← Afford Anything | Get Smarter With Money
Afford Anything | Get Smarter With Money
What Most Families Get Wrong About Passing Down Wealth, with Andrea Baumann Lustig
01:29:06
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- [00:00]
A
What financial blind spots do you have? What are your unknown unknowns, especially when it comes to leaving a legacy? We're going to unpack that question with a guest who has more than 30 years of experience in wealth management and who has seen a lot of things. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. This show covers five financial psychology, increasing your income, investing, real estate, and entrepreneurship acronym Double Eye Fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia and today's guest, Andrea Bowman Lustig is a Managing Partner at Fisher Stralam Advisors. She's been in wealth management for more than 30 years. She is a 6th generation wealth advisor. Her family legacy in the world of wealth advising and finance dates back to 1810. She has repeatedly been named to the Forbes list of top women wealth advisors. She holds a BA and MPA from Princeton and an MBA from Yale. She's also the author of a book called Legacy on the Line and she's here to talk to us about the risks that might affect your legacy. For example, how do you know what standard your financial advisor is actually being held to? And if you have a team, how do you know if your accountant, your estate planning attorney, your financial advisor? How do you know if they are coordinating with each other well? And what is a revocable trust and should you have one? And if you're a small business owner, what should you be thinking about, especially if your business isn't obviously sellable? And what happens if you're incapacitated? Let's say you end up in a prolonged coma or you have a stroke or you develop dementia? How do you handle your finances? We're going to discuss all of that and more right now.
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B
Hi Andy.
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C
Hi Paula.
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B
Thank you for being here.
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C
Thank you for having me.
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B
Andy, you've worked with many clients over the years and you have noticed blind spots when it comes to legacy planning. Tell me about some of those blind spots that you've observed.
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C
I've encountered deeply held convictions that clients have had and it's been frustrating because on one hand, I can see those deeply held convictions may stand in the way of building the legacy they envision, but they're so deeply held that it's almost like religion or politics. I can't take the argument head on in a conversation because it's just too sensitive. So I wanted to find a way to enable people to think about what the costs might be of holding onto those convictions and why they might entertain a different way of thinking. The 10 just kept cropping up over and over again. And there were three or four that had to do with working with an advisor and Faith and an advisor. There were another three or four that had to do with planning and convictions about whether planning is important or not important. There were another few that had to do with transferring wealth and deeply held beliefs about what is right to do and what isn't right to do. So it's a deeply emotional subject when you start to talk about money with people. And unlike going to a doctor where you would never say, oh, I know my cholesterol is fine, you don't need to check it in finance people or in the money management world, people are very willing to say things that are the equivalent.
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B
All right, so let's talk through these blind spots, and let's start with that first grouping of blind. So it's. It's interesting that the blind spots kind of fall under these three distinct groupings. Right. There are the blind spots about who you're getting advice from.
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C
Yes.
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B
There are the blind spots about who you're leaving your money to.
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C
Yes.
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B
And then the blind spots.
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C
Planning how you plan.
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B
Yeah. Around the how. Yeah. So like two around the who. Two kind of broad categories around the who and then one about the how, beginning with trusting the wrong advisors, or maybe not fully understanding the relationship that you have with an advisor. Because I know there are many people who are listening to this who are wondering, how do I choose an advisor? Some people who are listening to this are thinking, I'm worried that my mom or dad is getting advice from the wrong person.
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C
Absolutely.
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B
I've actually gotten questions from a lot of listeners who say, hi, my name is so and so. I'm 35 years old. I'm worried about mom and dad, and I'm specifically, I'm worried that their advisor is ripping them off. Let's talk about that blind spot with an advisor.
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C
First of all, the word financial advisor is used very, very loosely. And people who aren't professionals tend to use it much more broadly than it is actually permitted to be used. So let's talk about the fact that there are essentially three categories of advisors using the word loosely. The first are registered representatives. Rrs. Those are what you've known as a stockbroker. They are permitted to give advice on buying and selling a specific security. The second group are investment advisor representatives. And there's so much jargon and so many initials that are always the same initials that it's really hard to keep them apart. But let's just contrast this as the pure Financial advisor. And then, believe it or not, there's a third category, which is people who are dually registered, both as registered reps and as investment advisors. And in that third category, the roles and responsibilities don't follow the person, they follow the account. So let's go back and take each one in turn. Okay, A registered rep. A registered rep used to be held to what was called the suitability standard. That has now evolved to what's known as the best interest standard. As long as what they are offering up to you can be determined to be in your best interest, they do not have to disclose whether they are additionally compensated for having brought that up to you. For example, if a brokerage firm has extra shares of XYZ stock in inventory, they can decide to increase the commission payout to the registered rep for selling that security to the customer. So all of a sudden, now calls are going to go from the stockbroker to their clients talking about that particular stock and trying to get you to purchase that stock. The second group, the Pure Financial advisor, is held to a far different standard. They're held to the fiduciary standard, which means that they have to exhibit a duty of care and loyalty to you. They actually have to put your interests ahead of their own.
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B
And that's totally different than simply doing something that's in your best interest.
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C
Exactly.
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B
Standard versus best interest. Huge difference.
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C
It is a huge difference. But if you were told by your financial advisor, using the term loosely, I always have to act in your best interest, it would never occur to you that acting in your best interest could also be acting in their best interest and could actually be different from putting their interest ahead of yours. It's really tricky. And what makes it even worse or even trickier is that many financial advisors are dually registered. So they can choose, or they are required to act either as a fiduciary or in your best interest, depending upon which account they are talking about with you. I'll give you an example. Broker calls you up and says, you know, I was thinking, Paula, perhaps we should own XYZ stock in your account. What do you think? And you, Paula, like, well, Jim, you're the investment advisor. If you think it's a good idea, then let's do it. You've just given him the order to buy that stock in your account, in which he acts as a registered rep, as a stockbroker, as a stockbroker. And you don't know that his commission payout was increased because they want to move that inventory off. And it may not be just for that reason. It may be that he genuinely has done research on the stock and thinks it's a great opportunity for you, but it's hard to figure that out. If he calls and says, you know, Paula, I think you should come in and we should take a look at your overall portfolio and understand where we are today, I have some suggestions. You also now are going to embark on a conversation where if you know he is only able to act in a fiduciary capacity, you know he's going to be putting your interest ahead of his own. If, on the other hand, he's dually registered and now you come in and you have that conversation, you actually don't know which account he's talking about unless you care to ask. And oh, my goodness, it's so awkward to ask your advisor. Wait a second, I. Are you recommending this for my brokerage account or for my investment advisory account where you have fiduciary responsibility? So nobody goes to that level when they're duly registered? First of all, people don't even understand that the financial advisor they're working with may be dually registered. And you may have some accounts that fall under brokerage and some that fall under fiduciary, but if you do, you kind of just assume that the advisor you're working with is somebody that you trust and is always going to, again, act in your best interest.
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B
Okay, so I've got some questions about this. When this dually registered situation, for example, let's say I've got a taxable brokerage account at Schwab, and then I've also got assets under management with Jim. Does that mean that the separation lies along those lines?
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C
No. You would have, let's say, all of your accounts with Jim.
