't really want to retool it right now to the new and different business models.

01:08:44.000 | And there's nothing wrong with the advice that they give at all. The challenge is if you're picking an advisor cold and it's a stranger, you don't know anything about them.

01:08:52.000 | I do think it tilts you towards finding advisors that don't charge commissions and just charge fees, because if you don't have any other context for the advisor, it's at least one more potential conflict of interest, bad advice layer you can get rid of.

01:09:06.000 | So, you know, when people have commission-based advisors they're working with and they're happy with and they're really comfortable with the advice they're getting from them, then, you know, more power to them.

01:09:16.000 | I certainly don't think you need to go fire that advisor. But, you know, when you're searching from scratch, just to say the least, I think you do have to be a lot more wary about who you're working with and what kind of compensation mechanisms they have in place and, you know, whether you just want to go to something else that doesn't have that conflict.

01:09:34.000 | Yeah, it's always tough for me, and a little bit is I often have a little bit of a chip on my shoulder when people try to force fee only onto me because I feel that I did a good job within a commissioned environment.

01:09:46.000 | And I look back, you know, I always used to read, you know, at Northwestern we would cut our teeth on Al Granum's work. And you go back and you read Al Granum's book. He just died a few years ago.

01:09:56.000 | But here's this guy who, you know, was in his 90s or something like that when he died a couple years ago. And he basically transformed an industry. And within the context of a life insurance-centric practice, he was doing comprehensive advice, financial advice and financial practice.

01:10:15.000 | And so it's so difficult because I always got ticked off when people would say, "Well, you've got to go find a fee-only advisor." And I'm looking there saying, "Okay, frankly, I would rather earn fees than commissions because it's a much better business model. It's recurring. It's a much better business model."

01:10:31.000 | And I'm sitting here doing a good job trying to serve my clients. And yes, there are always conflicts of interest, but that's the same whether you are a doctor or a priest. You're a pastor.

01:10:45.000 | And so I always have a little bit of a problem because I always – people would try to put that on me and I'd say, "But I'm a good advisor." But then now, now that I'm out and I'm a few months out, I'm kind of looking. I'm like, "I don't know how to tell someone to tell – how to figure out whether or not your advisor is any good." So I get – yeah, go ahead.

01:11:03.000 | And that's the problem to it. So from the industry side, the reality is I don't think I'm stretching it all to say the overwhelming majority of advisors that charge commissions are genuinely trying to do a good, right thing for their clients and the advice you're going to get from them is just fine, at least as long as they've got CFP certifications. They have enough knowledge to actually be competent to give advice.

01:11:26.000 | If they're ignorant, they're going to do a bad job out of malice, just out of ignorance. But if they're reasonably trained, most people just want to help other people, want to be a good human being and do the right thing, and you're going to get fine advice from them.

01:11:39.000 | The problem is there are a subset out there where if your goal is to come into this industry and take 10% of every person's money and put it in your pocket, you cannot do that on a fee-only basis because no one's going to write you a check for 10% of their net worth.

01:11:57.000 | But I can do that by selling some high commission, very questionable products and our industry is sanctioned. And so the problem with it is not that most advisors who generate commissions are going to do bearable things.

01:12:11.000 | Most of them are fine and they're going to navigate the conflict of interest and they're going to do the right thing for their clients. The problem is from the consumer's end, how do you tell whether your advisor is actually one of the good ones or the next wolf on Wall Street?

01:12:27.000 | And the answer is if you just work with someone that can't get paid on commissions, they can't be the next wolf of Wall Street because they wouldn't be allowed to do that.

01:12:36.000 | That's a good point.

01:12:43.000 | This idea of selling you a high commission product that's barely questionably valid, but hey, it wasn't so horrible it would be illegal. You can do that as a commission-based advisor. You just can't do that as a fee-based advisor.

01:13:00.000 | So just the whole risk of how do I know if I'm picking a good one or a bad one is you ameliorate that challenge by going fee only. And I think that's why fee only has been as popular as it's been and worked as well as it's been.

01:13:15.000 | It's not because there aren't a lot of good advisors on the commission side. It's because it's so hard to tell the difference between good advisors and bad advisors that talk a good talk.

01:13:26.000 | And so the easiest way to screen them is you just work with advisors that don't have the biggest potential conflicts of interest and then you limit your exposure to the potential wolves.

01:13:38.000 | That's a good point. So let's mention, because I want to give people a really valuable insight into our industry.

01:13:47.000 | And so let's talk about high commission products versus not. I would not judge this, like how would you, what would somebody be aware of? I wouldn't judge this myself with a specific commission rate.

01:14:00.000 | So I would, and feel free to correct me if you think I'm wrong, but I'll give you an example.

01:14:05.000 | So the average commission rate on a term insurance, life insurance sale, I would guess would probably be industry-wide somewhere between 85 and 110% of the first year premium.

01:14:16.000 | Yeah, it's firm coverage.

01:14:17.000 | Right, for term insurance. So somebody would hear that and they would say 100% of the first year premium.

01:14:23.000 | But I would say, look, you're talking about an average, you're talking about a $50, let's say you're talking $50 to $100 a month of average.

01:14:30.000 | Let's use $100 a month for easy math. That's $1,200.

01:14:33.000 | If you look at, if it's purely based upon the fact that I spent an hour with you, you know, gathering some basic facts and information, came back and spent an hour with you calculating the amount of life insurance, made a suggestion, and then spent an hour following up and doing that, $1,200 for three hours of work is a pretty darn good hourly rate.

