Hey, parents join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck. Family fun giveaways and exciting Kings hockey awaits. Get your tickets now at lakings.com/promotions and create lasting memories with your little ones. Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less.

Today on the show, I have one simple concept to share with you, and it is this. Be careful to look out for what's not said anytime you are engaging in financial discussions. Be careful for the missing alternative that you're not knowledgeable enough to ask about. Let me give you an example.

Yesterday on the Q&A show, I had a listener who was asking me whether it was appropriate for a woman in her 60s with a fairly simple financial life who is living primarily on social security income and a pension income, but also has a million dollars of assets available. And she's investing that money in an account where she's paying a financial advisor a 1.7% fee for advice on the account.

And the question that my listener asked was, "Is that a good thing, or should they move somewhere else where she would be able to pay a lower fee?" That's a hard question to answer, because it involves the actual person, the woman, the investor involved, and what's important to her.

But in my discussion of the question with my listener, we started talking about portfolio returns, and my listener shared with me that one of the frustrations is that her portfolio is invested very conservatively, and it's primarily in bonds and fixed income investments. And because of that, when you take in the substantial 1.7% asset management fee, he felt that she was really underperforming, and I agreed with him.

And we discussed the situation. I discovered that this woman could live on her income from social security, and she could live on her income from the pension account. And in that conversation, we discussed the fact that my recommendation would be, since she's going to leave this money behind for her heirs and beneficiaries as some form of inheritance, that she should set a financial goal of maximizing her money so that it could be the biggest pot possible when it's left behind to the people that she wants it to go to.

And I did some math on the show. I did a financial calculation, and I said, "Let's assume that she has $1 million in today's dollars," and I said, "Let's assume she's going to keep the money invested for the next 30 years of her lifespan, and let's assume that she makes no further contributions to the account, but that she doesn't take any distributions from the account." And I said, "Let's compare what value a good financial advisor could bring to her if that financial advisor were able to persuade her to go from a portfolio with a lower expected rate of return to a portfolio of a higher expected rate of return." And so we said, "Assume for a moment she's in a portfolio that has an expected rate of return of 4%, and she's paying 2% in fees and expenses, so her net return is 2%." Well, I plugged that 2% number in, and I demonstrated to my listener that under that scenario, her portfolio value in about 30 years would be $1.8 million for her heirs.

But then I said, "Let's assume that we could move her from a portfolio that would have an expected rate of return of 4% into a portfolio with an expected rate of return of, say, 8%, and yet she's also going to still pay 2% of expenses, so her net return would be 6%.

And so the same calculation, $1 million growing over 30 years at 66% per year, comes out to be $5.7 million." And I explained to the listener, I said, "That would be, if I were auditioning for the job of her financial advisor, that would be what I would focus on.

And then through good financial planning, I would try to solve her income needs. I would try to educate her about investments so that she could be competent and knowledgeable enough to feel comfortable with that portfolio, and I would try to move her into that portfolio that has a higher expected rate of return so that she could potentially leave behind $5.7 million for those she wants to leave the money to, rather than $1.8 million." I'm going to stop here and ask you a question.

Thus far in what I have said to you, what's missing? What's missing? Can you spot what's missing? The answer is, what's missing is, what if she could both solve her financial planning needs, etc., so that she was comfortable moving to a higher returning investment, and also eliminate or reduce her financial advice fees to lower the expenses on her portfolio?

Because it's not just option one or option two. She does have more options. Option one would be she could stay where she is and make a net 2% rate of return, have $1.8 million. Option two was she could move into a portfolio with a higher expected return, and thus potentially generating for herself a portfolio of $5.7 million.

But there are many more options. A simple option three would be, what if she could move into that same portfolio with an expected return of 8%, but let's pretend that she could completely eliminate financial advisor fees? Because of course she could, if she didn't need the services of a financial advisor or want the services of a financial advisor, she could completely eliminate those fees.