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B
Okay.
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C
And under all of those accounts you have with Jim, some are in the investment advisory program and some are in the brokerage program. So they're all under Jim.
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They're all under Jim.
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C
You're paying an investment advisory fee on the ones that are in the investment advisory program, and you're paying brokerage commissions.
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A
Wow.
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On the ones that are in the registered rep program. And by the way, you might also be paying commissions on the ones that are in the investment advisory program as well.
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B
Wow.
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C
It's very complicated. That's the point, really. I can so understand the frustration of the average person on the Street. It's complicated. Regulators are trying their best to simplify it, make it more straightforward, but it's complicated.
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B
Is there any relationship between the tax treatment of an account so for example, a 401k or a Roth IRA, and whether that account would be under one umbrella versus the other in terms of fiduciary or not fiduciary.
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C
No, not really. Although a 401k is still at your employer's. At your. At your employer's.
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B
So it would have to be like
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C
a rollover ira, right?
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B
Yeah, rollover ira.
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C
But a rollover ira, you could have a brokerage relationship for that rollover ira, or you could have an investment advisory relationship for that rollover. It depends which program that account is in. Look, there are reasons why you might want to have a brokerage account. You may be the type of person that wants some play money, or money that you can act impulsively on, or money that you can act on outside of your investment advisory program because a friend has a great idea and you want to invest in it. I'm not saying it's a bad thing to have a brokerage account. What I'm really saying is that most people never Change Investment Advisors. 70% of Americans have only worked with one advisor, but they don't necessarily understand how that advisor is compensated and what standards the advisor is held to. So when you're talking about something that's as important as your legacy and, and it's on the line, you owe it to yourself to ask these questions. And if you really don't feel comfortable asking these questions, that should begin to tell you something about the relationship you have with that advisor.
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B
Let's say that you're interviewing an advisor. You're trying to choose somebody to work with. Interview's going great. You get along well. You have a sense that you want to work with this person. But then you ask, are you duly registered? And they say yes. Is that a deal breaker?
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C
Absolutely not. First of all, 45% of all financial advisors are dually registered. So it's quite likely that the person will be dually registered. And there are good reasons to be dually registered. There's sometimes great opportunities that come up that don't really fit inside the investment advisory program. All you really care about is that you understand when you're transacting in the brokerage account and when you're transacting inside the investment advisory program. And if you understand that, and if your advisor is always going to make that clear, you should be fine. You can make informed decisions then.
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B
So the challenge with the system is lack of transparency.
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C
Exactly. And the discomfort that people have about asking about fees, because once you start asking about fees, it feels more and more complicated. And Layer upon layer. And I think most people at the end just throw their hands up and say, either I trust this person or I don't trust this person. And if I trust this person, I've got to just trust them to do the right thing. My point is, trust is the single most important component of a relationship with an advisor. And. But your legacy is too important not to truly understand how the fees work.
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B
Right. You know, so far, we've been talking about this in the context of fees on trades or fees on assets, but how does this relate to, say, an advisor pushing you into some annuity that you don't need or some insurance that you don't need?
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C
That is such a great question, because really, what's most important in this relationship is if you're truly interested on building or transferring a legacy is wealth planning. What you're really trying to suss out when you interview an advisor, if you're concerned about legacy building or transferring, is whether they are dedicated to wealth planning and skilled at wealth planning. Because if they are dedicated to wealth planning, it takes time away from those brokerage accounts. It's a different kind of person who is really playing the long game with a client, building a relationship that they believe is going to last over time and focusing on spending time integrating planning with that client, as opposed to somebody who's constantly thinking of new ideas and thinking of ways to advance the ball down the field, which is important also. But it's really planning, and that's the fiduciary side. That's the side you get paid the fee for that ends up being so much more important for your legacy.
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B
Right. I can imagine a person saying, all right, it seems like putting all my eggs in one basket to only talk to one person, especially when it comes to wealth planning, because there are so many elements of this. There's the investment management piece, there's the. There are the unknown unknowns. There's making sure that I have adequate liability protection, that myself and my heirs would be protected from lawsuits. There's tax planning. There's so many unknown unknowns. Why don't I get a team of advisors?
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C
Oh, my gosh. That's the right answer, Paula. That is the answer. My first blind spot is I'm definitely working with the right advisor. And that's where I encourage you to really think about the standards they're held to and how they're compensated and what their time spent is on. The second one is, I have all the advisors I need. People think, look, I've done a good job. I have an estate planning attorney, I have an insurance agent, I have my accountant, and I have my investment advisor. And to your point, it's only if and when there's a quarterback bringing them all together to look at your wealth plan that, let's say the investment advisor, who is a true wealth planner has put together, that you are going to be able to understand the opportunities that lie out there to optimize your legacy and the risks that you may have missed. The comfort in having multiple investment advisors, which was what I thought you were also asking about.
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B
Right.
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C
A lot of people feel, well, I don't want to put all my eggs in one basket. It's really smart to work with multiple advisors. It can be very smart to work with multiple investment advisors. But since 90% of the return that you're entitled to is driven by your overall asset allocation, it's really important that one central quarterback is not only organizing the insurance agent, the tax accountant, the estate planning attorney into an overall plan that makes sense for you, but it is critical that the other investment advisors you're using are all rolling up to an overall asset allocation plan. I've encountered a lot of women who are very focused on risk management. And so they think, oh, I would never put all my eggs in one basket. But what they fail to see, and men fail to see this, also they take comfort in. I'd like to have different advice on the markets. It sounds so understandable. Every blind spot is completely and totally understandable. I don't want to risk putting all my eggs in one basket. What if this advisor is, quote, wrong? I enjoy hearing about markets and different perspectives from different advisors. Oh, I know this advisor has a specialty in this type of investment product or got me into this. Great, I need to maintain them. All of those objections are eminently handleable, but if they are allowed to run free, they can actually undermine your plan. What do I mean by that? If you've worked really, really hard on identifying the proper asset allocation to have the highest probability of meeting all of your spending needs over your life expectancy, and now you say, okay, I'm going to hand this chunk of money over to another advisor, fine. I want to hear what they have to say, fine. The question you have is, am I going to tell them that they need to manage according to my overall target asset allocation? Am I going to tell them, no, you take this money, you do whatever you want with it. Or the third possibility is I'm just handing a little bit of one asset class to this investment advisor and I'll get the feed in and so I'll know what that is inside my entire overall asset allocation. If you hand money to another advisor and you say, do what you want with it, don't manage to my overall asset allocation, you've just undermined your plan because you're not adhering to your overall asset allocation. So you may say it's fun to listen to what they have to say, but they're doing whatever they want and I don't have my target asset allocation. If you say, well, okay, I'm going to hand some money to another advisor and I'm going to say to them, adhere to my overall asset allocation. But you can choose whatever investments you want. That sounds really good too. Right? But what if they're buying the exact same things you're buying? You can't necessarily know, unless it's monitored that you have now increased your concentration risk.
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B
Right?