01:14:55.000 | But as we mentioned earlier, $1,200 for three hours, it's not $1,200 for three hours, it's $1,200 for the 33 hours that I spent working through with people who didn't choose to buy the insurance, that didn't kind of work their way through this.

01:15:10.000 | So 100% commission rate on a life insurance policy, I would not consider to be a high commission product.

01:15:17.000 | Now you flip that and let's say that I get an advertisement for an equity indexed annuity, and now this equity indexed annuity is offering a 14% initial commission rate, if I just move that, that means that if somebody has $100,000, run the numbers on this, $100,000, and I advertise on the radio, that I say, "Listen, I've got this opportunity to invest in the upside of the market with no downside potential, and you get to participate in the gains without participating in the loss."

01:15:44.000 | And I just find 10 people that have $100,000 each, which is much easier to find than people with $600,000, then now I've got $144,000 of commission, whereas the fee-only advisor is charging 1% and is making $1,000.

01:16:00.000 | So if you want to get rich quick coming into this industry, you can get rich a whole lot quicker on commissions than you can on fees, and that creates a self-selection process.

01:16:14.000 | Right, right. And then you can market aggressively.

01:16:17.000 | Yep.

01:16:40.000 | I'm legitimately concerned about our ability to serve the low end of the market when everything in the common -- if we go fee-only, and also, that lowers our ability to effectively serve a family that just needs some simple-term life insurance, and also, if we strip all compensation out of the sale of mutual funds, and we go 100% to no-load funds,

01:17:07.000 | then that eliminates our ability to functionally serve the people who don't have any money.

01:17:14.000 | Well, see, so this is the trap that we've gotten ourselves into as an industry because we've made ourselves so low-trust and we've made it so hard for ourselves to get clients that it becomes difficult to do this.

01:17:28.000 | If I could wave my magic wand and I'm like a doctor's office, I'm going to have 1,000 patients a year as long as I just show up in my office enough time to actually serve them because they're finding me, they're finding me online, they already trust me because I'm a doctor, so they just come on in, they schedule their appointments, and off we go.

01:17:48.000 | If I knew I was just going to have a line of patients like a doctor does, I can charge a really low rate and make this work.

01:17:56.000 | You can get down to rates of $40, $50, $60 an hour pretty easily.

01:18:02.000 | Absolutely.

01:18:04.000 | By doing that, I just need to know up front that I'm going to have 1,000 clients.

01:18:08.000 | Now, the problem is firms have no earthly clue how to get 1,000 clients because our industry is so low-trust, which we brought on ourselves, so we can't get the client volumes, so now I have no choice but to charge you a lot of money because you have to pay me a lot of money for the other 33 hours I spent trying to find people to get to you, and the whole thing topples in on itself.

01:18:27.000 | So basically, people who do business with advisors subsidize all the time the advisors have to spend with other people finding clients.

01:18:34.000 | Right.

01:18:35.000 | And that's what we've inflicted on ourselves because the industry is so low-trust.

01:18:40.000 | When we can figure out how to solve that problem, which to me is all about lifting our standards around conflicts of interest, around the importance of stewardship, around competency and things like requiring a CFP in order for you to actually hold out as a financial advisor, you should know about advice before you say you're an advisor.

01:18:58.000 | When we lift some of those bars up and we get to the point where the industry is more trusting, or consumers are more trusting of our industry and people are willing to do business with us and more clients are coming in to do business, that's the easiest path to bring down the cost of advice.

01:19:11.000 | And so I can easily envision a world where, "Look, I don't need to do the term insurance policy with you. You're going to come into my office. We're going to talk about what kind of policy you need. And then you and I together are going to go online to policygenius.com, and we're going to go through the sign-up process together, and you're going to get a term insurance policy.

01:19:30.000 | I'm going to make sure you get it. I'm going to make sure you get the right thing that you need, and you're going to pay me a very reasonable price for it. And I don't need to be the guy that takes your application and gets the commission for it as long as I can get paid something for my time and we can make sure that you get what you need."

01:19:44.000 | To me, that's the vision of what financial advice can be and should be, is when we lift up our standards so that you don't have to constantly look over your shoulder about who you're working with and worry about whether they're about to stab you in the back on something.

01:19:59.000 | And consumers can just trust that when you sign up for a financial advisor, you're going to get someone that's competent and acting like a steward for you. And more people use advisors. That brings the cost down for everybody.

01:20:12.000 | Right. I agree. And I have a secret agenda with my show, is actually to illustrate all the different aspects that a competent financial advisor can give input on and lend some nuance to the discussion.

01:20:25.000 | Because I believe that once people have the opportunity to interact with a caring, competent advisor, it is unthinkable to me how, if somebody hired me at 18 years old, or better yet at 15 years old, or better yet at 5 years old, or if the parents hired me to cover their kids and they pay me $1,000 a month,

01:20:50.000 | it's unthinkable to me how, if I have the time to work with that person, that I could not possibly return to them untold multiples of the cost of my fee, and more important, the compounding of all of that advice.

01:21:05.000 | But it's really hard for me to put it into one specific thing, because one time it's a tax plan. Another time, the example I use all the time is, I'm going to get you to actually go to the industry conference in your industry and make some connections, which is going to offer you a random job proposition.

