Episode 149
Should You Do Business with a Financial Advisor
Have you ever thought “should I work with a financial advisor” or if you already do, “do I need a second opinion?” Or maybe, “aren’t all financial advisors the same?” In this episode you’ll get the answer to these questions and more as we dig into the state of the financial advisor industry.
Should you hire a financial advisor? This question lies at the heart of the latest discussion on the Ditch the Suits podcast, where hosts Travis and Steve peel back the layers of the financial services industry.
They explore the different types of financial professionals, clarifying the distinctions between advisors and planners and emphasizing the importance of understanding the motivations behind the advice you receive.
They tackle common misconceptions that lead consumers to make uninformed decisions, highlighting the critical need for transparency and fiduciary duty in financial planning.
As they share their experiences, listeners are equipped with the knowledge to discern what genuine financial guidance looks like, ensuring they find a professional who truly has their best interests at heart.
Takeaways:
- The financial industry is complex, and not all financial advisors provide the same services.
- Understanding the differences between financial advisors, investment managers, and insurance agents is crucial.
- Consumers should be aware that many financial advisors primarily focus on product sales rather than holistic planning.
- A fee-only financial planner is often a better choice for comprehensive financial guidance.
- Many people are unaware of the actual fiduciary obligations of their financial advisors.
- Transparency in financial planning is vital; always ask questions and get everything in writing.
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Thanks to our sponsor, S.E.E.D. Planning Group! S.E.E.D. is a fee-only financial planning firm with a fiduciary obligation to put your best interest first. Schedule your free discovery meeting at www.seedpg.com
You can watch all episodes, as well as other great content produced by NQR Media through their YouTube channel at https://youtube.com/@NQRMedia
📧 For more information or to get in touch with us, visit https://www.ditchthesuits.com
👍🏼 You can also follow us on Facebook, Instagram and Twitter at @nqrmedia
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About Your Co-Hosts:
Travis Maus has been in financial services for over fifteen years. He is a Senior Wealth Manager and Chief Executive Officer at S.E.E.D. Planning Group. Travis also hosts the Unleashing Leadership Podcast, where he dissects some of his favorite books on leadership and how you can apply it to your business or life.
Steve Campbell has over a decade of industry experience and is a Senior Marketing Director at S.E.E.D. Planning Group. Steve also hosts the One Big Thing Podcast, an interview-style show meant to inspire and encourage 30 and 40-year-olds going through difficult seasons of navigating marriage, raising kids, and growing personally.
Transcript
Foreign.
Steve:Welcome to Ditch the Suits podcast, where we share insights nobody in the financial services industry wants you to know about.
Steve:We're here to help you get the most from your money in life.
Steve:So buckle up and welcome to Ditch the Suits.
Steve:So a fun big question right off the bat.
Steve:Should you, as a listener do business with a financial advisor?
Steve:You know, have you ever thought to yourself, should I work with a financial advisor?
Steve:Or maybe if you already do, is it time to get a second opinion?
Steve:Or maybe another question that you have because you're skeptical.
Steve:Could be, aren't all financial advisors actually the same?
Steve:Well, this is what we're going to get into, and this is the heart of this episode where you're going to get the answers to these questions as we kind of undress and dig into the financial industry.
Steve:And Travis, I know we're excited because this is really important to you.
Travis:Yeah.
Travis:And we haven't, I don't think we've delved into.
Travis:I don't even know if that's the right way to use that word, but I don't think we've dove into.
Travis:Yeah, it's about 148 episodes ago, we started the podcast with this discussion, so we wanted to circle back to that, pull that forward, but also give you kind of an update.
Travis:You know, over the last four years, we've been, we haven't revisited this topic, and I think that it's time to come back and talk a little bit about where the industry is.
Travis:And if you're thinking about hiring somebody in the industry, how can we make sure that you're better informed when you're making that decision?
Steve:Yeah.
Steve:And in case you weren't sure what in the world you clicked on, this is, it's just suits.
Steve:I'm Steve Campbell.
Steve:I serve as our senior marketing director at Seed, and Travis, my wonderful co host, is our CEO.
Steve:Seed is a fee only financial planning firm which we're going to kind of get into today what some of these terms mean so that you're better equipped to know what you're, what you're hearing about.
Steve:And this show is all about us bringing our experience together, working with CL and financial planning to really help you get the most from your money in life.
Steve:And it's been a fun run here over the four years.
Steve:And I think really getting into this conversation today is going to help you wherever you are in your journey.
Steve:So let's talk about then maybe financial advice for a second.
Steve:You know what, what do you think most people think about when they think of a, you know, Financial advisor and what they actually do.
Travis:So I thought it'd be interesting to.
Travis:To talk about the perspective of people who are actually coming to us and trying to engage for financial guidance and what that initial experience is like and the questions that they're asking, kind of how they're approaching that and how they're coming, where they're coming from and what they think financial advising is.
Travis:And then I thought maybe we could talk about what we think financial advising is, which is a lot of times two different things, but then also the industry spin on it and an industry secret right after that before we get into our next topic today, so I want to spin this back to you.
Travis:You're the one who answers the call a lot of times, talks to people as they're interfacing with our firm and they're saying, hey, you know, I've heard of you guys through such and such a place, and I'm really interested in getting some financial advice or getting a financial advisor.
Travis:Maybe.
Travis:I have a financial advisor and I need some help, and I'm not getting it there.
Travis:So can I come in and talk to you guys?
Travis:So can you share with our listeners?
Travis:Kind of.
Travis:Because I think a lot of people get nervous about this and they kind of feel foolish.
Travis:But there's so many people.
