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- [00:00]
A
Mindy and I are so grateful for the following sponsors who make BiggerPockets money possible. Monarch is the all in one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting accounts and investments, your net worth and future planning together in one dashboard on your laptop or on your phone. Start your new year on the right foot financially and get 50% off your monarch subscription with the Code Pockets. With automated weekly money recaps and tracking progress toward future financial goals, it's easier than ever to stay financially fit in the short and long term. Monarch helps me be proactive instead of just reactive with my finances. Its AI tools are built on Monarch intelligence and get it right most of the time when auto categorizing most of my expenses. Monarch is the all in one tool that makes proactive money management simple all year long. Use the code pockets@monarch.com that's 50% off your first year@monarch.com with the code Pockets.
- [00:58]
B
Support for the show comes from public.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there plus industry leading yields on your cash with no fees or minimums. Switch to the platform built for those who take investing serious. Go to public.combpm and earn an uncapped 1% bonus when you transfer your portfolio. That's public.combpm like BiggerPockets money paid for by Public Investing all investing involves the risk of loss including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Complete disclosures available at public.com disclosures. Your business identity is everything that shows what your business is about from what customers see to what they don't see like operating agreements, meeting minutes and compliance paperwork. Get more for your business, more privacy, more guidance and more free resources with Northwest Registered Agent Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the United states with over 1500 corporate guides. Real people who know your local laws and can help you and your business every step of the way. Begin managing your business hub with lawyer, drafted operating agreements, bylaws, resolutions, membership certificates, bills of sale and more at no cost. With Northwest, privacy is automatic. They never sell your data and all services are handled in house because privacy by default is their pledge to all customers. Want more? Sign up for a free account and get access to corporate guides. Real experts who answer your questions, no strings attached. Don't wait. Protect your privacy, build your brand and get your complete business identity in just 10 clicks and 10 minutes. Visit northwestregisteredagent.com money free and start building something amazing. Get more with Northwest Registered agent@@northwestregisteredagent.com Money free. Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me as always, is my Not a Financial Advisor co host Scott Trench.
- [03:23]
A
Thanks Mindy. Great to be here with our free only podcast here at BiggerPockets Money. I guess you get what you pay for with BiggerPockets money here. Thank you so much for listening and joining us today. I'm super excited about today's episode. A few weeks ago I put out this post to my LinkedIn feed. I said hello. Mindy and I are looking for two financial planners to justify their compensation models in the BiggerPockets Money podcast. We feel very strongly that flat fee or advice only, which means no AUM and no commissions is the best way to align interest between a CFP and their clients. But we'd like to hear the case argued by a CFP who charges an AUM fee and about why their compensation model is not the conflict of interest we feel it to be. And boy did I get a response. I think I had a couple hundred comments, some from passioned defenders of both the AUM model and of fee based compensation which includes commissions for sales of insurance and other financial products. We are delighted and honored that in response to that post, Ryan Sterling, the CEO of NerdWallet Wealth Partners, reached out to defend the AUM model. Nerd Wealth Partners is a fee only registered investment advisory that monetizes financial planning and investment advisory and management via an AUM model. Ryan is going to defend the AUM model today and address our challenges. Before we get going, I want to recognize Ryan's courage in coming on today's show. Ryan is coming to the church to preach atheism here at BiggerPockets Money. BiggerPockets Money listeners are overwhelmingly predisposed to bias towards advice only or flat fee advisory for financial planning and are inherently skeptical of the AUM model and they're totally against commission or fee based models. Overwhelmingly here at BiggerPockets Money, Ryan enters a little bit of unfriendly territory today. And Mindy and I, though we share our bias against AUM models, are going to treat them with respect and dignity. And we ask that everybody who comments on this video does the same. Ryan is doing great work and we hope to be persuaded. Please note that NerdWallet Wealth Partners does not earn income from the sale of investment products, including the sale of permanent life insurance, which we have an even stronger bias against here at BiggerPockets money than the bias against AUM fees.
- [05:27]
B
Before we jump in, Scott and I want to say that we do not have any sort of affiliation with Nerd Wallet Wealth Partners. We are just inviting Ryan on because he responded to Scott's post and had really great points to make. So without further ado, let's bring in Ryan.
- [05:43]
A
Ryan, thank you so much for coming on today's show. And while we know you're coming in with a bias for the AUM model, I hope that we can have a respectful and wonderful debate and dialogue about this topic. Thanks so much.
- [05:54]
C
Yeah, thank you for having me. And I will say I hope it's not too unfriendly because I'm a fan of the show and a huge advocate for financial independence.
- [06:00]
A
We've had staged some conversations to this effect over the years and there's a blood in the water dynamic going in and it never actually materializes. Have to be underneath all that there's, yeah, most people are very reasonable about all this stuff. So I, I, I would love to kick this off by defining what we're talking about today. What, what is financial planning at its core? What, what does that term mean to you? What is, what is that offering?