01:21:21.000 | I got three unexpected opportunities for business collaboration out of going to FinCon and to my MSFS. So I make the time and I get three completely unexpected offers of business cooperation out of it.

01:21:40.000 | So something like that, I can't connect that to the performance of your investment account, which is where we're going next as we wrap up, but I can connect that to saying, "Your individual results, which is all that matters, is how much money you have."

01:21:55.000 | I can't conceive of how somebody couldn't be massively wealthier with my advice than they would be without it. And that's the proposition of a financial advisor, but we've got to—somebody—this is why I decided I walked away from it.

01:22:10.000 | I said, "Okay, I'm going to close my practice," while it's still relatively easy to close my practice. It's difficult to walk away from $3,000 to $4,000 a month of passive income, which is what I had when I left.

01:22:21.000 | It's a lot more difficult to walk away from $30,000 to $40,000 a month of passive income. And I recognize, I said, "If I don't do this now, it's just going to get harder and harder and harder."

01:22:29.000 | So I'll walk away, and I'm going to lift the kimono, so to speak, and show people everything that's behind the doors of financial advice, because I believe that if you see that, then we can drive consumer demand to say, "I'm going to go, and I'm going to seek out good advice on what I need."

01:22:48.000 | And because the consumer demand is there, then the advisors will respond to that. I don't know if it'll work, but I hope it does. I don't want a bunch of more regulations to deal with. Now, other people think that's the answer. It just doesn't fit my personal values.

01:23:03.000 | Yeah, well, I think we need better regulation is what it comes down to. I mean, the problem for regulation in our industry as it stands right now is no one actually regulates financial planners. No one regulates financial advice.

01:23:16.000 | The only thing that gets regulated is the products we implement pursuant to the advice. So if I give you advice about insurance and investments, I'm subject to an insurance regulator on the insurance products and an investment regulator on the investment products.

01:23:30.000 | No one actually looks at my advice. No one actually looks at my competency to give the advice. No one looks at my capabilities. No one sets a standard for it. All of that is wide open.

01:23:40.000 | And so to me, the ultimate goal is actually just a transition of our regulation. Just as our industry is moving away from products and towards advice, eventually we need a regulatory structure that moves away from products and towards advice.

01:23:56.000 | And of course, the problem we've had over the past 10 or 15 years is as advisors move more holistic in the advice they're giving, they subject themselves to more and more regulators.

01:24:05.000 | Every single product they implement has a regulator of its own. And the situation gets worse for us, which it has. That's why there's so many complaints about regulation in our industry.

01:24:16.000 | I certainly don't think we're better to get rid of the regulation entirely. Trust-based industries are not ones that are good for pure free market because con men and swindlers just move in and take over.

01:24:30.000 | And there's economic research that kind of shows how that happens. So you need some standards for trust-based advice industries.

01:24:39.000 | We have it for law, we have it for medicine, we have it for accounting. The challenge right now is we don't actually have that for financial advisors.

01:24:46.000 | We just regulate them by their products, even though now they're primarily about advice. And that's the regulatory change that needs to happen.

01:24:53.000 | I hope it means we're subject to fewer regulators, just one that actually understands what the heck we do for consumers.

01:25:00.000 | Let's focus now on investment advice as we kind of wrap up. Because we have actually been talking about financial advice, which I view as very different than investment advice.

01:25:12.000 | It does include investment advice, but the box that ticked me off more than any other box is do not put me in the box of being an investment advisor or a portfolio manager.

01:25:27.000 | That is not what I do. That is not financial planning. That is not financial advice.

01:25:31.000 | Now, that may or may not be a commodity. I don't care if it is a commodity.

01:25:35.000 | I think increasingly you can get a very decent level of investment advice, and it's free. It's practically free.

01:25:44.000 | And I think that Vanguard has fundamentally transformed the industry, the mutual fund industry, in an amazing way.

01:25:52.000 | And I think it's a total win for consumers. But I want to talk about where the industry is going, even with regard to investment advice.

01:26:02.000 | Because anybody who's listening to this show is reading a financial blog, and the majority of financial blogs now have a little banner ad right there with one of the so-called robo-advisors.

01:26:17.000 | Betterment Personal Capital. There's a little thing saying, "Let us manage your money. We're better than your financial advisor."

01:26:22.000 | So let's talk through what the value proposition is, where we've come from, and where we're going from the perspective of investment advice.

01:26:28.000 | So when we get to the investment in particular, and again, I think this fits well into the evolution of advisors that we talked about, particularly in the investment realm.

01:26:39.000 | So if I go back to the '60s and '70s, stockbrokers got paid to literally broker stocks.

01:26:47.000 | You go back to 1974, you were paying $400 in 1974 dollars to buy a stock, which meant basically it was only for wealthy people and institutions,

01:26:59.000 | because most consumers, you would spend your year's worth of savings just on the commission to buy the stock, never mind the actual stock.

01:27:05.000 | So in 1975, we deregulated commissions on trading fees, and it started coming down, which started opening up stock investing to more and more consumers.

01:27:14.000 | But in the process, it made it less and less profitable to actually be a stockbroker, because you couldn't get paid for it anymore the way you could back in the old days when we fixed all the prices.

01:27:23.000 | So through the '70s, late '70s into the '80s, advisors, huge numbers of them, either they shifted away from traditional stockbrokering and they went down to the penny stocks,

01:27:36.000 | which actually was exactly where the Wolf of Wall Street was for anybody who saw the movie, or they went towards mutual funds.