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They're duplicating what you have in your portfolio. Now, there are ways to handle all these things. They're just important to look at. What happens if they're selling a security and your other manager's buying the security you've just eradicated? Let's say they did it at a loss. They think they're realizing a loss, but the other person's just purchased it at a gain or purchased it. They've now eliminated the wash sale rule, which allows you to take the loss. And so it's completely counterproductive. So the illusion of the benefits of not putting all your eggs in one basket from an investment standpoint can be just an illusion. It can also be handled well and you have to have an advisor who's quarterbacking the situation, understands your desire to keep money at different places, is able to receive a feed of those assets, and has a good enough relationship to communicate with the other investment advisor so that you manage together what's going on and you don't lose the benefits of diversification.
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B
Those are great examples that show how diversification can turn into de worsification.
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C
That's a great way of putting it.
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B
The eggs in one basket thing can be an illusion if you are actually accidentally concentrating risk or accidentally tripping yourself up with the wash sale rule, or accidentally, you just have worse asset location.
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C
You could have worse asset location. You don't have your overall asset location.
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B
With regard to all of that, then could the answer just be, all right, well, I just won't have any assets under management. I'll work with advisors purely on an hourly basis and not go with the assets under management model.
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C
When you Start to talk about an hourly basis. You're talking really about hiring a financial planner who's just going to do a financial plan for you and help you understand what your budget should be, what you can afford to spend now, how much you have to save to meet your retirement goals over time. That's really where the hourly model comes into play. The spectrum of advice goes all the way from one end, which is, I can just do this myself. I'm going to trade online and I know enough about asset allocation and I'm just going to build my own portfolio. I don't need any advice. I just need somebody to execute the transactions. I'm going to do that online. If you move a little bit over on the spectrum, you may encounter the stockbroker. I need some advice. I want to hear what they have to say. If you move a little bit further to the right, you may have the dually registered advisor who's going to straddle both the transaction world and the advisory world. And then all the way to the right, you're going to have a true financial advisor who puts your interests ahead of their own and is in it to provide holistic investment management and wealth management advice. I think what's really interesting today is that increasingly there's less and less differentiation among investment products as the industry sees the greatest wealth transfer in history unfold. We're going to have $124 trillion of wealth transfer from one set of hands to another between now and 2048. What is happening is that the industry has already begun to pivot and to position themselves as wealth managers. Every ad you watch on television or hear on the radio positions financial firms as wealth advisory firms. Now you really have to try to understand how far along that spectrum you want to move. Are you moving all the way to the right where you're going to have true holistic wealth management where someone is almost. Even if they're a dual registered advisor, they truly focus on wealth management and constantly bring you back in once a year to go through your investment, your wealth management plan, to make sure that that is on track and that that is the body and the weight of the conversations that you're having. That's really how you build a legacy over time. It's that holistic wealth manager, that's the person who's going to gather all of your other advisors together around the room, around a table, and say, I want to show you so and so's wealth management plan. Because what I am able to show you by taking you through the plan Estate planning attorney, insurance agent, tax accountant. While we're all sitting around the same table, is what accounts are going to grow over time and what accounts are going to be depleted and to what extent they're going to grow. Is there going to be an estate tax problem for this person to. That requires you, the estate planning attorney, to do much more than just make sure they have a will and a revocable trust. If I can show you. Most estate planning attorneys focus on making sure you're covered right now. Do you have the right will, powers of attorney, healthcare, proxies, everything in place. And the smart ones are talking about making sure you have a revocable trust so that if, God forbid, something happens to you and you're incapacitated, you're covered. But when you offer them the opportunity to see how somebody's wealth transforms and evolves over time, what accounts grow, what accounts are depleted, what the goals are for those assets. Are they to be passed to children? Are they to be passed to charity? You've now unleashed the estate planning attorney to help you to use their best skills. It is so rewarding. When I have an estate planning attorney sitting around that same table who now says, oh my gosh, I never saw this before. I was never able to see how I can help this person. But now there are two or three estate planning techniques that come into play. I may say I've been thinking that a Roth IRA conversion really makes sense for this person. What do you think, estate planning attorney? What do you think, tax accountant? Because I have them all around the table, I can show you that this person can afford to pay the taxes now or afford to pay them little by little over time. Now we're going to convert this Roth ira. It's going to grow tax free for the rest of this person's lifetime and be left to their kids tax free for 10 years. We've just created an incredible legacy for the kids that had we not been all around the same table, we couldn't have agreed upon as readily or as quickly. And this person, the client, feels so cared for and so empowered and so thrilled that, okay, now this particular account, this money I know I can set aside because I know I can meet all my retirement spending needs with the other accounts, right? And it's just so much fun to be able to be so helpful to a client. It's like a giant jigsaw puzzle and you need multiple people. Like just when you sit down and do a jigsaw puzzle and you have to find the edges and the corners of the puzzle first. When you get all of your team together, that's when you can do that. And it's just so satisfying to then put the pieces in and say, oh, here's an opportunity. Oh, here's a risk we didn't see.
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B
So that holistic wealth manager, it truly is that quarterback.
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C
Yes, exactly. And in my opinion, if you really care about building your legacy, that's the kind of person you want to have working for you.
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B
Do people still sit around tables or is it all on zoom now?
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C
They do both, honestly. I mean, I'm about to have a great conversation where there'll be players in person and players that can't make it, and so they'll have to be on zoom. But it works either way. It's really up to the quarterback to share with each player ahead of time what the wealth management plan looks like so that they can bring their best expertise from their point of view to bear for the client. Because otherwise these experts are all more or less siloed. They can only look at the problem from their particular professional vantage point. And you want that, you want them to bring their expertise to the table. But when you get them all together by zoom or in person, new opportunities are revealed and sometimes risks are revealed. Oh my goodness. This person is going to have an estate tax bill that we never realized they were going to have. There are things we can do about that today so that we can take assets out of their name today and they can grow outside their estate and and truly benefit their heirs or whatever, beneficiaries, charities or whatever that they want to benefit over time. That's what holistic wealth management really is.
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A
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B
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- [35:22]
C
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B
Yeah, but okay, what if you're already currently in your 70s and you've got a million, 1.5 million, something like that?