- [06:24]
C
First, I mean, let me go back to what I see. Our core offering and our deliverable to our clients. And we really break our engagement into three different categories. Financial planning, coaching, and investing. So let me start with the planning piece. So the way we describe planning is it's basically doing a diag of where you currently are and building that roadmap from where you are to where you need to get to. I oftentimes use the analogy that, you know, imagine you're on a road trip from New York to Los Angeles. You could say, you know what, like, I don't need Waze, I don't need a map. As long as I go west, I'm eventually going to hit California. And you're right about that. If you go on a road trip from New York to California. Like, all you need to do is go west. Now, it's not going to be the most efficient way there. You're going to be taking side roads, you're going to hit the Pacific Ocean and then have to go south. So it's going to take you a long time to get there. And I use that analogy because that's what a lot of people are doing before having a financial plan is that so long as I'm saving more than I'm spending and I'm putting money in my 401k, that I'm eventually going to build wealth. And they're not totally wrong with that, but it's not going to be efficient. So the financial plan is that ways where we're saying, hey, we want to go from New York to Los Angeles, we want to go southwest the entire way. We want to go freeways the entire way. And again, just kind of like any road trip, there's going to be bumps in the road. You don't know when a traffic jam is to come up and you have to recalibrate and go around it, or when the plan changes. And you don't want to go to Los Angeles, you want to go to Denver, and you need a complete new recalibration. So, again, I really see the planning as that financial roadmap. I will also say, too, that there are clients who are very, very clear about what they want their plan to be. They come in saying, hey, I'm getting married. We're starting a family, we're buying a home. You know, here are all the variables that we're considering, like, help us navigate through this, and other people who don't, and they come to us saying, hey, I don't know what my goals are, but I know I need to do something, and it's giving me a lot of anxiety because I don't know what. And, you know, one thing that I will say is, you know, especially, you know, the listeners on this podcast, of course, are financial independence evangelicals, and I am in that camp. But I will say financial independence is not optional. Now, some people, they might want to get there in five years. Some people don't know. But I would say for all of our clients, financial independence is something that we're optimizing for. And at the very least, that's what we're starting for in the plan.
- [08:50]
A
I completely agree. If you'd asked me, Scott, what is good in the context of financial planning? It is an artifact. It is a written set of instructions for how to go that Diagnosis where you're at, has a very clear picture of where you want to go, has specific action and guiding principles that will navigate you from the current place to where you want to get to. And I'd also throw in there's like a checklist completely component to it. Hey, we have a basics of a staple like all like things that are, that are common to every financial plan that you're not going to miss there. And it sounds like your definition was, was very close to what I would have in there. You mentioned two other things that you mentioned coaching and you mentioned investing here. Can you describe those if different or added on to the financial planning?
- [09:26]
C
Yeah, of course. So coaching is number one, holding clients accountable because we can build the world's best financial plan. And if people aren't going to hold themselves accountable to it, then kind of goes for not. So number one is holding clients accountable, but number two is to help coach through decisions that are going to be made. So for example, it's not uncommon that our clients come to us and say, hey, I listened to this podcast and they were talking about rental properties and you know, I think I might want to explore this. Do you think it makes sense? Well, the answer is it depends. So let's run it through the plan. And you know, sometimes there's a very definitive yes or no. Yes, do this, no, don't do that. But a lot of times it's gray where there's not necessarily a yes or no. But let's put it through your plan and let's coach the client through the decision that makes the most sense for them. People come to us all the time with job opportunities and say, hey, I'm really comfortable in my job, but here's a new opportunity that comes with incentive stock options. I don't know what that means. Can you help describe what it is and can you help me evaluate this trade off that I'm making between my current job and this new opportunity? So I like to say with the coaching that it's again holding clients accountable. But it's also anytime there's a decision that's going to be made where money's involved or we should be involved with that. And then the last piece is the investing where we build and manage investment portfolios that are in alignment with the client's goals and objectives. I think your listeners will be happy to hear that. You know, we do advocate low cost, tax efficient exchange traded funds. So we do want to keep investment costs low. But the way the three work together is that the plan is kind of the foundation of it, the coaching is making sure that decisions are not being made that are counter to what we're trying to accomplish in the plan. And then with the investing piece is that makes sure that we have that growth vehicle in place that's going to allow the clients to get to their destination as outlined in the financial plan at the start. So the three of them really go, go together.
- [11:18]
A
Okay, so let's, let's next talk about the mechanism for monetizing these services. Right. We decided to find three services here. There's lots of ways to articulate this. I thought about coming up with some, but I'm glad we just asked you on there because I came up with like 11 different things. Like there's a comprehensive financial plan. There's the insurance, there's the risk mitigation, there's the estate planning, there's the investing. You know, it's just a whole mechanism here. Tax planning prep can sometimes be included or not in these services. But those three, I think are really good core components. The financial plan, the coaching and the investment management. The mechanisms of monetizing financial planning services, the way I bucket them are one, hourly or project based advice, which would be in the bucket of advice only. You pay somebody an hourly rate and they give you advice for whatever it is that you're asking about, or you pay them a project fee. The second is essentially a subscription or an annual contract. This is what we call flat fee. Financial planning, often in the range of 2,500 to 7,500, can get a little higher depending on the complexity of a situation. And that's going to be a full service financial planning, it's going to include the things you just said there. Financial planning is going to include coaching and it's going to include investment management optionally in some cases. The third mechanism for monetizing financial planning services is assets under management fees. Those fees typically are charged for the investments that are actually managed by the advisor. And they can range from 0.25%. So you know, $2,500 on a million dollar portfolio a year to as much as 10, you know, 1% or even more. So that could be from 2,500 in this example to $10,000 a year on a million dollars in assets under management. And that will scale with portfolio size. That's what we're going to be discussing today. The fourth way that these services are monetized is with commissions. So commissions can be paid to the financial advisor for selling investment or insurance products. So for example, if someone takes out a very expensive whole life insurance policy. The advisor could make tens of thousands of dollars in commissions for originating that policy and get an annuity on an ongoing basis for as long as premiums are paid. And then that brings us like the last two structures here are basically hybrids that include various forms of these. So fee only is commonly used to describe a model that you do it at Nerdwall. It's an AUM only model or in some cases can describe an AUM plus some kind of flat fee or some kind of hourly based compensation for other work there. And then the last model is going to be what we call fee based. This is also a hybrid structure. And fee based basically means that the advisor can do everything. All these mechanisms, they can charge by the hour if they want to, they can charge flat fees on an annual basis, they can charge commissions and they can charge aum. But I think it's likely common that a fee based model overwhelmingly is dominated financially with revenue from commissions and AUM fees. Do you agree with the way I've kind of framed the discussion for mechanisms of monetization in the financial planning industry?