Travis:There's a commonality amongst most people when they're calling in and how they're using the term financial advisor.
Travis:Financial advisor.
Travis:I thought you'd be uniquely positioned to kind of shed some light on that initial conversation.
Steve:Yeah.
Steve:And this is from almost a decade's worth of doing this and countless conversations.
Steve:Right.
Steve:So this isn't just a short window of time.
Steve:And, you know, I get the chance to talk with people of all different age groups, different industries, different marital statuses, different parts of the country, geography, geographically.
Steve:And, you know, when they call in, he got a couple of camps.
Steve:You got those that, as we said at the introduction, maybe they did set out years ago and they hired somebody.
Steve:Maybe it was somebody in a golf friend or, you know, from a brokerage firm or wherever it may be.
Travis:College buddy.
Steve:Yeah, they're.
Steve:They're wondering like, what's missing or what aren't we getting?
Steve:You know, maybe it was just.
Steve:They just filed their taxes and wonder why they got obliterated and why their advisors and talking to them about their taxes.
Steve:And they get the, you know, we can't give you tax advice.
Steve:It's not a part of our description.
Steve:And it's.
Steve:They're raising questions of what am I paying you for?
Steve:So they're reaching out to us.
Steve:Hey, we've heard about you.
Steve:We, we listen to Ditch the Seuss, we read a blog.
Steve:We need you to fill in what we're not getting currently because we're getting help with our investments, but we're not getting help on all the other things that are important to us.
Steve:And then you have people that are in their working careers or they've never worked with a financial advisor before.
Steve:Which when you call in is one of the questions that I ask because it kind of gives me a temperature of where people are at.
Steve:Sometimes you get people that are really upset, they feel they're getting ripped off and it's for a change, some people are kind of sheepishly calling for the first time and acknowledging like, I have never actually talked to someone in your industry, what am I getting into?
Steve:And as I begin to ask the initial questions that I have is, you know, what are the big life questions that you have right now?
Steve:What, what are the things you're thinking about when it comes to your finances?
Steve:And the people are saying, you know, what should I be doing with my taxes?
Steve:I'm getting crushed.
Steve:Or how do I save on taxes?
Steve:Or you know, I have these benefits through work, I don't actually know how to use them.
Steve:I have different types of accounts, what do I do?
Steve:And it's really a lot of times am I okay and are we doing right thing?
Steve:Especially when you're talking with couples.
Steve:So I think, you know, you have these different camps of people that are maybe frustrated by the experience they've had with these so called financial people that we talk about.
Steve:And then there's those that are saying, we feel like there's more that we could be doing, but we don't know what to do.
Steve:And we're very leery of trusting somebody because we've met with four or five different professionals and everything has to do with buying products or buying life insurance.
Steve:And we're just still on this inevitable quest to try to find somebody that holds himself out to be a professional that can tell us what to do in our specific situation.
Travis:Yeah, and there's a lot of people holding themselves out as professional financial advisors or financial professionals or something like that.
Travis:And we're going to get into the different titles and registrations and all that.
Travis:But you know, I think one of the things that you talked about is people calling and you mentioned taxes a lot.
Travis:The topics people calling are very broad from.
Travis:Actually a lot of times it's not taxes they're calling.
Travis:And although most people should be calling about that because that's like one of the biggest places where most new people that come to work with us are really struggling is the coordination of that tax plan.
Travis:But the estate planning, the integration of an estate plan with their actual financial plan, again, not necessarily something that they know they lack in, but once we dig in, it's one of those like really huge things that most people are missing.
Travis:Yep.
Travis:College planning, retirement timing, pension or Social Security selection, those types of things.
Travis:And the biggest thing that I hear, that I hear or that I've heard over the years and again, I don't work with a lot of the new clients anymore.
Travis:I work with some of our newer institutional clients which are like businesses and non profits, but not as, not as many of our actual incoming individual individuals or families or something like that.
Travis:But I think a commonality there is not necessarily like I think you mentioned, not always or what am I paying for?
Travis:And certainly some people come in thinking that, but there's a lot of people come in not thinking that.
Travis:They come in saying, I've got a guy already or a girl already.
Travis:They're doing this stuff for me.
Travis:But I don't have, I don't know how to do this other stuff.
Travis:I don't know how to do the estate plan or the retirement plan or the projections or the long term care plan or you know, we call another care plan here.
Travis:But you know, long term care insurance tends to kind of dominate.
Travis:What do I do when I get older and need to pay for a nursing home?
Travis:Maybe like those are the things I'm questioning about.
Travis:And when we hear that, and we hear financial advisor, we're going, well, that's the financial advisor's job.
Travis:And they're sitting there going, no, I already have a financial advisor.
Travis:They don't do that stuff.
Travis:I need somebody to do that stuff.
Travis:Well, okay, so what kind of financial advisor do you have then?
Travis:That's the problem.
Travis:And how many financial advisors do you want?
Travis:Because there's obviously some discrepancies between what type of work certain advisors do versus others.
Travis:And so I think that that's the genesis behind this question of where we want to go with it.
Travis:And, and that gets us to like, what do we think a financial advisor is?
Travis:You know, and, and, and I would like to get rid of the word finance or the term financial advisor, at least the word advisor, and talk more about planner.
Travis:Because I think a lot of times what happens is, is people have a financial professional that they work with that can use whatever title their company approves.
Travis:And, and, but and they're an advisor because they give advice or they sell products based on the advice they're giving, but they're not a planner.
Travis:They're not.
Travis:They're not really building plans, and they're not necessarily tying their fiduciary liability to the plan itself and those types of things.
Travis:And so when we think of a financial advisor and our role as a financial advisor with clients, it's not advisor, it's planner.