- [36:12]
C
Generally, if you're already in your 70s and you have a million and a half in assets, including homes and everything else, you're not going to have an estate tax problem because the estate tax limitation is $15 million per person. It's really the people in their 30s, 40s who may be able to get there with much lower asset levels. When you are in your 70s and you have a million or a million and a half dollars, it's still critically important to meet with your to have your wealth manager marshal all the resources together. Nonetheless, you may not have an estate tax problem, but you still will face risks and opportunities that can be improved by getting everyone around the table. For example, a revocable trust. We used to not talk about revocable trusts till people were really old. Now we're talking about them not just for people in their 70s, but for people a lot younger. Most clients think, oh, I don't need a revocable trust. I don't even know what that is. I have a power of attorney. So if something happens to me, if I go on a trip and I fall and I hit my head, my wife has power of attorney. Yes, that's true while you're alive. But powers of attorney, even if they're durable, end upon death. So if all of your assets are in your own name and something happens to you, your estate has to go through probate until your heirs can access those funds. Well, what if your wife has bills that need to be paid right away. By working with a good estate planning attorney, a good investment advisor, you will have known both to perhaps keep some money in joint name so that that joint with rights of survivorship so that account is immediately accessible by your wife or by the husband or by whoever needs to pay those bills for you. But more importantly, if you have a revocable trust, that means if you become incapacitated, your successor trustee can act on your behalf. I think this is such an important problem as dementia becomes increasingly an issue for people in our society. Often you can't change things once you have dementia. So it's really important to put a revocable trust in place. A revocable trust allows you to be the trustee, you own all of your accounts, they're in your name. It simply means that you have a successor trustee. Should you become incapacitated, the successor trustee can act on the accounts that are in your name on your behalf. In your behalf. The reason that you have to not just have your estate planning attorney tell you this is an important thing to do, but you need to have your investment advisor around the table at the same time is because if you haven't retitled your investment accounts or the deed on your house into the revocable trust, it's not covered by the trust. There's so many times where an estate planning attorney has created a revocable trust for somebody and they've never funded the trust because they've never changed the names of the accounts they the deed on their house. So nothing is in the trust. And a revocable trust can protect you against what I say are the three P's. First, the first issue I talked about before, it means that everything in your revocable trust does not go through probate. It's immediately accessible by the successor trustee to spend or to use per the terms of your trust. Second, it protects you if you become incapacitated, you're still alive, your successor trustee can step in and take action on those accounts. And finally, a revocable trust is private. Did you know, Paula, that every will is a public document? Every will in this country, I can go and look up anyone's will and see who they've left, how much to. When I say that to people, they're usually quite uncomfortable with that. And so anything that is in a revocable trust is kept private. Now if you have a revocable trust, you will have what's known as a pour over will as well. And that says oops, if by any chance there's something I forgot to retitle into my revocable trust. Please put it into my revocable trust. That part will be public. But everything that you've retitled into your revocable trust is private. So you're protected against incapacity, you avoid probate, and you keep your life private by having a revocable trust. But if you don't fund it and you don't have everybody around the table, it's not actionable.
- [41:13]
B
So then what are the disadvantages?
- [41:15]
C
There's almost no disadvantage to having a revocable trust other than it's going to cost you some money to put it in place. And there'll be some paperwork retitling the assets.
- [41:25]
B
Is there anyone for whom it's not a good idea? Or any case for which it's not a good idea?
- [41:31]
C
Every asset transferred on death. It's possible to create a situation that is almost as good, but you will still face the privacy issue.
- [41:43]
B
And the incapacitation issue.
- [41:45]
C
And the incapacitation issue.
- [41:47]
B
I mean, even for people who aren't worried about privacy, the incapacitation issue, to me it seems almost like the bigger one. Given the risks associated with dementia, cognitive decline or prolonged coma.
- [41:58]
C
You're absolutely right. And people forget about that gap in time between healthy and death. You could be incapacitated. And it seems to me through the years that most people just perhaps they don't want to face it. I don't want to face it they possibility either. But that time period is often overlooked.
- [42:19]
B
Let's return back to some of the blind spots we've covered at this point. The deeply held convictions, otherwise known as blind spots, that people often have around who they're working with. They're either not informed about how their advisors are getting paid, or they have either too few advisors or too many advisors. But too many in the wrong way.
- [42:44]
C
Exactly.
- [42:45]
B
Or they have siloed advisors who are not working together. There's no centralized, there's no quarterback. The final risk is that they're just trying to do too much by themselves.
- [42:55]
C
Exactly. I encounter a lot of people who are very smart, very analytical, really fee conscious. And so they say, you know what? I'm really good with spreadsheets and I'm very disciplined. And I'm just going to sit down every month or every quarter, integrate all of my investments, make sure that they're adhering to my asset allocation, call my brokers or act online to rebalance to my target asset allocation. And I'm going to be so disciplined about that that even if the Market's up, I'm not going to let it go. I'm going to actually sell what's high and rebalance into what's low. I'm going to have that self discipline. I don't need somebody to do it for me. I'm also going to constantly, at least once a year, meet with my estate planning attorney and show them how my accounts are evolving and make sure that the advice is up to date. I just think this is the right way for me to spend my assets rather than spending it on advice. In law, people say a client who has themselves as a lawyer essentially gets what they pay for or has a fool for a client. It's really discounting the value of advice. There is important advice out there in the wealth management world and I distinguish wealth management from investment management. Wealth management to me means integrating all, all of those advisors, acting as the quarterback, not replacing them. There's absolutely no possibility that I know as much as the estate planning attorney or the tax accountant or the insurance agent, but I know enough to be able to bring them together and let them see the opportunities and risks for my client. So if you really think you can act as your own advisor, it comes down and maybe you can. For now it comes down to whether that is the best use of your time, whether you're going to be able to maintain that as you get older. Will you know when it's time to start bringing someone else into the picture, particularly your spouse, let alone another advisor? Or will all of your planning and attention to detail actually fly out the window because you become incapacitated or you die? You know, 70% of men die married and 70% of women die single and 70% of women change financial advisors once their husbands die. So all the planning you may have done either on your own or with an advisor can easily fly out the window when the new advisor takes over and doesn't really understand what was in your head all along. The families who have been the most effective at building and transferring a legacy have been those who have built the deepest, most mutually respectful relationships with their advisors. The advisor is there understanding what's important to you, what are your long term goals? What are the relationships in your family? What do you fear might happen and understands why you've put certain provisions in place either in your will or revocable trust, or in how you've structured the accounts or, or in how you've set up your beneficiaries. Some people ask me, well, isn't my executor there for that? Your executor cannot explain everything to your children. And actually this leads to another blind spot that I found both so obstructive when it isn't handled well and so liberating when it is handled well. And that's the blind spot of I'm not going to tell my kids anything about what's in my will, they'll read about it after I die. And to the extent that you are able, I totally understand how reasonable that blind spot is. You know, people are afraid they might SAP their kid's ambition. If the kid learns that they're going to inherit money, they may fear that they'll make a promise that they can't live up to. They may fear they just want to change their mind. They may fear it's just none of their kids business how much money they have or what the kids are going to get or how they may change their mind about as they watch their kids evolve or as they decide they have new hobbies or things they want to explore as they retire. So I understand why it's so difficult to think about sharing your intentions with your children. But there are ways of handling that that enable you to work with your advisor and share what's appropriate to share that can actually free your kids up so that when you pass, they're free to mourn your death. Not worried about fighting over who's going to get what and what might be in your will and what am I going to find out? And is mom going to be okay or is dad going to be okay? And. And so when you think about doing it on your own, if you think long and hard about building this relationship over time you may begin to see how important it is to start early and to grow with your advisor.
- [48:46]
B
What would you do then? If you've been working with an advisor for a while and that advisor decides to stop being an advisor.
- [48:52]
C
Such a good question. And it's really important to make sure that the advisor has a good team, that there's somebody behind that advisor who is young enough that you like that is in on every meeting and that grows with you. Whenever we have a wealth management, a planning meeting, we always have multiple team members in that meeting for exactly this reason. The advisor might, God forbid, get hurt, get hit by a bus. It's really important that there's a team working for you that you like and that you have confidence in.