- [14:15]
C
Yeah, absolutely, spot on. And I've used and experimented with a number of these with the exception of the commissions and the fee based.
- [14:23]
A
Awesome. Why don't you use those ones?
- [14:25]
C
Look, historically I've always stayed away from selling products and you know, it feels like of all of the different fee structures that one has the biggest conflicts of interest embedded inside of it. I would wholeheartedly agree that I would stay away from, from one of those where someone is selling you products, they're earning a big commission. You just have to question what the incentives are.
- [14:47]
B
That has historically been my anti CFP stance, anti financial planner stance in general is I don't know why they're going recommending these things to me. Is this going to be a really great product for me or is it going to just be a really great product for their pocketbook?
- [15:01]
A
Mindy, I think what you said is actually really important here because Mindy said anti cfp, we think that financial planning is a good service that can be provided really well. But I, I think the industry actually has now, at least in the fire community, that instinctive response, oh, cfp, they're going to sell me life insurance. Like I think that that's actually starting to get embedded in the instinctive reaction to these types of services and perhaps to a certain extent with AUM fees as well as we're going to discuss here. Do you agree with that? Are you seeing that at all? Ryan, I thought you said there was great. Mindy, you're not anti cfp, you're anti that term because it's so attached in the minds of many to whole life insurance sales.
- [15:38]
C
I don't attach the two together. I think the CFP is a great credential. And look, I mean I think like any population you get population of thousands of people, you're going to get some people that are operating as upstanding practitioners and some that may not be. I think the CFP by and large is an absolutely great credential and I think a lot of the CFPs that I know are really trustworthy practitioners. But yeah, I do know there are a lot of those CFPs that are, you know, selling those high commissions insurance products. I don't attach the CFP to, to that.
- [16:09]
B
And I should clarify, I meant historically, you know, many years ago when I first started investing. Oh, why would I have somebody else do this? I can do this myself. And I think there's a lot of people who in our audience had the same, same thoughts in the past and I am now moving towards, hey, I do think I need some professional advice. I think that I could have benefited from some professional advice 20 years ago when I was having babies and would have perhaps saved more for my kids college than I did, which is currently zero and she's in college right now.
- [16:41]
A
I think that a CFP is almost like a required designation for somebody that I consider hiring for financial planning services. It depends right there. There's times when I, you know, maybe, maybe I know somebody or really respect them and they don't have that particular designation but they are licensed, maybe I'd work with them. But I think that it is a required designation. So I both respect it. And my alarm bells go off immediately when someone says they're a CFP and I check, oh, okay, they're not a fee based cfp. Okay, now I can begin the conversation and to the point today. Oh, they're not AUM either. Okay. I would be interested to see if people agree with that, perhaps in the comments here on YouTube, if that's something that you feel as well when you hear the moniker CFP or if it's just me in there. But I would imagine it's almost a requirement and it's also a flag. And then the other point I want to make is when it comes to insurance, people think, oh, Scott's against life insurance or permanent life insurance. And I'm like, no, I see there's a use case for it in some cases I think you can generally argue that there's other ways to achieve the goal of whole life insurance with a better return profile. What really kind of bugs me about that model in particular is if I want life insurance, I want to go and I want to buy life insurance. I want to go to the life insurance salesman. I don't want to go to somebody who's saying they're a financial planner and then get sold life insurance. And that's I think the real problem I have personally with the commission based model in a cfp. I don't want that to be a primary incentive structure in there. But if I want insurance, I want to go to the person who says I'm an insurance salesman. Of course I will give you that product. Just like I go when I go to a mortgage broker to get a loan or when I talk to a real estate investor about when I get a house. The answer is of course you should get a loan. Here's a big one. And of course you should buy a house. Here's a nice one. That's what I'm expecting from the insurance broker. I just find that to be a conflict of interest in the commission incentive type structures.
- [18:28]
C
I agree. And a good CFP should be able to review what the insurance salesperson is coming back with and running it through the plan to see if that actually is the insurance policy that makes the most sense.
- [18:38]
A
Monarch is the all in one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting accounts and investments, your net worth and future planning together in one dashboard, on your laptop or on your phone. Start your new year on the right foot financially and get 50% off your monarch subscription with the Code Pockets. With automated weekly money recaps and tracking progress toward future financial goals, it's easier than ever to stay financially fit in the short and long term. Monarch helps me be proactive instead of just reactive with my finances. Its AI tools are built on Monarch intelligence and get it right most of the time when auto categorizing most of my expenses. Monarch is the all in one tool that makes proactive money management simple all year long. Use the code pockets@monarch.com that's 50% off your first year@monarch.com with the code Pockets.
- [19:30]
B
Support for the show comes from public.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On Public you can put together a multi ass portfolio for the long haul. Stocks, bonds, options, crypto. It's all there plus industry leading yields on your cash with no fees or minimums. Switch to the platform built for those who take investing seriously. Go to public.com bpm and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com bpm like BiggerPockets money paid for by Public Investing, all investing involves the risk of loss including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and IPC. Complete disclosures available at public.com disclosures your business identity is everything that shows what your business is about from what customers see to what they don't see like operating agreements, meeting minutes and compliance paperwork. Get more for your business, more privacy, more guidance and more free resources with Northwest Registered Agent Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the United states with over 1500 corporate guides. Real people who know your local laws and can help you and your business every step of the way. Begin managing your business hub with lawyer, drafted operating agreements, bylaws, resolutions, membership certificates, bills of sale, and more at no cost. With Northwest, privacy is automatic. They never sell your data and all services are handled in house because privacy by default is their pledge to all customers. Want more? Sign up for a free account and get access to corporate guides. Real experts who answer your questions, no strings attached. Don't wait. Protect your privacy, build your brand and get your complete business identity in just 10 clicks and 10 minutes. Visit northwestregisteredagent.com money free and start building something amazing. Get more with Northwest registered agent@northwestregisteredagent.com moneyfree that's a really great distinction and a really great point. Having somebody to run all of your ideas pass can be a really really powerful double check. They're not biased like you are. So like like you are with your own personal finances. Not you Ryan specifically, but they're not biased like you are so they can look at it with a more objective I hey, remember this was our plan. Meanwhile you're like oh yeah, this is the plan. But then this happened and this happened and this happened. So I think having an unbiased opinion, looking finances and keeping in mind your goal because you're out there living your life Your goal might have changed or tweaked in your mind, but it didn't tweak in the financial planner's mind. So for listeners who are hearing a U M all the time, but they might not really understand it. Can you explain how the AUM fee actually works in practice and why this is a good monetization mechanism for the services that you provide?