Travis:Like, internally, we use the term planner.
Travis:We have financial planners, we have wealth managers, we have investment planners.
Travis:And the reason is, is because you need a plan, and a plan is going to have lots.
Travis:If you're getting a financial plan, it should not just be, here's our pie chart and here's our projection, all done.
Travis:Right.
Travis:That's not a plan, that's a model.
Travis:A plan is actually what you do and how you implement.
Travis:I think you.
Travis:I don't remember if you did it in this episode, if we did it in conversation before this, but you were talking about how, you know, a lot of times people are calling up and they're asking for different.
Travis:They're like, hey, you know, it's wonderful.
Travis:You, you know, Roth conversions.
Travis:I've learned about Roth conversions, but I have no idea how to do it.
Steve:Yep.
Travis:You know, and it's like a planner teaches you how to do it, when to do it, why to do it.
Travis:They don't say, hey, yeah, you should do Roth conversion.
Travis:Why don't you tell me how much to do?
Travis:That's not a financial advisor, and that's not a planner.
Travis:That's just somebody making money off some product or investment service.
Travis:That's basically what that means.
Steve:Well, and I also think about, too, the people that don't know what they don't know because they've hired somebody and been working with them and they trust them.
Travis:Right.
Travis:You hire somebody because, you know, you don't know.
Steve:And if somebody says to you, like, hey, we don't do that, then you assume that no one in the industry does it because this is your guy, this is your gal.
Steve:And so if they tell you we can't give you legal or tax advice, it's like, well, okay, then we just gotta, I guess, figure this out and shoot in the dark.
Steve:And, you know, I love that idea of planner because I know years ago when you and I started together, I was always concerned about having the word financial advisor on a business card because it made people feel a certain way versus the word financial planner.
Steve:And I think this kind of gets into the heart of Maybe why we started ditch the suits and to challenge this idea of so called financial advisors and the pieces we've written about it.
Steve:Because you have a choice as a consumer as to who you hire, but there isn't always full transparency in what that means or what somebody should actually do for you again to help show you what your money has the capacity to do and create pathways as to how to get the most from it.
Steve:It sounds so simple, but yet it's so complex and so many people don't even know where to start.
Travis:Yeah.
Travis:And the rest of the industry is just thinking, you know, I mean the vast majority of the industry is trying to either sell you a financial product or charge an investment advisory like an investment management fee.
Travis:I mean most of the work being done by so called financial advisors out there and I say so called just because as we're going to talk about in a minute, like anybody can call himself a financial advisor is strictly around product sales.
Travis:Now you do have the other direction.
Travis:You do have people who truly, truly are trying to be financial planners and they only do financial planning and they don't do any investment management.
Travis:It is.
Travis:And they'll say, you know, there's nobody can do investment management.
Travis:You need to go out and just do Vanguard or something like that.
Travis:Right.
Travis:And this is very prevalent in, in the.
Travis:If you're going to be a financial planner that talks about modeling expected investment performance and all the different types of investment decisions that have to come along with that, you don't understand anything about investing or you don't believe anybody can do well in investing.
Travis:I'm not certain you can be a really great financial planner because how do you model something you don't understand?
Travis:You know, and so the industry itself, when you look at how it's structured, which we're going to talk about, is really designed in a way of here's my service product or offering and I'm going to talk about how I do that.
Travis:Just amazing.
Travis:And then all my agreements are going to limit my liability for everything around that.
Travis:And so you hire them because they say, well, I'm going to do your financial plan for you and give you all your projections and tell you how to retire on time and all that kind of stuff.
Travis:And then you find out in the fine print that the only thing you signed up for was actually investment management.
Travis:And so all this investment advice and stuff, that's not the focus of the job, that's not the main part of the job.
Travis:It's collecting assets to make the investment management fees or make the commissions.
Travis:And so you think you're hiring a financial advisor, and then you end up calling and you're saying, yeah, I need to know when to take my Social Security and my pension and if I can retire at 55.
Travis:And my person just hasn't really been able to give me a clear explanation of what I need to do.
Travis:And that's because it's not a financial advisor.
Travis:It is just simply somebody selling you.
Travis:And they may be an investment manager.
Travis:So let's be fair.
Travis:It could be an investment manager or an insurance agent.
Travis:And they may be good at being an investment manager or good at being an insurance agent, but that's all they are.
Travis:They're not.
Travis:They're not.
Travis:If, if, if in a perfect world, we would have to explain what we do in our title, right?
Travis:If I'm just an investment person, I would say I'm an investment manager or investment salesperson, period.
Travis:If I was just an insurance agent, if that's really the core of my job, I just say I'm an insurance agent.
Travis:We don't do that because nobody's going to hire the.
Travis:Nobody wants to hire the insurance agent.
Travis:Right?
Travis:You know, like, they insure.
Travis:Everybody's like, oh, my God, it's an insurance agent.
Travis:Nope, they're just trying to sell me insurance.
Travis:So they don't want to call themselves that.
Travis:They call themselves a financial advisor or whatever financial professional.
Travis:You know, I've been in the industry, Steve, you were in the industry.
Travis:We grew up in that industry.
Travis:That is the game of the industry is, you know, yes, I work for this company, but I can really do everything.
Travis:But I only do this, you know, and if you want to get outside of that, you're really not permitted.
Travis:So the term financial advisor, when somebody says, I have a financial advisor, I love this.
Travis:I'm at a party and somebody says, yeah, well, my financial advisor.
Travis:That is a throwaway junk term that means absolutely nothing.
Travis:It's jargon.
Travis:You could say you have a financial advisor till you're blue in the face.
Travis:What does a financial advisor actually do?