- [49:25]
B
What if the advisory firm gets acquired?
- [49:27]
C
That shouldn't be a problem. You can move with your advisor and that should be easy. Your relationship should be able to continue and by the way, if you have to switch, you have to switch. But if you've had a great relationship with this advisor, you know what a great relationship is. You also have set things up well. You're well informed. That means it'll be easier for you to find the next great advisor. You'll know what you're looking for.
- [49:53]
B
What are some of the top interview questions that a person should ask?
- [49:56]
C
I think you have to start with the question of what kind of an advisor are you? How are you registered? Are you duly registered? If you're duly registered, what's the balance of time that you spend on Wealth Planning vs Investment Management? How often are you going to meet with me on my wealth management plan? What I've seen happen too many times is that an investment advisor will do a wealth management plan because that is so important to do now in today's environment. They will use it to arrive at a target asset allocation and then they will invest the assets according to that target asset allocation and the plan is never to be seen of seen from again.
- [50:42]
B
Hmm.
- [50:43]
C
You can't imagine how clients lives evolve over the course of even one year, even six months. You may have a child, you may have a grandchild, you may get a new job. You may decide to retire. The market may seem terrible and you may feel uneasy. There are so many reasons to stay focused on the plan that you really want to make sure this is something you're reviewing at least once a year with your advisor.
- [51:21]
A
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- [55:12]
B
As you're working with this advisor, as you're evaluating how good of a job
- [55:18]
A
they're doing over time, what does that evaluation come from?
- [55:21]
B
Is it purely a measure of returns?
- [55:24]
C
Oh, that's such a good question, Paula. If there would be one message I could leave people with, aside from the importance of wealth management in addition to investment management, it would be to focus on performance relative to the target in your investment plan, not relative to the benchmarks. Everyone is used to seeing a performance report at the end of the year or at the end of the quarter. They'll meet with their investment advisor and the investment advisor will legitimately show them how the investments are doing compared to the benchmarks. And that focuses the client's attention on should we abandon this investment manager? Should we stay with this investment manager? Whereas the really important question is how is that blended performance doing relative to the target? I need to make my wealth management plan successful or have the highest probability of being successful. Let's say you meet with your investment advisor and product A is underperforming the S&P 500 right now. Should you abandon that it's underperforming? What if it's underperformed for a year or two? I don't like this. You're an investment advisor. You should be able to pick products that outperform their benchmark. Well, what if this investment advisor is actually sticking to their discipline that's enabled them to outperform over the long run? What if this investment, the underlying investment manager, is uncomfortable with what's happening inside the S&P 500? Perhaps there's too much of a concentration in high technology stocks and they're worried that that could evaporate. Perhaps there's too much focus on oil stocks and that could evaporate. Perhaps there's just too much focus on AI, too much concentration. And so the S&P 500 is risky in and of itself. So do you really want to abandon this investment management product because it's underperformed?
- [57:46]
B
So an example of a product could be a small cap index.
- [57:50]
C
If it's underperformed. If it's underperformed, a small cap product has underperformed a small cap index. Right. So you want to make sure each investment is measured against the index that's appropriate for that investment. So small cap investments should be measured against the small cap index. And so it is the wealth manager's job as investment advisor to constantly research and monitor the underlying investment managers who are buying stocks and bonds inside the Mutual funds, let's say you own in your account, right? There are three levels. Let me take this apart. Let's start with your wealth manager has helped you develop a wealth plan. You have an asset allocation. You're going to have 60% in stocks, and inside that 60%, you, you're going to have 70% in the United States and 30% in the diversified foreign world.
- [58:43]
B
Right?
- [58:44]
C
Wealth manager. That wealth manager is also going to act as your investment advisor. And their team has a research department that's going to look for products not necessarily managed by them, but possibly managed by them. A whole nother fee issue in there to bring that asset allocation to life. So now we're looking for 42% of the portfolio to put in US equities, right? We may own some S&P 500, we may own some small cap, we may own value, we may own growth. But your investment advisor is doing the research. They have a deep research team doing the research on these managers. Now they decide to hire a small cap manager. And the small cap manager is the one who's actually making the decision about what small cap stocks to buy in inside their mutual fund. So you have these three layers going on. And when you meet with the investment advisor wealth manager to say, is this investment manager doing a good job picking the small cap stocks inside their small cap fund? That's what I'm talking about. How long do you give somebody to determine that they should be ejected from the portfolio or receive more assets in the portfolio?
- [60:00]
B
Right. But what if you wanted to build a portfolio that was entirely comprised of passively managed index funds? And of course, you wanted asset allocation around a variety of asset classes, but you want the composition of all of that to be passively managed indexes.
- [60:13]
C
That is certainly an excellent alternative. It's going to keep your investment management fees low inside the funds because index funds are typically low. And by the way, it's a great idea because 90% of active managers don't outperform their benchmarks.
- [60:32]
B
Right?
- [60:32]
C
So as now, there's still a good reason to go with active management, which I'll come back to in a minute for some of your assets. But let's assume what you want to do is be completely passive and invest in these index funds, Then there's no worry about underperforming the benchmarks. Every time you meet with your investment advisor, your accounts are going to match the benchmarks. So that's a great opportunity to say, okay, I meet my benchmarks. And, and now the question is, am I still achieving the Blended benchmark return. That was in my wealth management plan. And you should be on target, more or less. So that's an excellent opportunity. When you talk about trying to go for that small slice of the pie that outperforms you're trying to find that needle. Needle in the haystack. John Bogle said, why look for a needle in the haystack? Just buy the haystack.
- [61:29]
B
Right, exactly. Yeah. I think most of the people who are listening to this are Bogleheads.
- [61:33]
C
So that's really an understanding. But in some cases you want to try to find the needle. And there's a good argument that some people can find the needle or a little bit of allocation of your portfolio to the needle. Investments can sometimes juice your returns.
- [61:48]
B
Yeah, the majority of people who are listening to this are big fans of John Bogle, big fans of passive indexing. And to the extent that there might be some. You want to eat dessert, you have some slight temptation to have a little bit of play money just to see if you can juice the returns. I think many of the people who are listening to this would be interested in doing that themselves. Because that little pocket of play money, the point isn't to have a manager manage it. The point is this is just. This is Friday night, you know, this is a small set aside.
- [62:24]
A
Well, we'll just call it the Robinhood account.
- [62:26]
B
This is maybe X amount of money that I've set aside just for the purposes of seeing what I can do with it as a playground.
- [62:36]
C
I totally understand that urge and I think it's a great thing to do, actually, because there's no faster way to learn about opportunity and risk than to put your own money in an investment, not rely on somebody else or not rely on an index. So it's really important to have a play bucket where you can experiment and try your hand at it and then have the rest in index funds. The most important thing you can remember is that 92% of the return you're entitled to earn is a function of your asset allocation. So if you really work with a wealth manager, get a wealth management plan that enables you to model different asset allocations and see how the probability of successfully meeting all of your retirement and spending goals before during retirement and your legacy goals. If you get that asset allocation and you're right and you can rebalance and manage to it, you're doing a great job. Because you've gotten your asset allocation right, 92% of the return you're entitled to is a function of getting your asset allocation right. Now that 2.5% that comes from active management or security selection. That can add up to a lot of money over time. So that's why there's still the urge to seek investment management advice. But you're doing great. If you get your asset allocation underway at an early age and you've modeled that, you're doing great.