- [22:36]
C
Yeah, so A stands for assets under management. So the fee that we charge is on an annual basis, let's just say their first intro fee. So for under 500,000, our fee is 0.9%. So what we do then is every single quarter, we look at the portfolio value that we manage and we take a quarter of that every quarter from the portfolio. We're very open, we're very transparent about it. When clients get their statement, it's on the very first page of their statement so they see exactly the fees that they're paying us. But it's on a quarterly basis. We again take a quarter of the 0.9% every single quarter. And we do have fee breaks as assets grow over time. Now, I also want to be clear that it's only the amount that we're managing. If a client has a, you know, a 401k, we're not billing on that. Client has a rental property, we're not, we're not billing or charging on the, the portfolio value of their rental properties. You know, we're not billing on clients who are have some kind of fun side trading accounts. We're not billing on that. It's just on what we manage. But we take everything into account as it relates to financial planning and, you know, understanding the client's balance sheet.
- [23:51]
B
Okay, that's interesting. You said that you like actually just knocked off. One of my biggest arguments against this is that people don't know what they're paying. And the fact that it's on the first page is, I think really, really important because there's all of these projections, oh, you're paying, you know, you know, $11 billion in, in fees and you don't even know it because it's hidden in this 1% or this.09%. But to have it right there front and center I think is really important and really helpful. So they know. I mean, I have a friend who was on the show and we walked through the fact that she is using an AUM advisor and she's doing it on purpose. She knows how much it's going to cost and she's fine with that because her husband passed away and he was the money guy. And she doesn't feel comfortable doing it by herself. And as long as she's aware of what's. Then it's her business to do as she pleases.
- [24:40]
C
That's right. You know, it's interesting. We have a client of ours who, long story short, needed a lot of help, had a $400,000 portfolio. Part of that was from inheritance and was interviewing advisors. And he was, between us and another firm that was a flat fee only. And the interesting thing is he came to. He came to me and said, I'm going with you. I like the other advisor. They're CFP, they're very knowledgeable, trustworthy, etc. But you guys are less expensive. I said, oh, that's interesting. You know, it was like $400,000 or so, so you can do the math there, you know, charging around $3,600 a year. And I asked, hey, you know, what did the other advisor charge? Out of curiosity? And he said, oh, they were charging 2,500. I said, just being fully open and transparent, like, we're actually more expensive than that advisor, Just to be clear, if that's kind of the deciding point. He goes, no, no, but I'm not paying you. I said, yes, you are. It's coming from the portfolio. He goes, no, no, no, but this guy's making me write actual a check or put my credit card that I have to pay for it up front. And I said, okay, I get that, but they're not gonna be charging anything coming from the portfolio. We were going back and forth for like a good 10 minutes until finally he had to convince me that this was better for him because he just feels better because he doesn't feel like the fact that he's not writing a check or putting out his credit card, he feels better about it.
- [25:55]
B
Mindset is huge. And, like, what I've wrapped my mind around might not have total basis, but that's what I believe. And therefore, that's how I'm going to go. And, you know, if I have to write a check, that's money coming out of my pocket. If you're just taking it off the top of money that isn't in my pocket anyway, it's over here in this bucket for the future. I can see his point.
- [26:16]
A
You know, we now know what AUM fee is. We've talked about the different monetization models. I would love to bring you my top three concerns with the AUM model, and we can react to them one by one here. The three primary concerns I Got are are. One is especially with as portfolios scale, I think this is an extremely expensive way to pay for financial planning. Number two is I believe that while there's no conflict free or perfect way to compensate anyone, that the flat fee or advice only model produces less conflicts of interest or fewer conflicts of interest than the AUM based model. And I think the third one is that the automatic passive deduction of fees from investment portfolios removes transparency and the hard regular reevaluation of service which is so perfectly. That fear was so perfectly encapsulated by the example you just gave here of this person who felt no, I just feel better about paying that way. I think that is one of the reasons why it's a much more expensive way to have financial planning. Would it be okay if we went through each of those one by one?
- [27:16]
C
Yeah, absolutely.