Travis:And most of the time you don't know if that financial advisor is doing what you think what a financial advisor really should do in a theoretical standpoint, until you find out what they're not doing, Then all of a sudden you go, oh, crap.
Travis:Wow, I didn't get any of what I thought I would like.
Travis:I didn't get any of that.
Travis:How is that possible?
Travis:Even though I'm paying the same amount that I would to somebody who would give me all of that in a lot of cases.
Travis:I mean, in a lot of cases, that's not always.
Travis:You know, some places, sometimes it's actually more expensive to get financial planning and investment management.
Travis:But that's the dynamic.
Travis:I ran across a quote today that I just thought was great just to kind of wrap up this section.
Travis:I.
Travis:And I don't mean to offend anybody, but everything happens for a reason.
Travis:So everybody is aware of that quote.
Travis:Right.
Travis:It's like life happens.
Travis:Sometimes you get lemons and it all happens for a reason.
Travis:But the quote goes on this particular one, unless you made a stupid decision.
Travis:And that's one of the problems with the terminology game and that we're going to talk our way through is it tricks us into making stupid decisions.
Travis:We're trying our darndest to make good decisions.
Travis:But the way that these terminology, this terminology is used by, by the fact that we don't understand all the acronyms and, and all the registrations and st, we don't necessarily understand that.
Travis:Financial advisor to you, Financial advisor to me.
Travis:Financial advisor to client X, Financial advisor to a guy who works at a different firm.
Travis:All four of us probably have a different definition of what a financial advisor should be and should be doing.
Steve:Yeah.
Steve:And I would say, even as I think about it, maybe there's three camps of people that if you've been tracking here, you got people that have never gone out to hire somebody.
Steve:And so we're going to give you a ton of information now as to kind of how the industry works, to give you a second.
Steve:Then you got people that work with somebody, but now you've piqued their interest as to what's missing.
Steve:And then there's kind of this group, group that's been really burned and they do it themselves.
Steve:And so again, I think it's really important for anybody in that camp understand how the industry works.
Steve:So when you inevitably raise your hand and say, like, but how do I actually do this?
Steve:Again, I understand what a Roth conversion is, but I don't know how to do it for myself.
Steve:You're going to know who you should go out and look for based on kind of how the industry works.
Steve:So.
Steve:So, Travis, there's a lot of players in this financial marketing, you know, advising world.
Steve:Why don't you.
Steve:Because I think you always do a really nice job with this.
Steve:Who are the.
Steve:The players in the financial industry?
Travis:All right, so if you have somebody who you are paying for financial advice or investment management, they are probably going to be where they better be, actually.
Travis:Otherwise it's you know, I'm kind of wondering who you're working with.
Travis:But they're going to have some type of registration and their registration will indicate how they get paid and what type of firm they work for and whatnot.
Travis:And so there are really kind of three parts of the financial industry from the standpoint of who clients interact with.
Travis:You've got what's called registered representatives.
Travis:These are people that represent broker dealers.
Travis:And we'll talk about how they get paid in a minute.
Travis:But they are actually, they have a credential to do a certain type of, of service for people.
Travis:Then you have investment advisor representatives or.
Travis:And they work for registered investment advisors.
Travis:Seeds of registered investment advisor.
Travis:You are an investment advisor representative.
Travis:So if we go back one step, a registered representative is a representative of a broker dealer.
Travis:So if I'm a registered representative of lpl, LPL is the broker dealer.
Travis:I represent lpl.
Travis:This is, if you think about it from a real estate agent standpoint, which most people do understand, who do you represent as the agent?
Travis:Right.
Travis:In this case, when you hire that registered representative, they still work for the broker dealer.
Travis:Yes, they're doing a service for you, but they ultimately work for the broker dealer.
Travis:They're going to be limited to what they can and cannot do by the broker dealer.
Travis:The investment advisor representative is a representative of the registered investment advisor.
Travis:So again, they are an agent of the advisor you're hiring.
Travis:A lot of times you think you're hiring the representative, but you're really hiring the advisor, the firm.
Travis:And the representative is representing the firm in business with you.
Travis:And that's a very confusing point for a lot of people because you think that person gave you in either of these cases, that person gave you this big spiel about why they're so great and you should hire them.
Travis:And then you look at the contract that you get from the firm and the two things don't always line up.
Travis:And that's because the firm's saying, this is the business we do.
Travis:I don't care what they said they were going to do.
Travis:This is the business we do and this is what we're on the hook for.
Travis:And then you have insurance agents.
Travis:And you can be an insurance agent and just be an insurance agent, not have anything to do with securities or anything like that.
Travis:There are three ways that a financial advisor typically works too, with a firm, whether it's a broker, dealer, registered investment advisor, or even an insurance agent, you can be independent.
Travis:Independent means I've got no parent company, I, I can do whatever I want.
Travis:Whatever I see see is in the best interest of a client.
Travis:Then there is hybrid.
Travis:And so most advisors are in the hybrid situation and we'll actually talk about the numbers.
Travis:But that's the truth.
Travis:Most advisors in the hybrid situation where they have some independence on some of their business, but then they're beholden to the broker dealer or a corporate RA on the rest of their business.
Travis:So they're kind of the halfway in, halfway out.
Travis:So they have a lot more flexibility, but they're still kind of restricted by the controlling party, the party that's representing them to the regulator.
Travis:So think about it like that.
Travis:Broker dealers represent a registered representative to FINRA and registered investment advisors represent investment advisor representatives to either the state or the sec.
Travis:And then you can have captive.
Travis:Captive is where I just work for a company, right?
Travis:So if, if I'm a Prudential rep, I'm captive to Prudential.