- [64:09]
B
Right. And when it comes to getting that asset allocation correct, is that simply a function of just finding your spot on the efficient frontier and sticking to it over the long term?
- [64:19]
C
Yes. And it's more complicated than that, but yes, finding your spot. Understanding the balance of stocks versus bonds in your portfolio is the single most important decision you make. One of the things that always surprised me about the efficient frontier is perhaps you remember the old adage that says as you get older, you should increase your allocation to fixed income. In fact, your allocation to bonds should be equivalent to your age. Yeah, you're in the box. So if you're 70 your age in bonds, you should have 30% in stocks and 70% in bonds.
- [64:54]
B
Yeah, yeah. I've also heard 110 minus your age or 120 minus your age.
- [64:59]
C
When you look at the efficient frontier, you see that simply by adding 30% in equities to your portfolio, you're going to hit a point that has both a higher return and reduced risk. So there's almost no argument for having 100% in bonds. You take on the risk of interest rates full on. And over time, the efficient frontier shows you that that's not an optimal place to be. So the most conservative place on Your portfolio is 30% equity on the efficient frontier is 30% equities, 70% fixed income. I think that's really important now as we fear the potential for increasing interest rates, you just cannot lock yourself in. I've only had one client in my entire 30 year career who's been 100% equities and I couldn't argue him out of it. He had been a statistician at IBM, so he really knew the numbers. And he said, this is money that I am never going to need in my entire life. I simply want to grow it as aggressively as possible. I am never going to call you. I don't care whether it fluctuates, it goes up, up or down. I have the discipline. I'm never going to look at it. Because Normally if you're 100% equities, the move to 80% equities, 20% fixed income is also one where you lose so little in long term return, but you decrease your risk so dramatically and the
- [66:32]
B
fact that you move so little in long term return, is that in part because you then have the dry powder on hand to be able to rebalance into equities?
- [66:39]
C
Yes, exactly, exactly. So you asked about if you have asset allocation done, right? Is that, is that, you know, are you one and done? And I said, look, that's 92% of the return you're entitled to. But the first question is, okay, when do you rebalance? How often do you rebalance?
- [66:56]
B
Right.
- [66:57]
C
Let's say we have a 60, 40 portfolio, right. And let's assume that you know enough about asset allocation that you've done the analysis so you can prove to yourself that 70% is going to be in the US so 42% of the total portfolio is going to be in the US and essentially 30% of the 60%, which is 18% is going to be in the developed and emergent foreign world. Okay, 42%. The US market goes up to 45%. You're now instead of 60% in equities, you're 63% in equities because the other equities didn't move. Do you rebalance? How do you set rebalancing guidelines in terms of when do you bump into the barrier and how often do you check and do you care?
- [67:50]
B
Right, right.
- [67:51]
C
And so good wealth managers have a lot of thinking and rebalance dynamically. It used to be that we had,
- [67:59]
B
it used to be periodically, it used to be periodic.
- [68:00]
C
Exactly. It used to be we'd rebalance, we'd look at it twice a year, maybe once a quarter and oh, if we're out of whack, we'll rebalance. Irrespective of whatever's going on, we're going to rebalance. We now have software that is so sophisticated that it, for example, with our clients, it gives us a report every single day of where every client stands relative to their target asset class, relative to their target by asset class and sub asset class. And we have guidelines, you know, tolerance thresholds and if a client hits that threshold, we will rebalance back. So it's dynamically done and looked at every single day.
- [68:43]
B
Right. So in a Roth account that totally makes sense. But in, let's say a taxable account, wouldn't that create tax drag with short term gains?
- [68:50]
C
It absolutely would. And that's why when you do your overall asset allocation, asking if you're just done, the next piece of the puzzle is asset location strateg. You want to make sure that you're putting the more volatile, higher growth assets in tax deferred accounts to the extent you possibly can not so that you put 100% of equities in your Roth IRA, you still want to have some balance. We tend to only put 80% in equities and 20% still in fixed income in a tax deferred account. And you're going to have your fixed income in your taxable account. Fixed income is less volatile, it's going to fluctuate less, so you're going to rebalance it less. Plus, it also means if you call me, yeah, if you call me and you want to go on vacation and you suddenly decide, I don't care what I told you about my spending needs. For my wealth management plan, I've got this great opportunity. Send me X amount of money. I don't have to worry whether it's the market up or down. I'm just going to send you your money from your fixed income. So asset location is the next step and then your investment selection and how you build it. But your wealth management plan is really looking at what the goals are over time for all of these accounts. So it's much more sophisticated than simply asset allocation, asset location, the rebalancing that you can do Even in your 401k, that's at your employer. So even though we're not going to be housing your 401k, we're going to get a feed on those assets so that we know what's going on in your 401. And we may call you up and say, hey, let's rebalance in the 401, because there's no tax effects to your point. And that way we don't have to rebalance. But also we've set those guidelines, those tolerance thresholds, those bands around the target analytically such that we're not going to trigger them that often. If we do trigger them, it's really worth rebalancing because you're trading off risk and tax cost.
- [70:57]
B
Okay, so what I'm hearing is in tax advantaged accounts, use threshold based rebalancing, but in taxable accounts, use, if possible use periodic.
- [71:06]
C
Nope. We're going to use that dynamic rebalancing across the whole portfolio over time, which is why we'll still hold some fixed income. And in those tax deferred accounts, we're going to look at the smartest, least tax effective place to rebalance and do that rebalancing there. But we're going to look at it every single day, since that's the single most important decision you make about Your investments.
- [71:30]
B
So I have an all equities portfolio. Well, number one, I do have a barbell allocation, so I have a heavy cash allocation as well.
- [71:37]
C
Okay, so you don't.
- [71:38]
B
Yeah.
- [71:39]
C
So really you're looking at all of your assets.
- [71:41]
B
Yeah, yeah.
- [71:42]
C
And you've countered the risk of the all equities portfolio by having a cash account.
- [71:46]
B
Yeah, but I also mentally justify the all equities portfolio or the mostly equities portfolio plus slash barbell portfolio in two ways. One is I see my income, my active income, my. My day job, we'll call it, as something akin to bonds, as something, you know, it's. It is an income stream. The second is I have rental properties fully paid off free and clear. And so I see that as essentially an income allocation.