- [27:16]
A
I put in a quick model here for a scenario and I modified it based on your suggestion here where I said we're going to use real dollars, 20, $26. We're going to say how much financial planning services cost under two scenarios, flat fee versus AUM using nerdwallet Wealth Partners fee schedule, which has a graduated fee schedule where if you're you're going to pay 0.9% on your first $500,000, I think I did actually graduate this. So you're going to be a little cheaper than our model here is going to show. That'll bump down to 0.8% once you get into the 500 to a million range, 0.7% in the million to 2.5 million range, 0.6% on, 2.5 to 5, so on and so forth. We're going to apply a real return to portfolio balances and then add 20, $20,000 per year because this is biggerpockets money and our users are going to save about $20,000 per year, probably at minimum. And we're going to say which one is more expensive, flat fee or AUM based. And so again this is the graph of those projections here where we say a flat fee is going to cost $7,500 per year. We have this escalating with inflation. So these are all real dollars. The retainer goes up by 2.5% a year. Every year stays constant in 20, 20, $26. And if we assume that we're going to pay $225,500 over 30 years for financial planning advice in this scenario and the AUM fees are going to compound, although the slope will change as we get into higher and higher total AUM fees until we get to really big differences depending on the starting balance we have or the total amount of wealth we have. A kind of a table way to summarize this is if we start with a $500,000 portfolio, we're going to pay $330,000 in fees for the same financial planning services as our $7,500 a year flat fee model. If we start with a million bucks, we're going to pay $520,000, which is nearly double the amount we're going to pay for flat fee. If we start with $2 million, we're going to pay $865,000 or about $600,000 more in fees for the same financial planning service is over a 30 year period. And I also want to caveat this that I think I was actually very generous to the AUM model here because it's very unlikely that the $200,000 or $500,000 or maybe even the million dollar portfolio individual is going to start their relationship with a flat fee advisor at $7,500 a year. They'll probably start much lower. But what's your reaction to this from an expense standpoint to the user?
- [29:38]
C
So first off, I would say that the vast majority of our clients start start in that 200,000 range. You know, our core clients kind of that high earning millennial who's kind of at the start of their wealth building journey. So number one, and I totally agree that you're probably being very fair to us because a lot of the alternatives in the flat fee space would start probably in the, you know, the 2,500 to 5,000 range. So number one, I would say that, you know, especially for our core clients, that it is less expensive of, for it looks like again, it's the first 30 years. If you were to change the flat fee, I think we're reasonably comparable probably over a 2530 year period starting in the 200,000 range, which again, most of our clients start with. I would also say that within these kind of quote unquote debates that we have in the industry about AUM and flat fee and hourly fee, et cetera, I would say one way to fuse these debates is that I agree that a lot of AUM advisors charge way too much. So when we constructed our fee schedule, you know, we made sure to put certain breakpoints in place so that, you know, clients aren't at $5 million paying over 1% for AUM fees. So like I would say that fees are way too high and Quite frankly, I would say that as that chart illuminated, that if you're someone who you know asset allocation, you're very disciplined, you listen to this podcast on a regular basis. You consume all the FI books, all the FI materials, you're technical, you trust yourself, et cetera. You might not need an AUM advisor, or you might not need an AUM advisor for over 30 years. I would be the first one to say that. But I will say what that chart does not take into account. And this is also part of the reason, and I'm happy to go into this more in terms of why we want to went aum, because we tried a number of these other fee structures. And one thing that is not captured in those charts over time is people willing to pay the $7,500 every single year, especially early on, and then trusting them with their own devices to manage their portfolio. So let me just take one step back here. So years ago, we had a flat fee option. We had an hourly option, we had the AUM option. My hypothesis was that most people are going to benefit from the flat fee option. That was my hypothesis. And that's what I went kind of strongest to the hoop with. And the interesting thing when I kind of looked at this two years later is the clients that were having the best outcomes were clients who are being charged the aum. That was true for clients that started with a hundred thousand. That was true of clients who started with 2 million million. And the reason being is with the flat fee model, we were doing a financial plan, we were getting everything in place. Everybody felt really good about it. And then things kind of, I don't want to say they got on autopilot, but oftentimes they. They kind of do. And in year two, people say, hey, that was great. I'm really happy with this plan that you built, but I don't think I need to pay the $3,000 or $5,000 for next year because I feel good with everything. And then you check in six months later and you say, how out? How's everything going? Well, an election was coming up and I got really nervous and I sold everything. Or, you know, there was, you know, a bump in the road. The market was down, you know, 10%. I panicked and I sold it. Really kind of opened my eyes to, gosh, like this was happening with such frequency that, you know, look, as an advisor, you know, in many respects I see myself just kind of in all aspects of life. I'm very much kind of a coach in so many different ways. And like, as A coach, like, you're invested in your client's outcome. Like, I want to see people, of course, have really good outcomes. And it was really discouraging when I would see that with the people who were paying a flat fee who would then go away and then come back. When I would look at then the clients who are AUM clients who stuck with us through the ups and downs of the markets, through election cycles, et cetera, and when I would look at their progress, I said, gosh, like, the AUM clients are having so much more progress. And I looked at this as we were growing and scaling, and I said, gosh, like, it's going to be really hard to have three, three fee models. I'm seeing clients, our clients are having the best outcomes on the AUM model. It just felt right to collapse all, all of them into the AUM model. When we told our clients that we were collapsing everything into the Assets under management model, one thing that was really surprising is a lot of the clients who were, you know, the flat fee or the hourly, that, oh, thank goodness, like, this is what we were looking for for the whole time. And I was really surprised by that. Now, that said, we did have a number of clients who were operating on their flat fee who were really, really, really disciplined. They were good. They followed the plan. Every time we checked in, they were making progress. And you know what, we just kind of severed ties there and wish them the best. And they might be listeners of this show and they're doing really well. So I think that's where I would say, look, like when we look at the fees over time, I think for a lot of people that like this, it probably is going to be more expensive for them over time through an AUM model. But essentially, I was listening to one of your shows this past weekend. It was a really good show with someone who reached financial independence and he had to apologize for using active mutual funds. And you guys did a really good job saying, like, hey, if that worked for you, like, that's fine. And I will say that our current clients, again, as I mentioned before, financial independence is mandatory. We need to guide our clients to financial independence. However, most of our clients are not FI evangelists. They're not diving into this. I think about, I have a friend of mine who is in very good shape. He. He's like a stone's throw away from getting certified for being a personal trainer. He counts his macros. He is into fitness, and he makes fun of me because I have a personal trainer. And he said, look, all you need is four to five sessions. You learn all the lifts. Why do you still work with this person two years later? And I said, look, when I pay for it, I show up for it. I know all the lifts to do, I know the exact circuit that he puts me through. But this is why I pay for it, is that he gets me to show up when I don't want to. And then number two is he gets me to do just a little bit more. And those gains from marginal improvements make a big difference over time. So that's where I'd say, like our client is not the person counting macros. Like they're not the person who maybe could be a fitness coach. You know, they're the person who's like, hey, I know I need to do something. I know that I'm going to benefit from having a long term relationship. And this is the model that keeps them showing up year after year.