Travis:I work for Prudential.
Travis:That's that, that's who gives my paycheck.
Travis:Those are the products I primarily sell.
Travis:So what I wanted to do though is just for time's sake.
Travis:So I don't mean to go too fast, but I wanted to talk about how these folks get paid, how many of them there are out there, because I think that that lays the groundwork for a lot of people who think everybody's always like, yeah, no, no, I got the good one, I got the good one.
Travis:And it's like, okay, let's back this up a little bit because there's, there's, there's the numbers.
Travis:Don't speak to that.
Travis:And so if you do a Google and just say, you know, give me how many financial, I did a Google for how many financial advisors there are in the country, just generically using that term.
Travis:And, and these are stats from Google and a website called investmentadvisor.org I did not vet to see, you know, how they came up with these numbers or stuff.
Travis:But Google's numbers and this website's numbers were very similar.
Travis:So I'm thinking that it's pretty good.
Travis:There are 902 life and health agents.
Travis:So life and health agents back to the, our insurance agents that can sell you life insurance and annu.
Travis:They don't necessarily have to have any registration to sell securities, which would be broker, dealer, or to give advice, which would be the registered investment advisor.
Travis:So there's a, there was a big war basically with the Department of Labor and these fiduciary rules they were trying to pass where they wanted to make anybody giving advice to anybody With a retirement kind of fiduciary.
Travis:And the insurance agents industry basically came out and said, we're not really financial advisors.
Travis:We sell products.
Travis:Products, right.
Travis:So right off the bat, if you're an insurance agent, you are selling products.
Travis:It doesn't matter if they say I'm an advisor and I, I give people advice to buy product is basically what they're doing, right.
Travis:So right off the bat and they make commissions.
Travis:That's how they get paid.
Travis:They can be captive, hybrid or independent, but they're commission.
Travis:That's how they, that's how an insurance agent gets paid for their business.
Travis:Now any of these other types can also be insurance agents.
Travis:You can have these licenses.
Travis:I used to have an insurance license.
Travis:I was a registered representative, an investment advisor representative and an insurance agent at the same time.
Travis:Which basically means I could do the business of any one of the three at any time.
Travis:Sounds good.
Travis:But it starts to get very confusing.
Travis:There are 329,000 registered representatives out in the United States running around.
Travis:Now not all of them are going to be active because if you're retired you might keep your licenses and stuff.
Travis:But 329,000 apparently are coming up on the registrar.
Travis:Now a registered representative by nature only makes commission.
Travis:They're a stockbroker.
Travis:That's basically what they mean.
Travis:A broker dealer represents clients at the stock market.
Travis:That's their job.
Travis:So registered representative, they're a stockbroker.
Travis:That means they make commissions.
Travis:That's how they get paid.
Travis:Anything that they do under the registered representative title is a commission job.
Travis:They're, you know, that, that's pretty much a captive.
Travis:I work for the broker dealer.
Travis:They tell me what to do.
Travis:Then you have investment advisor representatives.
Travis:And these are ones that are also cross referent or cross registered as registered representatives as well.
Travis:So these are people who are stock brokers.
Travis:They're part of that 329,000 plus.
Travis:They are registered to give investment advice or advice not necessarily related to commission.
Travis:So they can charge you a percentage fee or a flat fee or an hourly fee.
Travis:There are 296,000 of those.
Travis:So we're whittling down who actually by registration is legally, you know, going to be held to any kind of standard on the advice they're giving.
Travis:But what we've, what's happened here is we've still got people who can sell you stuff to make a commission or charge you for advice.
Travis:And how do you know which scenario you're dealing with and when you're flipping back in and out?
Travis:Now there are rules The SEC and friend and I have rules about disclosure and stuff.
Travis:Disclosure doesn't make it clear.
Travis:It is still really, really hard sometimes to understand.
Travis: id of our Insurance Agency in: Travis:And if you don't want to buy life insurance, I need to tell you that you're doing that unless you made a stupid decision issue.
Travis:Right.
Travis:And not worry about you firing me and, and, and not have you say, but what do you get if I buy the life insurance?
Travis:And I go, well, we'll make $20,000 if you buy the life insurance.
Travis:And then you're thinking, well, do I really need life insurance?
Travis:So we got rid of the, the ability to make commission simply because it's really hard to give you the advice you need if it's going to cost us a paycheck.
Travis:Right.
Travis:Or to push you hard or to make sure that you trust us implicitly if we're going to get, you know, extra comp for something.
Travis:So there's only 66,000 investment advisor representatives that can only charge fees.
Steve:Let's take a quick break to hear a word from your sponsor.
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Steve:Yeah, and I think that's a lot for people to try to digest if you're, you know, driving around or where you're at but really understanding the nature of this industry and how it works and the kind of open doors that people come into.
Steve:You know, you go to a life insurance agent and then all of a sudden the next thing you know they're offering you mutual funds or saying they can manage your ira.
Steve:And I think to a lot of people they say that sounds great, but they don't really know what they're getting into.
Steve:They don't understand where money's being exchanged or where the transparency fully lies.
Steve:So to understand there's only 66,000 that working on a fee platform is a, is a Huge shock.
Steve:Maybe to a lot of people that don't realize or they came in thinking all financial advisors do the same thing.
Steve:So, you know, I, I think explaining kind of some of the different, you know, backgrounds, but also maybe then some of the, the turnover that happens within our industry because people get passed around at financial firms.
Steve:They get a letter, they get a phone call, hey, your advisor is no longer here.
Steve:And it's spun in a way that this is a positive for you, right?
Steve:So you receive a letter, you get a call that says, hey, Travis is no longer with our firm.