01:27:43.000 | Hey, if I can't sell stocks, I'll sell the mutual fund. The mutual fund still pays me a decent-sized commission, and we'll talk mutual funds.

01:27:50.000 | So we did that through a lot of the late '80s and into the '90s. Then we get the rise of technology in the 2000s.

01:27:57.000 | We get the bear markets from 2000 to 2002, and then again in '08. We start going online.

01:28:03.000 | We realize that a lot of our mutual fund managers kind of suck. Most of them don't actually do a good job.

01:28:09.000 | So then the industry starts shifting again. We say, well, all right, so technology basically nukes stockbrokerings, so we meant to mutual funds.

01:28:18.000 | Then technology started nuking the effectiveness of mutual funds, or at least brought the transparency to realize they weren't very good.

01:28:24.000 | So advisors started morphing, at least on the investment side, to creating portfolios.

01:28:29.000 | We'll do asset allocation portfolios for you. We'll make sure you're well-diversified amongst all these different pieces.

01:28:34.000 | We'll get paid for assets under management. We'll do that. Improvements over the prior point that we're at.

01:28:38.000 | But now we're continuing that evolution, so we've been doing that for 10 or 15 years.

01:28:42.000 | Technology is catching up once again, and a bunch of software designers have realized that the actual process of creating an asset allocated portfolio is not really difficult.

01:28:52.000 | Yeah, it's really not.

01:28:54.000 | And it's something that once you've done it, you can program software to monitor continuously, so you don't really need the person.

01:28:59.000 | Right.

01:29:00.000 | And so that's the rise of these robo-advisor platforms, particularly groups like Betterment and Wealthfront.

01:29:08.000 | So automated investment allocations, you just send in your money, you go through a relatively basic questionnaire, they'll get you a reasonable asset allocation, and it's on autopilot.

01:29:18.000 | Now, all they're doing is asset allocating your portfolio.

01:29:22.000 | So going back to your earlier comment about the difference between investment advice and financial advice, this is the crux of it.

01:29:27.000 | When you want to know what's going on with your tax situation or how much insurance you need because you just had kids or how much money you can spend in retirement or what you do with the stock options from your job if you've got them or how to go back and negotiate for a better raise, and all the other things that have to do with our money besides our investment portfolio, this is not what Betterment and Wealthfront do.

01:29:46.000 | Right, absolutely.

01:29:47.000 | They automatically ask to allocate your portfolio, period.

01:29:51.000 | So if you're just trying to get a constructed portfolio you can put on autopilot that will do a reasonable job, I don't think there's anything wrong with what's going on in Betterment and Wealthfront.

01:30:01.000 | And in fact, I look at a lot of people over to those platforms who just want to say, "I don't know that much about investing. I don't really want to spend time knowing that much about investing.

01:30:11.000 | I just want to put my money someplace where it'll be reasonably invested for the long run and I can worry about it in 10 or 20 years."

01:30:18.000 | And I think those are fine solutions.

01:30:20.000 | Absolutely.

01:30:21.000 | Now when you need help with all the other stuff that's going on in your financial life, that to me is still where advisors come back in, all the other richness that they can add to all the other situations.

01:30:32.000 | So I tend to see this crop up in sort of one or two contexts.

01:30:36.000 | One is your life is getting more complex in more different areas where you decide you need a financial advisor to help.

01:30:43.000 | The second is your life is just getting so busy that you don't have time to do all the stuff that you used to do and so you want an investment advisor or financial advisor to help beyond just the investment portfolio.

01:30:57.000 | So there's the, "I need help because it's complex."

01:31:00.000 | There's the, "I need help because I just don't have the time."

01:31:03.000 | And then there's frankly the third category which is the one that's probably hardest for us to do even though it's probably the most necessary, which is, "We just need advice because money problems are so personal and we have terrible perspective on ourselves."

01:31:20.000 | We are not, you know, in any realm, we are rarely our own best advice giver.

01:31:26.000 | Just the perspective that a third party brings to you is different than the perspective that you bring yourself.

01:31:31.000 | Like the best example, I heard of this recently.

01:31:35.000 | So like imagine back to, I guess, when you're single, if you're married, imagine back to the days that you were single.

01:31:42.000 | You're at a party.

01:31:44.000 | There's an attractive member of the opposite sex across the room and the question is, "Are you going to go across that room, break into a group of strangers that they're socializing with and introduce yourself to that person and ask them to dance?"

01:31:58.000 | Right.

01:31:59.000 | Now if I went to most people out there, I said like, "If you put yourself in this situation, what would you do?"

01:32:05.000 | The answer is like pretty easy.

01:32:07.000 | Like 5% are so introverted or so extroverted they'd be like, "Hell yeah, I'm going for it."

01:32:12.000 | Like the other 95% of us are like, "No, that's way too intimidating. I can't do it. Like I don't want to get shot down by the person in front of all their friends. That's mortifying."

01:32:19.000 | Right.

01:32:20.000 | Pretty straightforward.

01:32:21.000 | So now imagine for a moment, instead of being that person that's trying to decide if you're going to walk across that room, you're the person's best friend standing next to them.

01:32:30.000 | And they turn to you and they say, "That he/she over there is really hot. I'd really like to get to know him. I'm really nervous about going across the room and doing it. What should I do?"

01:32:41.000 | Right.

01:32:42.000 | Now what advice do you give to the best friends?