Now let's run it at 8%. Do you know what the number is on that million dollar portfolio? The number is $10,062,000. Let's call that $10 million among friends. So the full and complete analysis of that situation would be that a bad financial advisor who's keeping her in a low performing portfolio because that financial advisor is bowing to her conservative tendencies and not educating her on the value of growing this portfolio for her heirs is potentially costing her the difference between $1.8 and $5.7 million.

Let's call that $3 million among friends. So the bad financial advisor is costing her $3 million. But that doesn't mean that the financial advisor, if they're still charging her 1.7%, is not also costing her money. Because the difference between a 6% return and an 8% return is an additional $5 million.

Now question, when I was going over that Q&A call yesterday, did you hear that omission? Did you think about that omission? Were you aware that there were more alternatives? Most people, the answer is no. So let me give you a tool that I think is very useful, that I use all the time, to try to smoke out some of these answers when you are consulting with people.

Here it is, it's a simple question. After listening to me and understanding a little bit about my situation, is there anything that you think I should ask that I haven't asked you yet? Are there any questions that you think I should be asking that you think would be helpful to me?

Is there any information that I haven't considered that you think I should be considering? Those are all variations on the same theme. But put your advisor in the context of answering that question and give them a chance to tell you, "Well, based upon my professional experience, what you should be asking is this." Is that question going to solve all your problems and make sure that you're always getting full and comprehensive advice?

Of course not. But a lot of times an advisor, a professional advisor, will know about things that you don't know about. But the advisor knows that most people aren't interested and so they keep their mouth shut. It's not necessarily out of malice, certainly I'm sure that some percentage of the population is filled with crooks and thieves who are omitting information out of malice.

Certainly, there are many times that psychological tactics and tools are used and the omission of information is part of an intentional plan to rip people off. I believe that. But in my experience, that's just not the case most of the time. Most of the time, what happens is an advisor learns that most people don't actually care about a full and complete answer.

And so they just learn to answer the question that's asked and not to offer more reasons, especially if they're dealing with a customer. If I'm selling Toyotas, do I have any reason to try to talk up all of the benefits of a Chevrolet? Is that my duty? I don't think it is usually.

And so if I were selling Toyotas, usually I would say, "Here's what makes a Toyota great." And I would just focus on that. I wouldn't talk down about a Chevrolet, but it's not my job to go and present all of the potential alternatives to you. But if you were to ask me, as a Toyota salesman, something along the lines of, "You know, after our conversations, is there anything that you think is important to me?" "Is there anything that you think I should be considering that I haven't considered?" That gives me a chance very easily to say, "You know, you mentioned to me that you have this particular need, and I think you should seriously consider this.

The Toyota is really good in this, but I'll tell you what, Chevrolet has this particular car that has this certain benefit. I think you should consider it." A question like that gives honest people a chance to give you more information. And you can use this to your benefit. I hope you'll try it out, and I hope it will use it.

I hope it will help you to get better value from the people that you're interacting with. So in summary, thing number one, always look for additional opportunities. Now you can't do this to an endless degree. At some point in time, you've got to make a decision. But if you're trying to decide between option one and option two, ask yourself this question, "What other options am I not considering?

What other things am I not considering? What's my alternative choice of action?" And just try to brainstorm about other ways that you might be able to accomplish your goals. Because there probably are other ways, but you might not be looking at them, you might not be thinking about them, and you probably don't know what you don't know.

In order to overcome that gap, you're going to need the advice of an expert. But you have to learn how to get information out of an expert. And one of the most useful questions that I have developed to get information out of an expert is to ask an open ended pointed question, such as, "If you were in my shoes, what questions would you be asking that I've neglected?" Or, "What questions would you be asking because you know more than I do?

What should I be asking that I haven't asked you about? What do I not know to ask about?" And it's my hope that asking that question will help you to smoke out some additional alternatives that might also serve you. At the end of the day, you've got to decide.

You've got to collect options, and you've got to choose. And you're never going to make a perfect choice. There is no such thing as a perfect choice. But you want to make a good choice. And so fully consider as many alternatives as you can and try to get experts working for you effectively.

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