Steve:But don't worry, you're in great hands because you're no with now with Joe down the hallway.
Steve:And Joe's really great.
Steve:It's spun.
Steve:Everything is always spun as a positive.
Steve:But what it means is that there's turnover and so somebody's no longer here.
Steve:So why don't you kind of talk about that?
Travis:Turnover is not always bad.
Travis:You're going to have turnover in any industry.
Travis:The challenge that the financial industry has, and this is for young people getting involved or for people who have kids that are getting involved and want to go give their business to their kids as much as you want to help them.
Travis:62% of financial advisors leave the profession within two years.
Travis:Leave the profession within two years.
Travis:That's 62%.
Travis:90% of financial advisors are gone in the first seven.
Travis:And that was purely my experience as well.
Travis:I just happened to look these numbers up again to see where the numbers are now, thinking maybe they've changed.
Travis:That's still where they're at.
Travis:So that is a huge issue.
Travis:When you're hiring somebody, are they going to be around?
Travis:And if I'm hiring somebody that's more senior, wonderful.
Travis:They could have experience, but who's going to take over after them?
Travis:Right?
Travis:Have they unlocked this recruiting issue here?
Travis:Because that's, you know, if 1 out of 10 people are actually making it, how hard is it to get a good successor?
Travis:It's very difficult.
Travis:So when you're looking at teams, I always say this with attorneys and accountants too.
Travis:Look at the team, don't look at the individual.
Travis:You know, what's the bench look like there?
Travis:You're just as concerned about the bench if you want to make it long term.
Travis:There are 15,396 registered investment firms with the SEC.
Travis:Now there's a bunch that are just registered with these with, with states too.
Travis:So a firm can register with the state or the sec, depending on certain technicalities, basically.
Travis: in: Travis:We're building to a point here and the reason why I'm giving the stats so the amount of firms is up about 2,000 over the last five years.
Travis:That's a huge amount of growth.
Travis: Since: Travis:So fees, you know, and the folks that are focused on giving advice has, has increased every year while the commission stuff has decreased every year.
Travis:Yep, that's a really important thing to think about.
Travis:For those who say, no, I don't mind the commission stuff, there's a reason why these things are changing.
Travis:And if you had an experience with financial advisors in the past, you may have a different experience now because the sea is, the tide is changing.
Travis:58% of firms manage between 100 million and $1 billion.
Travis:That means, like the vast majority.
Travis:And I say vast majority because within registered investment advisor are also mutual fund companies.
Travis:Right.
Travis:And so a lot of times when we're talking about advisor, you're calling somebody like us and saying, can I work with you guys?
Travis:You're not calling the mutual fund company and saying, are you going to do financial planning for me?
Travis:Because they're of course going to say no, because that's not what they do.
Travis:They do Investment Management.
Travis:But 58% of firms manage between 100 million and a billion.
Travis:So you're talking about mostly small businesses that, that you're going to be working with.
Travis:They have 100 or fewer employees.
Travis:There's 93% of them that do.
Travis: million in: Travis:So the point there is more and more people are realizing I need to go and find financial advice over product sales, which is a really good trend.
Travis:95% though, of those firms that are cumulatively, cumulatively managing about $128 trillion.
Travis:95% of them, though, are focused on charging you on what they call AUM assets under management.
Travis:So, so percentage based on your assets.
Travis:That means the focus is not financial planning in most cases.
Travis:It's on assets in most cases.
Travis:So what I wanted to do, though, is give our listeners a way that they could actually parse through this a little bit.
Travis:Because it's like, well, they say they're financial planning.
Travis:I go and talk to them and they say they're going to do all this financial planning stuff.
Travis:And we initially do this song and dance and they give me some advice.
Travis:But three years from now, I never even hear from them.
Travis:What's changed or I don't get actual financial advice.
Travis:Maybe we go golfing, maybe we hang out.
Travis:But the only time I hear from them is when they ask me if I want to buy a new investment or something.
Travis:So how do I get more information?
Travis:Is.
Travis:Is, is.
Travis:And I'll pause there before we get into that in case, because I, I just went like gangbusters.
Travis:I'll let you cut in here real quick.
Steve:Hey guys, Steve Campbell with Digital Suits.
Steve:Want to take one quick moment to make a big ask.
Steve:If you haven't already, Travis and I would love for you to subscribe to this podcast, but if you haven't, also we would love for five star rating and review.
Steve:Your rating and review will let other podcasters know the show is worth their time.
Steve:So let's get right back to the episode and thanks for listening to Ditch the Suits podcast.
Steve:No, and again, being the first point people talk to, you know, I kind of get what's been told to you and what have people been sharing?
Steve:And they'll say, you know, sometimes whether it's legally or not, the person says they're a fiduciary, they work in my best interest.
Steve:And you just know the industry and there's no way that that's possibly feasible for them to do that.
Steve:And so, you know, it's kind of like health food.
Steve:You can slap certain words on a box that make people feel better because it seems like it's healthier for you because it's using the buzzwords.
Steve:And I think what you're finding is that the rise of the smaller RIAs is coming up because there are professionals that want to do a good job and they want to help people solve big life issues.
Steve:But maybe many of them have come from the prior regimes like we have, where the commissions or the sales or why there is such a low number in turnover is.
Steve:You have to think about if your primary job is to go out and sell products, you're trying to find needle and haystacks and convince people that they need the products that only you can sell.
Steve:And so there is a need that's out there today for these individuals that are calling and saying, like Travis, how do I know if we're doing all the things that we should be doing?
Steve:And where do I actually go for advice?
Steve:Because it seems like every time I ask somebody in this industry what I should do, they immediately have a point of sale or a story to tell me.