01:32:44.000 | Absolutely go.

01:32:45.000 | Hell yeah, man. Go for it. Go for it, girl.

01:32:55.000 | If it goes well, this could be your soulmate for life.

01:32:57.000 | Like the advice from the outside is so obvious.

01:33:01.000 | Mm-hmm.

01:33:02.000 | And the advice when it's you, it's so hard to implement. And I think it is just as true around most of our money problems as it is around whether we want to go across the room and ask that person to dance and take the risk of getting shot down.

01:33:19.000 | Yeah.

01:33:20.000 | And so that to me is kind of the third key value that the advisor plays. Now the challenge, like the trick our minds play on ourselves is we convince ourselves that we'll make the right decisions when the time comes.

01:33:32.000 | And I won't really go across the room unless it was really the right person and I'll figure this out.

01:33:36.000 | We convince ourselves that we're always going to make the right decisions in the heat of the moment, even though we know in reality we rarely do.

01:33:42.000 | Right.

01:33:43.000 | And so there's this sort of self-reflection thing that a lot of people probably would benefit from an advisor just to have that external perspective on whatever financial issues and decisions they're trying to make or life decisions they're trying to make that have a money impact that are really hard for us to do on our own.

01:34:05.000 | And I think that's a huge value to advisors in the role that we play with the caveat that it's really hard to appreciate that until you've gone through it.

01:34:12.000 | Right.

01:34:13.000 | So like that's a crappy way to sell a product. Like buy my product and I promise you you'll be happy after all the light changes.

01:34:19.000 | Right. Right.

01:34:20.000 | That's a bad selling proposition.

01:34:22.000 | But I think that's ultimately what it what it comes down to. And so if you if you recognize that challenge around the dating world and that you're going to have the same issues on your financial world, that's the other really key value proposition for for advisors is to be that that third party.

01:34:39.000 | And this is one of the most issues. And I think you're touching on it indirectly because I think what you're sharing is not specifically this.

01:34:45.000 | But I'll give you from my perspective. One of the things that I'm most concerned about is that now with this new generation and I think it's awesome to use the software as a solution.

01:34:56.000 | I think I think that is where our world is going is software as a solution in so many areas, including this asset, you know, to sit down there with wire tickets and rebalance the portfolio.

01:35:07.000 | I mean, I've done I've had to sit there and do the math and you're like, OK, let's submit this ticket and this ticket and we're going to sell this. And it's like, come on, it's 2014.

01:35:15.000 | Why am I sitting here filling out a wire ticket? This is absurd. And so that is what that is what these firms are doing. And it's awesome. I think it's great.

01:35:25.000 | My concern is that none of it solves the emotional issues for the client and the lack of knowledge for the client. So I frankly and this is with all sincerity, I do not see and know how the average American can possibly invest successfully for the long run for the toward their financial goals because the language is so foreign to them.

01:35:50.000 | And we are functionally illiterate as a society when it comes to the language of investments. And I don't believe anybody who hasn't worked with clients can actually appreciate that.

01:36:01.000 | And I had some very intelligent clients and very knowledgeable clients. And I had some wonderfully sweet, sincere, honest clients who did not understand and did not retain the fundamentals of investing.

01:36:15.000 | And so my concern is who's going to care for those people if there's not an advisor there to care for them? And you have to have a competent advisor. If you get a crook, you get a crook.

01:36:24.000 | Those people can easily be swindled. And that's the awful problem that we face as an industry. But my concern is that that type of like a help is key.

01:36:34.000 | And then also kind of what Nick Murray gave me language for and taught me. When I found Nick Murray's language about behavioral investment counseling, it made sense to me.

01:36:44.000 | And I said that is something I see the value in it. And his basic fundamental premise, and I need to get him on the show if I can, but his basic fundamental premise is that the primary function that an investment advisor provides is helping people to avoid the big mistakes of screwing themselves up by not going across the room and asking the girl to dance.

01:37:03.000 | It's just simply saying. Now, the problem is that's pretty infrequent. We've had bear market in '02 and bear market in '08. So that means for six years, you didn't have to be in between there.

01:37:13.000 | You didn't have to worry about trying to talk a client out of selling at the bottom of a bear market. But in '02 and '08, you did.

01:37:21.000 | And then whenever the peak happens to be, you'll look back and say, I had to keep them from going all in on whatever the latest thing is.

01:37:29.000 | Yeah, one. And, you know, it was striking. There was a study that had just come out relatively recently looking at, you know, kind of the topic du jour these days, which is income inequality.

01:37:40.000 | And and one of the observations that the study had actually made is a key difference that they saw in 2008 in the aftermath of the financial crisis was that higher net worth folks were more likely to simply ride out the market.

01:37:55.000 | And lower and middle income folks were more likely, perhaps in part because of just not being as familiar with markets and the risks and the dynamics, you know, more behaviorally, more likely to sell out at the bottom.

01:38:07.000 | And so low and middle income families were more likely to not benefit from the rebound with whatever portfolio they had.

01:38:14.000 | High net worth families were more likely to stay invested. Of course, the market's up, you know, 200 percent since then.

01:38:20.000 | And so that compounding effect itself seems to be exacerbating some of the income inequality gaps.

01:38:27.000 | Right. All right. And and it's this is one of those just tough ones, because my heart goes out to my heart goes out to, you know, people who don't because we're not it's not we're not taught it in school.