- [36:39]
A
This feels like a really good time to promote my new fitness coaching program which charges a fee based on pounds of muscle.
- [36:47]
C
I would benefit from that fee, by the way. It would be a lot less expensive for me.
- [36:51]
A
I would pay by a pound of muscle for sure. If I'm paying an AUM based advisor or a flat fee advisor, then I'm feeling that pain and that cost and I'm probably inclined to show up either way. And I'd argue I might be even more inclined to show up on the flat fee model. And so I think that the, the difference between a finance having a financial advisor and having no financial advisor, there's certainly a big difference. There is your argument that because the fees are more in your face with a flat fee advisor, that the client is much more likely to then fire the flat fee advisor and stop following the plan than under the AUM model.
- [37:30]
C
That's exactly right. And that's exactly what I saw in practice.
- [37:33]
B
I can totally understand that. I mean, this goes back to my comment earlier. The psychological aspect of writing a check might be so much more overwhelming. That because that's coming out of today Mindy's pocket. That's not coming out of future Mindy's pocket. That's future Mindy's problem. I can see your point, Scott, where you know, oh, if I have to write the check that I'm actually going to do it. I can also see, ooh, that's a line item in my budget I can get rid of when I'm making my new budget next year, year.
- [37:58]
C
And I think it's especially true and important earlier on when that person who's a high earner who has, you know, 100,000 that they're starting with and they're in the wealth building stage of their life. That $3,500 check that they're writing, like that's, that's meaningful and that's something that they do feel that, that pain. And I think that's where our AUM structure, especially for those clients in the earlier days, like, that's what keeps them coming back. Because, like, yes, our fees are transparent. Again, it's on the front page of every single monthly statement. So they see it. But because they're not feeling that pain of writing the check, they're showing up for it year after year. And we're seeing those clients again be able to see the progress from compounding both in terms of working with us and putting it through the plan and making sure that they're held accountable to the annual contributions, et cetera, etc, but then also staying invested through, through the entire time.
- [38:55]
A
I've come at this with the, I guess, bias or assumption that many of the people who are going for financial planning services are bringing, you know, the 500,000, a million, $2 million to the table and they're in. Those are the clients that the advisors want. You've got 100 grand and you're paying a 0.9% AUM fee. You're paying $900 for financial planning services. And if you can get 3,000 or $3,500 worth of value, the equivalent there, then in that case, I agree, it makes sense. But that fee compounds over time. And when that point crosses over, is that the time to switch? Is that how one should think about it?
- [39:29]
C
I mean, so first off, so in that example that you showed, so let's just look at the 200,000. I know it's not totally fair with the 7,500, but you see that crossover point in whatever it was. Actually, I don't even know that it crossed over in that example, but let's just say that it was. Yeah. So in that that's 30 years and it still hasn't crossed over.
- [39:47]
A
Okay, let me ask you the next question. We kind of, we kind of like, so we have my three, my three challenges were it's expensive, it's passive, so you don't feel it. And you may not be as rigorous in analyzing whether you're getting that value from your financial advisor on a regular basis. And the third one is what I perceive to be is the potential for conflicts of interest under the AUM model. And so some of the concerns I have there would be, for example, is this advisor who is making money on an AUM basis, are they likely to encourage me to maximize for terminal net worth basically instead of early financial independence? Because that's going to help them make more money. The more I stack into my 401, the more tax advantage it is, the more their AUM swells. And that may not be congruent with my goal personally. Another example is let's say that I have a 6.5% mortgage. There's a very fair argument that in certain stages of life and certain goal conditions that's better than continuing to put that money money into a investment portfolio in some circumstances it depends on what you believe in. But you know, will the advisor be likely to give advice that is no, don't pay off that mortgage, keep the money with me in that scenario. Another one would be, and I'll just list one or two more here. Will this person be very cautionary to me, perhaps more so than is due to avoid real estate or private business investments even if I have a hankering for that or reasonable probability to succeed in those areas areas. And last, will this person maybe you know, be a little bit cautionary or put the brakes on me giving money to the next generation or giving it away charitably as a result of that? We talked about passively managed index funds. Sounds like that's not an issue for you. But that's something I would worry about as well is just, you know, I believe I'm a big strong believer in low fee passive managed index funds. Can an advisor put my money in those and feel good about it or where am I? You know, is that something that they're going to be a little bit, hey, I want to kind of do something a little different here, prove my value value if people are going to pay me an AUM fee. So those are the conflicts of interest that I see that again there's going to be some with flat fee potentially they're going to want to keep your business on a year to year basis and roll that. So you can make different arguments about that, but those seem to be less obvious conflicts of interest than the ones that I just presented for the AUM model.