Steve:And they're not necessarily listening to the fact that my wife has cancer.
Steve:So our situation is different.
Steve:Different from the last person, or our son has autism, or I just lost my job.
Steve:It's always just, hey, this is what we, this is what we position people to buy a mutual fund and annuity and people just don't know.
Steve:So they go, okay, I guess we'll do that.
Steve:And so I think this was a really good helpful context.
Steve:And we'll have information in the show notes that can kind of elaborate on this.
Steve:But I thought you did a nice job of trying to explain something that is very complex being the financial services industry.
Travis:And I want to clean something up too, because there are rules.
Travis:FINRA has a best interest rule.
Travis:There are fiduciary rules.
Travis:So just about every single advisor on the registered representative or the investment advisor representative side has some type of fiduciary obligation to the client.
Travis:But the problem is the devil's in the detail.
Travis:When people hear fiduciary, they think that it's very broad and really what it is, it's very nuanced.
Travis:There's specific things that they're a fiduciary for and not the bulk of this stuff that you would actually like.
Travis:A typical client comes in and says, you're a fiduciary.
Travis:For me, everything you give me has to be in my best interest.
Travis:And you have the duty of care and the duty of loyalty.
Travis:And there's all this stuff that you're supposed to really be able to exhibit that you've taken into account.
Travis:That's not what the best interest and the fiduciary rules from the regulatory standpoint actually requiring those are requiring and scope of work fiduciary responsibility around recommending that somebody leaves one type of account, goes to another, which is basically did you do due diligence and did you compare fees?
Travis:And you know, does the client understand it and does it look like it's reasonably a good move for the client, not the best, not ideal, not taking into all accounts of everything with the client situation.
Travis:So it's a pared down level of fiduciary responsibility and we could probably do a whole episode on that sometime.
Travis:And I think it's probably worth talking about the other issue that you have or.
Travis:Well, so let's just talk about where to get information.
Travis:There's a website called brokercheck.finra.org, you can go on there and you can search for your financial advisor or the company and it will give you their background from a standpoint of what firms have they worked at, are there complaints against it, have they ever had settlements?
Travis:All that Kind of stuff.
Travis:So you could go there, you can get information.
Travis:You can go to advisorinfo sec.gov and you can look up advisors there, but you can also look up their disclosures.
Travis:So a couple disclosures they'll have is form CRS that tells how they charge and what funds they can make.
Travis:If they're an ria, only if they're.
Travis:If they're only able to do fees, they're going to have two pages.
Travis:If they're able to do fees and commission, they're going to have four pages.
Travis:The.
Travis:The other documents that you might find on there, adv1a.
Travis:Now there's, there's.
Travis:Advs are confusing.
Travis:These are public disclosures or brochures sometimes are referred to.
Travis:There's a, there's a 1a and a 2a.
Travis:No, I'm sorry, there's 1a and 1b.
Travis:But the 1a is kind of like.
Travis:It looks like an accounting form almost.
Travis:It's got all the stats in it.
Travis:And the, and the 2A is a nice narrative about the company.
Travis:Look at the 1A, though.
Travis:And if you go all the way down to question 5 or item 5 question, question H, if you provide financial planning services to how many clients do you provide these services during your last fiscal year?
Travis:That is so important to look at because almost always what I see in the advs, which is the disclosure, we do financial planning.
Travis:And then you go to form 80v1A and you look at that question and they're like five last year or zero.
Travis:So they can do it.
Travis:Most of the time they're not doing it or they're not doing it.
Travis:You think I'm hiring them and paying them for financial advice.
Travis:They're saying, you're not paying us for a financial plan.
Travis:You are paying us for investment management or product sales.
Travis:That's what they're saying when they say, well, we've actually delivered zero financial plans last year or five.
Travis:If you have a firm that's, that's managing a half a billion dollars or billion dollars, and they say they do financial planning for all their clients.
Travis:And you look at that and there's like 10 and they have, you know, 600 clients, that means that that's not their specialty.
Travis:That's not really what they're into.
Travis:The other thing is, if you have a firm and there's one or two practitioners in the firm, actual financial advisors or planners as they'll call themselves, or wealth managers, whatever, and they do.
Travis:We.
Travis:And I've had this before with the recruit, he goes, I do Financial planning for all my clients.
Travis:I said, how many clients do you have?
Travis:He goes, I have 550.
Travis:There is no way that one or two people can do 550 financial plans a year.
Travis:And if you say, well, they only had to do them once and then it's maintaining them, I'm going to tell you from somebody who does, we have a whole roster of people do financial plans.
Travis:It is very, very hard to maintain more than 100 clients, client relationships in a year.
Travis:If you're doing deep dive financial planning.
Travis:It's, it's just, it's, it's, it's almost impossible.
Steve:Well, and let me, let me just say why, though.
Steve:Just, just to give people context, right?
Steve:When you're, when you're actually helping people through financial planning and you're presenting to them like, hey, what do we need to solve?
Steve:Pension, Social Security, how to get money to your kids, Roth conversions.
Steve:You do the due diligence, you see what they have, and you begin to project out the options that they have.
Steve:You have a meeting with them and you sit down and you say, Mr.
Steve:And Mrs.
Steve:Here's what the money has the potential to do.
Steve:If we take route A, this is what this will result in.
Steve:This is what the taxes will look like.
Steve:This is how things will look if we go down option B, free up a little bit of cash, we'll do this option.
Steve:People aren't always ready in that moment to make a decision and say, great, let's go.
Steve:They want some time to think about it.
Steve:So sometimes one meeting can spill into two meetings or three meetings.