01:38:42.000 | We're not most people are not that interested in it. It's a it's a pretty dry subject.

01:38:47.000 | It's fairly relatively simple, meaning to grasp some fundamentals. But it's really hard to control our emotion.

01:38:54.000 | And my concern is I don't know how like we've got to effectively serve them. And here's my last beef as we as we're done for the day.

01:39:00.000 | But my last beef and I can't remember. Oh, it's Tim Maurer, the guy who wrote the differentiation article.

01:39:06.000 | Like, why why can't we decide on on a group of 10 pieces of advice? I got to email him back. I'm going to get him on the show.

01:39:14.000 | But it's like, oh, yeah, absolutely. Tim is great. We're all so desperate to differentiate ourselves that we all just criticize constantly what everyone else is doing.

01:39:22.000 | And so this just leads to, you know, me saying whether it's the big ones, you're actively managed fund suck, you know, in my passive funds or your passive funds suck.

01:39:31.000 | I can outperform you or your real estate plan sucks because I look at my stock plan.

01:39:36.000 | The stocks are going to outperform or your your annuity. You know, it's like, yeah, you know, I I have the same issue that, you know, I, I, our advisory world spends far too, far too much time throwing, trying to throw the competition under the bus as to why they're beneath us.

01:39:51.000 | Instead of talking about what we do, that's great and awesome and helps solve your problems.

01:39:55.000 | I just want to work with us because clearly we're awesomely good. Right. Right.

01:40:00.000 | I think this has been a good I'm thinking if there's a positive note we can go out on, like, I really do believe and I think that the work that you're that you're doing and I think that we can develop and we are developing new models, new and new options.

01:40:17.000 | And with the transparency of advice, I am convinced beyond any shadow of a doubt that in the long run, consumers are going to win because with this transparency of advice and I believe very strongly that a lot of really crappy advisors are going to be driven out of the business.

01:40:34.000 | And a lot of really great advisors are going to have world class practices that to the likes of which they've never seen.

01:40:42.000 | But the transition is going to be rocky and painful.

01:40:46.000 | Yes, it is.

01:40:47.000 | So, Michael, I thank you for coming on. As you go, I'd like you to mention your services specifically mentioned X, Y, P, N, but also mentioned the advisor business that you have a stake in at least and also your your firm and and just mentioned the things that you're involved in.

01:41:02.000 | So if people are interested, they can.

01:41:04.000 | Sure. Yeah, I guess I'm kind of like strange serial entrepreneur doing this in this space.

01:41:09.000 | I have a couple of different businesses, so we actually have an advisory firm that does comprehensive financial planning, investment management services for clients.

01:41:16.000 | We work primarily with folks that are either retiring or maybe in the final 10 years before retirement who are looking for just that holistic.

01:41:24.000 | I need someone to help me manage the money. I need someone to help me make these financial decisions.

01:41:28.000 | I got to figure out when I'm going to retire and how to do it and how to spend my assets down.

01:41:32.000 | Just all the complexity that goes with that.

01:41:35.000 | So we have a firm that does that. It's called Pinnacle Advisory Group at Pinnacle Advisory dot com.

01:41:42.000 | Then we have a second business that we kind of mentioned a few times here called X, Y Planning Network that I helped to found.

01:41:48.000 | And so X, Y Planning Network is actually a wide number of advisors, all of which who are in generally their 20s, 30s or 40s who work with people who are in their 20s and 30s and 40s who do not necessarily have much or any assets involved.

01:42:04.000 | They work with people on a monthly fee basis for whatever advice it is that you need, year round, continuous relationship with an advisor to get that advice.

01:42:15.000 | And so a lot of them actually work virtually. So, you know, you can be anywhere and work with your advisor anywhere just as you need it.

01:42:22.000 | Some like to find advisors that are near them. But, you know, we have dozens of advisors on the platform and and growing by several every month.

01:42:29.000 | And so it's really we're finding it's kind of a beacon within the industry for all those advisors who have wanted to serve people broader than just, you know, wealthy folks with assets and couldn't figure out how.

01:42:41.000 | And so we're trying to show them how to do it and make that connection so that people who want to work with an advisor for an affordable monthly fee and advisors who want to work with consumers for an affordable monthly fee can can find each other.

01:42:52.000 | You can find me at kind of the site of my own name. So my name is Michael Kitsis. My site is Kitsis dot com.

01:42:59.000 | I write a blog there that is primarily for the financial industry itself, although a lot of consumers read it as well, where I'm talking about everything from trends and develops in the industry to kind of advanced planning techniques.

01:43:12.000 | So I do a lot of related research that's out there just on an ongoing basis. And then you can kind of see more about my background there as well.

01:43:20.000 | I write, I speak, I'm out at a lot of conferences, which was actually our scheduling problem that made it so difficult to get this podcast on the first place, as well as all the advisory businesses that I'm involved with.

01:43:32.000 | And mention also, because I know there are a number of advisors that listen to this, and I'm actually never, maybe I'm calling you out, I don't know, you have the advisor placement service that you kind of do. Is that an informal thing?

01:43:42.000 | Oh, yeah. So if you're an advisor coming in the industry or looking to come into the industry, we actually have a hiring service called New Planner Recruiting where we help people who are coming into the industry find that first financial planning job for them.

01:43:56.000 | And likewise, if you're an advisor, if you're a firm owner and trying to find some young talent to come into your business and help you grow your practice, we specialize in hiring and bringing in those new planners, those planning associates.