- [41:57]
C
So I've had a number of instances where clients have taken money out of the portfolio to buy a rental property or to buy their primary residence, whatever it may be. And we're actually revenue neutral control with it. Or actually in some instances we actually our revenue goes up from that, from that. But again that's why we Very intentionally have those cliffs as opposed to a graduated scale. You know, one of the reasons this is a good business is because we have long term client relationships. So we are more incentivized to keep the client over the long term than try to make a quick buck in the short term. And a lot of this is illuminated in the plan. So for example, you gave a a great example with the 6 1/2% mortgage rate. I had a client recently that was buying a new apartment and we were modeling out. Didn't make sense for them to take a mortgage or didn't make sense for them to pay cash. And when we put it through the financial plan and we presented to it in real time, it was roughly equal because of capital markets assumptions given where we are with the market, so on and so forth. So it was roughly equal in terms of that six and a half percent hurdle rates. And I asked the question like what feels better to you? And he said it kind of feels better to pay cash right now. That's what he did. And that's fine. And you know what happened after that? The client actually gave us a referral. And part of that is like when people trust you, when people like working with you, they tend to tell their friends. So I am much more incentivized to keep this client as a client for life as opposed to trying to convince them to keep an extra 600,000 in the portfolio because we're going to make a little bit more.
- [43:26]
A
I think that's a very effective argument in there. And I also want to couch that these conflicts of interest in various AUM things that I'm pointing out here are relatively mild compared to like the commissions structure where if you go to a financial planner, a certified CFP who sells life insurance products, I think there's a very high probability you're going to come out of the first or second meeting feeling very anxious about not having a whole permanent life insurance product. And I think it's going to be less acute in the fee only space. That type of feeling around conflict of interest or fear based advice is going to be way less acute in the fee only AUM space than it is in the commission based space.
- [44:05]
C
No question. Can I make one more point too on the full offering? And I also want to make this clear and I want to be careful with this because on the investing piece, as I mentioned, we are believers in low cost tax efficient ETFs. I also say, look, tell clients all the time, like do not hire us because you think you're going to get some sort of investment edge. You know, we're not calling our clients saying we have a crystal ball and you know, we need to, you know, lower the equity exposure right now and then get back in after market dips like we are not market timers by any stretch. However, I will say with the DIYers it is not uncommon that I meet someone who is very evangelical about being DIY fi everything that you're talking about and they show me their portfolio and it's QQQVTI IVV and is there anything wrong with that? No, absolutely not. But I can tell you that a lot of these people have never been through a lost decade. So is there value you for having developed international emerging markets, some commodities exposure, a little bit of fixed income exposure to help during those periods of volatility, especially those periods of volatility that could result in a lost decade for US stocks? I'm not saying this to be your fear monger. I'm not saying that that's the base case.
- [45:30]
A
Right. I've been begging this trem for the last year. I look like a moron because I diversified a bit last year and lost out on that huge run for that portion that I diversified out of of there. We've had Frank Vasquez on talking about risk parity portfolios. I completely agree that the fire community is one day, maybe it's this year, maybe it's next year, maybe it's in a couple years going to wake up and they're going to lose a huge amount of their wealth because they're in all out risky boglehead approaches which is not congruent with early financial independence unless you just get so far beyond your fire number that it obviates the issues of any safe withdrawal rate calculations. I think it's a huge problem.
- [46:04]
C
Problem.
- [46:04]
A
We know that our community, for example, is overwhelmingly invested in stocks in a way with almost no bond or alternative exposures in many cases relative to where they say they're at on their financial independence journey. So I completely agree with that statement and my challenge to you in response to that would be I think it's really important to get that financial planning, especially in that transition from the accumulation to the decumulation phase or as you're bridging to that. But I guess I keep coming back to that question, question why AUM in that circumstance rather than flat fee to help with that problem.
- [46:36]
C
So a couple things. So number one is, you know, for the clients that we've, we've kind of crossed over where that flat fee that $7,500, which also to be fair, on the other side, like if someone has a 5, $10 million portfolio, like a lot of the flat fee that I see, like I've seen 10, I've seen 15, I've seen upward in $20,000 when you're getting up there. And it kind of makes sense because, because you know, look, I'll give you an example, like one of our clients who's close to $10 million. There's decisions that you make when you get up to that level that add a lot of value and make a big difference. So for example, one client I was referencing, that's close to $10 million, you know, in a high income year recently we did a donor advised fund. It saved them over $50,000 in taxes. And it's, it's, you know, I have another client that again is in that range where a business was sold and, and you know, he needs a new accountant because his accountant didn't know what the QSBS election was and you know, kind of pumping the brakes and raising that, you know, has saved him $100,000 in taxes. You know, when you get up to that level, decisions that you make. And again, having an appropriate allocation is something where you can more than pay for those fees over time. Now, you know, you could have a flat fee advisor charging 10, $15,000 that could do the exact same. I 100% get it. I will say though, oftentimes those types of advisors, and maybe I'm wrong about this, but I feel like those advisors spend a lot more time on the planning than on the investing piece. And a lot of those clients that they have don't want any help with the investing piece. And I think that's the nuance there.
- [48:17]
A
This kind of brings up another question. You haven't said this and so I don't want to put any words in your mouth, but I got this argument a lot on my LinkedIn post from, from financial planners, especially of the, you know, some of the folks that are of the ilk that I kind of had stereotyped in my mind. I almost, I kind of got some of the folks that I was, I was expecting to get kind of coming in real hot on the, on this, but there was this concept of I'm an AUM or I'm a fee based guy and I'm really good, I'm really good at financial planning. And these other guys that are charging flat fee or advice, they're like discount planners, they're not good at this. And you didn't get there with your comment here, but you're kind of dancing around that point a little bit. From what I was thinking, whether there's some things that this is the $10 million portfolio might need versus this one. How do I think about articulating that difference in good versus bad? Because I completely agree that if you exclude the fees, forget about the fees. Hiring a good financial planner that can make sure you don't miss any of these things can be if they're more expensive. Expensive, way cheaper than hiring a bad one who creates a problem for you, doesn't really know what they're doing. Like that's no debate. Is there a little bit of that in the industry where maybe at least some industry insiders feel that better planners are aum based? Is that a bias inside the industry?