Steve:Because again, it's people's money, it's their life.
Steve:These are big decisions they're trying to make.
Steve:But I think what most people get is they meet with somebody across a desk who they assume is looking in their, their best interest and says, hey, what should I do for Social Security?
Steve:Someone takes a look at a piece of paper, circle something, hands it back to them.
Steve:There is no possible way that that is actual planning advice or your taxes that are being ignored every year.
Steve:Or as we said, charity is really important to you.
Steve:What kind of conversations are you having with a person to figure out how do I get more to the charities, how do I get more out of my life and into their pocket that's going to help me with taxes.
Steve:And if you're not getting these kind of things, that is financial planning.
Steve:It's somebody mapping out what you have the possibility to do, not just simply meeting with you.
Steve:One, two, maybe if you're lucky, three times a year, in just looking at your IRA and saying, hey, we're doing pretty well.
Steve:How's your kids?
Steve:Right.
Steve:And I think that's a lot of people's experience.
Steve:So using these forms, these advs, many times when you go to industry websites, if you go to the bottom where the footer is, you'll have buttons where you'll find the adv, you'll find the form CRS go on there.
Steve:And if you're comparing two, three, four different financial advisors, financial firms, planners, put those things side by side and read the language at the same time.
Steve:And that will reveal what is not being said to you when you're meeting with somebody face to face.
Travis:Yeah, and I just want to, I want to leave it like this.
Travis:If I were out there looking for an advisor, knowing what I know, I would be looking for an iar.
Travis:So an investment advisor representative and somebody who only does that, they don't have an insurance license.
Travis:They're not.
Travis:Or they, you can have insurance license for advising but not selling insurance.
Travis:So they do not sell life insurance.
Travis:And they, they do not, they're, they are not a stockbroker.
Travis:They're also not a registered representative.
Travis:And the reason why is because a.
Travis:A good fee only advisor because that's the only way you can be fee only.
Travis:So people who are, you hear fee based all the time.
Travis:Fee based means I can still do commissions if I want to.
Travis:So it's it.
Travis:That's a junk term too.
Travis:You're either fee only or you're not fee only.
Travis:So you have a fee only advisor if they are, if they are a good advisor and if you have a scope of work that, that locks them into being a fiduciary for all advice they give you, not just investment advice, then they will refer you to an insurance agent when you need to buy insurance.
Travis:And in fact they will be an advocate for you in dealing with the insurance agent and they will refer you to a broker if you need to buy an annuity or something like that.
Travis:And they will be an advocate kit for you when you need to do that.
Travis:But you'll be able to trust it because they're not getting a kickback or making any additional money to send you there.
Travis:So I, to me that's just so important.
Travis:And the last piece I'll leave it with because we see this all the time and it's heartbreaking.
Travis:I understand that people want to be friends.
Travis:I.
Travis:This is something for me as a planner too.
Travis:I have had wonderful client relationships.
Travis:I have clients that are like friends and I Have clients that are like family to me or have been over the years.
Travis:It is really hard for a financial advisor to be your friend, right?
Travis:Yes.
Travis:You're going to tell us all kinds of things.
Travis:We're going to know more about you probably than your kids do or your, your, your, you know, parents or, or whatever.
Travis:But I need to be objective and I need to be not worrying about our friendship.
Travis:If your relationship with your financial advisor is about the friendship, you probably.
Travis:Or about religion or something like that.
Travis:If it's something other than the, the fiduciary engagement for financial advice, you know, or financial planning and kind of the things that we have talked about, you really need to question that because what happens most of the time is you find out way after the fact that it was wonderful and you had a great friendship, but it cost you hundreds or millions of dollars in fees or lost earnings because of the fees over the time.
Travis:And that's a heartbreaking experience because then when you figure out, okay, I can't pay this person what I'm paying them anymore, all of a sudden that person doesn't want to be your friend anymore.
Travis:And you figure out, okay, wait a sec.
Travis:You were my friend as long as I was paying you 50 grand a year.
Travis:Now you're not my friend.
Travis:Think about what that means.
Travis:That's.
Travis:I'm just going to leave you with that.
Travis:I want you to think about that.
Travis:I'm not saying you can't be friends or family, but it creates a conflict that is extremely hard to manage and you're going to pay for it.
Steve:Yeah.
Steve:And, and as we said at the beginning, you might have big life questions about should you hire somebody, should you change or maybe should you get back into it because you have some questions as you, I think, did a really nice job.
Steve:You're going to want to look for a fee only financial planner and, and ask, ask tons of questions, get things in writing, make sure everything's transparent because it is your money, it's your life.
Steve:And you got to make sure you're getting the answers to the things you're hiring somebody for.
Steve:And so if you're not getting these things, it's just maybe time to ask lots of questions.
Steve:And, you know, we want to appreciate you stopping by.
Steve:Ditch the suits.
Steve:This is going to be exciting new season 10, as we had kind of alluded to.
Steve:At the end of the year, we got some new things we're going to bring to you this year as a listener.
Steve:And so if you want more information and you like this type of content.
Steve:We always encourage you to head over to ditchthesuits.com that's the main website for our show.
Steve:You can check out other episodes, be alerted what's coming on, but you can also check out a website, nqr media.com we have other podcasts that we're a part of, Travis and myself.
Steve:We love bringing people authentic truth that can inspire them, whether it's their money, whether it's their life, whether it's just encouragement in the season of life that you're in.
Steve:So a couple of resources, ditch the suits.com and nqr media.com and we got a couple more episodes in this series to talk about our experiences to help empower you get the most from your money in life.
Steve:But as always, Travis and I want to say thanks for stopping by.
Steve:Ditch the Suits.