01:44:10.000 | Because what we found from the industry's end was a lot of advisory firms, as they grow, they get to a point where maybe they've hired some administrative staff, but they've really never hired a professional staff member, like a trained financial planner to support their business.

01:44:24.000 | And it's different than hiring administrative staff. It's a bit more complex. There are more things that you need to screen and evaluate. And so we made a placement service in order to do that.

01:44:34.000 | So it's called New Planner Recruiting. It's at newplannerrecruiting.com. And then for people who just want to scan even the job network for it, we made a separate job site that has both the recruiting jobs we're hiring for and a number of other firms as well.

01:44:48.000 | And that's called jobsfp.com. I'm forgetting my own business name. Jobsfp.com. So jobsfp.com, but jobs, letter F, letter P, dot com.

01:45:00.000 | For someone who seems to practically live on an airplane, you do an impressive job keeping all those straight.

01:45:04.000 | Thank you. I'm trying my best.

01:45:06.000 | Michael, thank you so much for coming on. I really appreciate it. I think this is a valuable resource, and I'm really proud of the work we've created here today.

01:45:14.000 | My pleasure, Joshua. Thanks for having me on the show.

01:45:18.000 | Does that help you with a little bit of insight into the financial planning profession and into the business of financial planning?

01:45:25.000 | It's interesting. One of the – I hope that for many of you that gives you a little bit of information.

01:45:31.000 | To me, it's not particularly important what conclusions you draw from the interview. That's up to you. You draw your own conclusions and you do what is in your best interest.

01:45:41.000 | I firmly believe that you are the market, and if we as financial advisors cannot figure out how to better serve you in a way that you're happy with, then you have no reason to work with us.

01:45:50.000 | It's our job to design our offerings for you in such a way that you'll be able to – that you'll be well served.

01:45:58.000 | At the end of the day, I feel very strongly that we as financial advisors, it is our job to ensure that you are winning with money.

01:46:07.000 | If we're not bringing you more benefit than we're costing you, then we have no business and we should clearly be fired.

01:46:14.000 | I hate and love – there's an old anecdote. I don't remember who it's from, but I hate – somebody came to – I think it was New York and they said,

01:46:24.000 | "There's all the yachts that belong to all of the financial people, the Wall Street guys."

01:46:30.000 | The person innocently asked, according to the story, innocently asked, "Well, where are all the customers' yachts?"

01:46:38.000 | It's a funny anecdote, but yet it's so true is that the key is not that your financial advisor winds up getting rich.

01:46:48.000 | The financial advisor should wind up getting rich only if you are getting richer as a result of them.

01:46:54.000 | So I hope that some of the information that you heard in today's show will help you.

01:46:59.000 | I'm excited about where we're going as an industry. I think that things are changing very quickly and with the transparency that connectivity and with the transparency that just simply the internet has brought to communication that we're still hustling to catch up.

01:47:16.000 | But with the transparency, ultimately I think clients are going to win.

01:47:19.000 | We live in a more complex world than we have ever lived in before.

01:47:23.000 | And I firmly – as I mentioned in the intro, I do not see how somebody who is just a normal person can effectively successfully navigate through the complex world of their finances.

01:47:38.000 | I really don't see how an individual can do it.

01:47:42.000 | Maybe you can keep your situation simple enough and many people will, but a lot of times people simply don't know what they don't know and I won't go any deeper into that today.

01:47:50.000 | Feel free to listen to more episodes of the show and I'll try to give you the knowledge that you need.

01:47:54.000 | But we're inventing new ways to serve you, the clients, and I hope that you are benefiting from it.

01:48:03.000 | I'm going to belabor one thing and I want to point out to those of you who are advisors who are listening and then also to you who are not advisors.

01:48:10.000 | And I'm going to use Michael Kitz's career as an interesting model for you to learn from and then we're done for the day.

01:48:17.000 | I want you to notice – if you're familiar with Michael Kitz's, then you're familiar with the impact that he has and the voice that he has in the industry.

01:48:25.000 | If you're not, notice this – what's happening in our world.

01:48:30.000 | So Michael came out of college and he worked in an insurance practice and it didn't seem like it was a good fit for him over time and he started to change over time.

01:48:38.000 | But he focused on building his knowledge and educating himself.

01:48:43.000 | He invested in himself.

01:48:44.000 | I guarantee you the best investment that he has made so far is in himself and in his own – and in his own knowledge.

01:48:51.000 | So that's why I always encourage you to start not by investing in buying stocks but to start by investing in your education and your knowledge.

01:48:59.000 | Number two, he markets that knowledge.

01:49:01.000 | So he is in a situation where he runs his website and although he has various companies that he owns and that he partners in,

01:49:08.000 | he has a centralized home on the web where he is holding himself out as an industry expert and pouring himself into his work.

01:49:16.000 | I believe every single one of us needs to do the same thing.

01:49:19.000 | Those of you who are in the financial planning business and who are locked behind this wall of communication with not being able to communicate with the public,

01:49:27.000 | you've got to press your firms to figure out a way for you to establish yourself as an expert.

01:49:33.000 | Otherwise, you're always going to be locked behind the firm.

01:49:36.000 | You've got to press the firm and I think the firms are starting to pay attention but you've got to figure out what's best for you.

01:49:45.000 | I believe what's best for you is to be published, to be a contributor, to be a thought leader.