- [72:18]
C
So I'm not going to give you advice about your portfolio without really understanding every single element. All the, what you own, what you owe, all of your assets, your life expectancy, your goals for living, inflation, whether you might move to a different state. Wealth planning is a really comprehensive and fun process to go through, and I guess that's the answer. First of all, if you've done a wealth plan and you've looked at the probability of successfully meeting all of your goals with 100% equity portfolio or a barbell portfolio and you're able to withstand the volatility, you're not going to say, if the market declines 20%, I'm getting out, I'm never going to get in this market again. If you can tolerate volatility, that might be the appropriate asset allocation for you. Wonderful. You're young, you can go forth, you can tolerate this risk. You have a steady income stream, you're in it for the long term, and you can tolerate it. Most people can't tolerate watching their money decline. And so if you're the type of person who gets very frightened about your future when the market declines or when an investment declines. My job is to help get you to a place where you can feel more comfortable, where there's less volatility, and yet you can still meet all of your goals. And it's that sort of toggling in between growth and protection. How do I participate and protect at
- [73:58]
B
the same time on the topic of protection? You know, I think that that's an element of wealth planning that's often overlooked, because when it comes to protection, there are the unknown unknowns when it comes to risk. For example, we interviewed Jamie Hopkins. He's the author of your retirement sketchbook, and he talked about, for example, silver divorce, couples getting divorced in their 70s or 80s or 90s. That is a risk. It's a massive risk to your retirement that no one ever really talks about. We talked about cognitive decline. I guess you and I have also touched on cognitive decline with regard to incapacitation. Again, massive risk. We rarely talk about it. How does a person approach broadly the topic of protection, given that when you hear asset protection, oftentimes people immediately think about insurance. People will immediately think about some of the most salient known threats, but people rarely say, well, how do I make sure that I don't get ditched by my spouse at the age of 92?
- [75:12]
C
That's such a good question. And it's one of the biggest challenges I face as a wealth advisor, because my job is to bring up those uncomfortable, awkward questions and situations. And it's really hard to do that, particularly if the couple looks so happy, everything's wonderful, and you go throw this big wet blanket on it, and you say, well, have you ever thought about what would happen if you got divorced? And of course, the immediate thing is, oh, well, that's never going to happen. That's never going to happen. Or sometimes you'll hear that, well, we have a prenup and that's all settled, and suddenly you realize, oh, I didn't even know they had a prenup. We need to actually meet separately to see if they're going to be okay in that prenup or wait until they get divorced and see who's who might hire you and do it that way. But these are really important questions that if you have deep trust in your wealth advisor, the wealth advisor will bring up with you, will discuss with you, and you will feel comfortable talking to them about it. It's their job as a professional to make sure that they've helped you try to think through the black swans on a personal level. That's one of the reasons we start thinking about sharing wealth, having that conversation with your family, even if you're completely resistant to telling your children about your estate plans, beginning to have the conversation with the client about even the idea of doing that starts to elicit all of these emotions that you, as a good wealth advisor, should enable your client to express. You get to the point of having conversations about people's deepest fears. And it's also why the wealth advisor should go out separately with each spouse. I can't tell you how many wealthy women have said to me, look, between you and me, I think I'm going to end up like a bag lady. I'm going to be A bag lady, when there's absolutely almost no possibility of that being true. When you get the woman to say that, then you can realize that, wow, everything I've done, I haven't actually reassured her enough yet. So let's go back to the beginning, or is there something I don't know that I'm missing or. Or the husband, who's much older than his wife and he has three children from his first marriage, and he leaves a trust for his second wife, and he makes his oldest daughter the co trustee with his wife on that trust. And he thinks, look this way, I'm going to reassure my kids that they have some say and my wife is going to feel comfortable that she has some say. And because he never disclosed this or discussed it with either his wife or his daughter, he missed the point that his daughter was being really polite to the second wife, had no affection for her, but out of love and respect for her father, was acting in the noblest fashion possible. And once he died, the wife thought, wait, this trust is all for me. I'm gonna spend this trust. This is what he left me. And the daughter said, no, no, no. In my mind, this trust is meant to give you an income so that your lifestyle's maintained, but not for you to go and spend it on a new house or a new car. And the whole thing devolved into lawsuit after lawsuit, and then the money went nowhere. It got spent, you know, on lawsuits,
- [79:04]
B
it was lawsuit, it all got spent on lawyers.
- [79:06]
C
Trust and talking about issues is really the bedrock of. Of what a good relationship has. In the end, protection is about not just insurance, not just revocable trust to protect against incapacitation, but it's about having awkward conversations, both together and separately, and making sure that future plans and thoughts are talked about to the extent possible. The greatest protection is airing the conversation, even if you never end up bringing the children into it. If both members of the couple are talking about how they would have this conversation if they were going to create a family mission statement for how they're going to leave their wealth and what they see about their wealth, even if they never end up showing it to their kids, which I think would be a mistake if they get so far as to write it. Just going through that exercise is such an important and protective act for both members of the couple and for their legacy.
- [80:15]
B
I want to turn this conversation to the people in our audience who are small business owners or entrepreneurs. What are some of the mistakes that you see people make with regard to how to handle. Especially imagine like A very small business, a business with two, three, four employees. One that doesn't feel like there's necessarily enough that it could even be sold. You know, Uncle Bob's graphic design company. What should those small business owners be thinking about? A, as they're thinking through their net worth? How does a small business even factor into their net worth when it's putting a valuation on? It is sort of an imaginary number anyway. And B, when it comes to legacy planning, how do they think through that?
- [81:07]
C
Well, I think first of all, it's such an important question because small business powers America. I think people don't realize that everyone's focused on S&P 500 companies, but really, small business powers America. For very small businesses, probably the most important thing that owners can begin to think about is how is the business going to be passed on? Is it going to pass on? Are they solely dependent on that person so that there is no opportunity to pass it on to kids or employees? Or are there steps they can take now that would bring the next generation of leadership into the picture? Can you begin to train that leadership to take over more and more of what you do so that you can retire and begin to enjoy your retirement? Absent even selling the business, you're continuing it, and maybe there'll be some sort of royalty payment or some sort of income you can continue to get into the future if you cannot sell the business, Obviously, if you can sell the business, then you're in a completely different realm where it's incredibly important to think about how to plan personally for that sale well in advance of that sale. Because once you sell a business, there are wealth planning steps that are no longer accessible to you. But if you're talking about a small business, it's a source of income. It's not an asset necessarily. Unless you're thinking you can sell the equipment and the furniture, then it's an asset. So you're really trying to think more about how do I enable this to live on so that it can continue to provide a living for my employees or my family and perhaps give me some income to count on as we go forward.
- [83:01]
B
It's interesting, the concept of it's a source of income, but it's not an asset. And that intuitively makes sense because for many small business owners, fundamentally you own your job in that regard. It doesn't feel like an asset on the balance sheet. On the other hand, to the extent that it does provide an income stream, it's a little hard to wrap your brain around anything that provides an income stream. Would have some form of value.
- [83:28]
C
It does.
- [83:29]
B
That value is X income, you know.
- [83:32]
C
Right. You might end up, you know, if it's a pizzeria.
- [83:35]
B
Right.
- [83:35]
C
You could sell the oven. Right. The oven is the income producer. The value of the business isn't accessible to you unless you can sell it to somebody.
- [83:45]
B
Right.
- [83:45]
C
That's all I'm saying. Kind of an asset that you can sell versus an asset that you can maintain as an income producing investment.
- [83:54]
B
Yeah, I think with a pizzeria it's more tangible, more visceral, whereas, you know, a lot of businesses these days are digital. And so it's harder to see what there is to sell.