01:49:50.000 | That takes work but you need to build that for yourself.

01:49:54.000 | Don't build your firm's name.

01:49:57.000 | You need to build your own name.

01:49:58.000 | If you're not in the financial planning business, exactly the same thing.

01:50:01.000 | The impact can come if you will prepare yourself.

01:50:04.000 | That is where our world is going.

01:50:06.000 | If you do not have a home, if you do not have a place on the web where you're recognized as a thought leader, no matter what your business is, you're falling behind.

01:50:17.000 | You've got to set that up and you've got to use that as a foundation to help you to move from and help other people.

01:50:27.000 | So I just encourage you that no matter where you start, he started, he changed, he changed, he changed.

01:50:32.000 | Now going forward, he's extremely busy.

01:50:35.000 | He's extremely in demand and he's working on many different businesses and really having an impact.

01:50:40.000 | If you are interested in financial planning, check out his blog at Kitsis.com, K-I-T-C-E-S.com.

01:50:45.000 | Links to everything in the show notes on today's show which is episode 92.

01:50:49.000 | So you can find today's show notes at RadicalPersonalFinance.com/92 and you'll be able to find all of those notes for today's show.

01:50:58.000 | Check out his blog. If you're interested in some of the research that he does and some of the work on financial planning, I would encourage you to go and become a regular reader of his site.

01:51:08.000 | You will enjoy it.

01:51:10.000 | This is the model of the future and I believe that we need to emulate it going forward.

01:51:14.000 | So I want to give you a quick introduction as far as what you can expect coming up.

01:51:18.000 | So today again is Thursday, the 30th of October.

01:51:21.000 | I've got some number of great interviews lined up for you that I've already recorded.

01:51:25.000 | I've got bringing you an interview with Tammy Strobel from RowdyKittens.com.

01:51:29.000 | I interviewed her about the subject of tiny houses and how that can impact in minimalism also and the impact of that on your financial plan.

01:51:37.000 | I've got an interview recorded with Jason from DividendMantra.com.

01:51:41.000 | Jason is working his way to financial independence.

01:51:44.000 | He's about a third of the way there and he writes a website about using dividend growth investing as the tool for that.

01:51:49.000 | Additionally, I'm bringing you an interview already recorded with David Downey who wrote a book called Radical Immediate Retirement.

01:51:54.000 | Essentially, the whole premise is screw the whole financial planning idea.

01:51:58.000 | Just simply decide and quit.

01:52:00.000 | And it will make those of you who are financial planners cringe but he makes an excellent point.

01:52:05.000 | I also have an interview with Chris from EatTheFinancialElephant.com who he and his wife are well on their way to early retirement and financial independence.

01:52:13.000 | They're going to share some of the things that they have done well.

01:52:15.000 | There's some really great information in that interview about college, different ways to pay for college, intelligence strategies that they have used.

01:52:22.000 | Additionally, I will be releasing in the next week or two another interview with Joe, one of the lead moderators in the Money Mustache forums.

01:52:30.000 | It goes by the handle A Rebel Spy.

01:52:32.000 | And we dissect in depth the question of should I pay off debt first or should I invest?

01:52:37.000 | I think you'll enjoy that.

01:52:39.000 | I've got some interviews lined up that I think you'll really be interested in.

01:52:41.000 | I'm going to be interviewing John T. Reid, author of the book How to Protect Your Life Savings from Hyperinflation, Inflation, Hyperinflation, and Deflation.

01:52:51.000 | He's also a real estate expert so we will talk about that.

01:52:54.000 | I think you'll really enjoy that.

01:52:56.000 | He's written a book on that.

01:52:57.000 | I'm going to be talking with James Wesley Rawls who is the editor of SurvivalBlog.com.

01:53:01.000 | We're going to talk about survivalism and basic general pessimism around the economy and the impact and some of the things that you can learn from that.

01:53:09.000 | I'm also going to be rolling out and finishing up the education series that I've got coming.

01:53:14.000 | I released the interview on the history of education this week.

01:53:17.000 | Also, I'm going to be talking about high school, college, the formal ways of paying for college, the informal ways of going to college, and also the other ways of paying for college that are maybe not commonly talked about.

01:53:31.000 | Stay tuned for all that information coming up in the next week.

01:53:33.000 | I thank you for being here.

01:53:35.000 | Thank you for listening to today's show.

01:53:41.000 | This show is intended to provide entertainment, education, and financial enlightenment.

01:53:48.000 | Your situation is unique and I cannot deliver any actionable advice without knowing anything about you.

01:53:56.000 | This show is not and is not intended to be any form of financial advice.

01:54:04.000 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy, and consult them because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions.

01:54:25.000 | Hold them accountable for your results.

01:54:28.000 | I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.

01:54:35.000 | If you spot a mistake in something I've said, please come by the show page and comment so we can all learn together.

01:54:41.000 | Until tomorrow, thanks for being here.

01:54:44.000 | With Kroger Brand products from Ralph's, you can make all your favorite things this holiday season because Kroger Brand's proven quality products come at exceptionally low prices.

01:54:54.000 | And with a money-back quality guarantee, every dish is sure to be a favorite.

01:54:59.000 | Whether you shop delivery, pickup, or in-store, Kroger Brand has all your favorite things.

01:55:09.000 | Ralph's. Fresh for everyone.

01:55:12.000 | (upbeat music)

RPF0092-Michael_Kitces_Interview