- [84:03]
C
Absolutely. And that's why it's much more challenging. But digital assets are in great demand. So if you have some intellectual capital or proprietary software or an app, you can look at selling it and that's how you'll monetize your investment.
- [84:21]
B
How should a person account for their business inside of an estate plan?
- [84:25]
C
It depends on how it's owned. Is it owned in personal name? And it depends on whether it's really an asset or not. But your estate planning attorney will be able to help you understand whether you should be owning this in your own name or creating an LLC or creating a corporation. And those are a lot of steps you may want to take before you sell a company so that you can maximize your value post tax. If and when you want to sell.
- [84:53]
B
What would you say to somebody who says, oh, my business is so small it's not sellable? You know, maybe they have a small landscaping company or they are a freelance photographer with one assistant.
- [85:05]
C
Well, both of those are highly talent based. And so the question is, can you impart your knowledge and your talent to somebody who can take it over for you? Your assistant, your, your landscape assistant, your photography assistant. Can they take it over for you and maintain your brand and build their own brand, perhaps, in which case you're not going to necessarily sell the business. You may sell it to them little by little by little and they may pay you an income out of that over time. An installment sale essentially over time so that you'll get some value out of that business. There are people who specialize in how to value those small businesses, wealth managers and how to structure extracting that wealth over time as you think about retiring.
- [85:52]
B
We started this conversation by talking about blind spots that you've observed from 30 years of working with clients. How would someone know if they had a blind spot?
- [86:04]
C
That's a good question. I think the fastest way to know that you have a blind spot is if you feel absolutely certain about something. If you aren't willing to listen to the other side of the story or entertain questioning your conviction, it's the first clue that you might have a blind spot. Each of the blind spots is so understandable to have. It's completely understandable that people feel the way they do. So the question is, are they missing anything? And the only way you can see if you're missing something by sticking to this conviction is by looking at the other side and asking yourself, okay, wait, what if I'm wrong? What if that isn't the right way to think? It doesn't mean you need to abandon your conviction. You may reassert your conviction and find that you're absolutely right. But what I've noticed is that the stronger people feel, it's usually a sign that their mind is closed for an emotional reason and that they haven't really examined the other side of the coin.
- [87:19]
B
And that's why we had another guest named Neil Iyer. He said something very similar. He said, when you are faced with especially if it's a strong emotion, ask yourself, is it true? And your first impulse is always going to be, well, yes, it's true, you know, and then the second question is, is it absolutely, certainly the only possible truth?
- [87:43]
C
Yes, I think that's right. Is it the only possible truth? And if you look at other truths, you will learn much more about whether you're right. Or you just may be able to add another arrow to your quiver and be that much richer for it.
- [88:03]
B
Thank you for spending this time with us. Where can people find you if they'd like to learn more?
- [88:07]
C
Well, my book is called Legacy on the Line, and it's available at all major retailers. We have a website, legacyontheline.com and there's a place to contact me on the website.
- [88:21]
A
Thank you. What are three key takeaways that we got from this conversation? Key takeaway number one, your financial advisor may not be as quote, unquote on your side as you think. A lot of people assume that their advisor is legally required to put their interest first. They might not be. There's a big difference between what's called the best interest standard and the fiduciary standard. A fiduciary must put your interests ahead of their own. Fiduciary is what you want, but a broker who's operating under the best interest standard might be recommending a specific product because that product earns them a higher commission and they don't have to disclose that. And there are 45% of advisors who are dually registered, which means they can switch between those two standards depending on which account they're discussing with you.
- [89:13]
C
It would never occur to you that acting in your best interest could also be acting in their best interest and could actually be different from putting their interest ahead of yours. It's really tricky. And what makes it even worse or even trickier is that many financial advisors are dually registered. So they can choose or they are required to act either as a fiduciary or in your best interest, depending upon which account they are talking about with you.
- [89:50]
A
So that's the first key takeaway. Key takeaway number two, Having all the right advisors is not enough if they're not talking to each other. So maybe you have an estate planning attorney, an accountant, an insurance agent, a financial advisor. Like, sounds like you've got a good team, but if you don't have a quarterback, if no one is coordinating the full picture, then you might be missing some big things. You might be leaving money on the table, or you might be exposed to risks that you're not aware of. If everyone gets around the same table, then suddenly the estate planning attorney sees opportunities that they might not have spotted on their own. The accountant weighs in on a Roth conversion. Like, together they can create a strategy that none of them could have built in isolation.
- [90:35]
C
It is so rewarding when I have an estate planning attorney sitting around that same table who now says, oh my gosh, I never saw this before. I was never able to see how I can help this person. But now there are two or three estate planning techniques that come into play. It's like a giant jigsaw puzzle and you need multiple people. Like just when you sit down and do a jigsaw puzzle and you have to find the edges and the corners of the puzzle first. When you get all of your team together, that's when you can do that.
- [91:09]
A
Finally, key takeaway number three. A revocable trust is not just for the wealthy. It is protection against a gap that most people never think about, because most people plan for one of two conditions, either being healthy or being dead. A lot of people don't plan for being incapacitated. So if you have a stroke, if you develop dementia, if you end up in a prolonged coma, a power of attorney might not be enough to protect you or your family. So a revocable trust lets a successor trustee step in and act on your behalf while you're still alive. This is protection against the three probate, incapacitation, and privacy. A lot of people might create a trust but never actually fund it.
- [91:54]
C
I think this is such an important problem as dementia becomes increasingly an issue for people in our society. Often you can't change things once you have dementia. So it's really important to put a revocable trust in place. A revocable trust allows you to be the trustee. You own all of your accounts, they're in your name. It simply means that you have a successor trustee should you become incapacitated. The successor trustee can act on the accounts that are in your name on your behalf.
- [92:32]
A
Those are three key takeaways from this conversation with Andrea Bowman Lustig. Thank you so much for being part of the Afford Anything community. For being committed to being responsible with your finances. I want to applaud you for that commitment. I want to applaud you for listening to the show and taking action. Because you could be listening to anything right now. Something entertaining and light. You're listening to estate planning. And why are you doing that? Because you care about the legacy that you're going to leave behind and you are dedicating time and attention and effort. You are allocating your limited resources to doing the things that matter. Props to you for doing that. If you want to meet other people who share those same values and who share that same commitment, go to affordanything.comcommunity. it's completely free and it's a space for you to connect with like minded people who share the same commitment to living a healthy financial life. Again, that's affordanything.com community. Also open your favorite podcast playing app. Please make sure you hit the follow button so you don't miss any of our amazing upcoming episodes. We know many of you who listen to this are not actually following us in your podcast playing app. So please make sure you open that podcast player and hit that follow button While you're there. Please leave us up to a friend. Five star review. We appreciate it so much because that is incredible. It's instrumental in helping us book amazing guests that will benefit you, that will educate you. We have a free guidebook, a fill outable guidebook on the five pillars of your financial life. F I R E Download that guidebook. It's a fill outable interactive. It covers the five financial psychology, increasing your income, investing, real estate, entrepreneurship. You can download it for free@affordanything.com fiire. That's affordanything.com fiire. Thank you so much for being part of this community. I'm Paula Pant. This is the Afford Anything podcast and I'll meet you in the next episode.