- [49:33]
C
Those aren't the words that I would use, but I think that's fair to say. Look, I think there are a number of really good advisors out there that are very competent in terms of working with high net worth or ultra high net worth clients. I think there's no question about that. And you know, as I was saying, like they typically charge a much higher fee than 7,500. And I would say that that makes a lot of sense because as I mentioned before, that decisions that are being made have a much bigger bottom line impact. But what I typically see is those advisors tend to stray away from the investing piece of it. They tend to do really well with those clients who are, hey, I've got my passive portfolio, I'm good on that front. I just really need help to make sure that I'm planning, make sure that I have the right estate vehicles in place, make sure asset allocation is in the right place and to make sure that there's someone in place if something happens to me. But from what I've seen, from what I've observed, a lot of those advisors don't necessarily touch much on the investing side or really want to to roll up their sleeves on that piece of it. And I think especially as you get up to those asset levels for clients that are not sophisticated with investing, the investing piece becomes incredibly important.
- [50:48]
B
When you say the investing piece and the financial plan, are you saying that these flat fee planners are just saying, hey, you should invest in some stocks. They don't say which ones they should invest in or you should invest in this sector and that like that's the kind of, of planning they're doing.
- [51:06]
C
I think what I'm seeing more of is, hey, XYZ client who has 10 million, $15 million. You're good on the investing side. You have your investing program that works for you. I am going to make sure everything's optimized from a planning standpoint and we're going to do and making this up, an annual health check or whatever. It may be that they're really good at that and they're not necessarily paying as much attention or really focusing on the investing side. I might be wrong on that. But like that's what I've seen. I think another thing that's also important to note is that a lot of the best advisors are solo practitioners that only take a handful of clients. And I've yet to see a firm do it at scale that can work with that. Eight figure clients.
- [51:52]
A
Moving down from the eight figure range here, we had a great conversation with Bill Yont from catching up to fi recently, recently and he hired a financial planner and this is a flat fee advisor and that advisor manages his assets. And I think for now I'm not going to probably hand over my assets to a financial planner to manage for me maybe to some degree in some circumstance or whatever. But when I'm 70, I surely will do that at that point in time. Right? Or that's my belief right now. I hope I'll be able to do that at that when that time comes because there's a real risk as 70s and 80s and 90s coming along that I'm not going to be competent to do that at that point in my life. And so I'm a big believer in the case for financial planners managing their clients investments in there. But there, there are also, there are flat fee again it comes down to the flat the which how are you going to pay them? Right. That's that which is the, the topic at hand here which is flat fee versus AUM in this case. Do you believe I'll I'll just have a much harder time selecting from a quality pool of potential planners in the flat fee space than the AUM space.
- [52:53]
C
My hypothesis would be yes, I'm not saying that there aren't really good flat fee advisors that also can nail it on the investing front, but from what I've seen a lot of those planners are very, very, very, very good planners. And the investing side either they don't want to touch, they don't manage, they have clients that don't want in fairness they have clients that don't want them to manage. Or you know, I've also seen too utilization of the robo advisors and saying, you know, go, go to the wealth fronts go to the betterments and you know, yeah, they're aum, but they're much lower fee. And you know, it's interesting actually speaking of the robo advisors and some of the flat fee advisors that utilize the robo advisors, which I know that there are many out there that, that do. I will say we've also kind of leaned into that and said hey, like you know, what is the robo advisor fee and anything from 25 to 30 basis points points or maybe when you go upscale it's a little bit less. But we've really leaned into that to say hey, let's use the 60 basis point fee schedule for us, if you're going to go to a robo advisor and be charged 25 basis points, well, we can easily just say that our investments are at 25 basis points and then the remaining 35 basis points. That's what you get for the planning and the coaching and the fee. If you disaggregate the fee, it probably works out to being fairly equivalent. Equivalent to an advisor that charges that flat fee but then outsources to the robo advisors for the actual investing of it. Again, I'm not saying every advisor does that, but I've seen that where someone will hold themselves out saying hey, I'm a flat fee advisor and their clients are utilizing the robo advisors.
- [54:30]
A
Fair enough. So I'm paying you 7,500 bucks a year to manage my money on my $2 million portfolio or whatever and that's cheaper than the amount of fees I'd pay. But you're just then dumping my money into a high fee set of funds?
- [54:42]
C
I would say a high fee set of funds but you're, you're, you're allocating the investing to something that's 25 basis points.
- [54:47]
A
You think it'll be a little harder for someone shopping for a good financial planner to find a quality one in the flat fee space versus the AUM space for that period. Let's call it, you know, 65 to 95, right? Where, where you really probably want that, that help at least certainly towards the end of that time. What does good mean in that context?
- [55:11]
C
Like I was saying before, someone who's going to understand asset allocation, somebody who's going to understand the importance of non US investing, someone who's going to understand the role that fixed income plays in it, somebody who is going to have access to certain alternative vehicles to help manage volatility. Because of course when you get to that point you're in retirement, the sequence of Return risk is, is incredibly important. And I even think about being an AUM advisor and certain resources that we have. For example, we're partnered with a firm that utilizes a box spread strategy to be able to do some asset based lending at a pretty low rate. Well, from a sequence of return risk standpoint, in a very bad year, instead of selling from the portfolio, being able to borrow using the box spread strategy at 4% or so at least, as of right now, that's only available to AUM Advisors. So I do think AUM Advisors do get access to a broader suite of investments and vehicles to help manage, especially as you get up to that, you know, high seven figure, you know, eight figure range.
- [56:22]
A
So we're reaching some of the limits of my sophistication with kind of invested investment jargon analysis here because I'm pushing back from the perspective of, of. I think that it probably was true a few years ago that you really couldn't find a lot of the flat fee. It was a little rarer and that was still a budding industry here. But it seems like in the last year in particular, as folks have gotten smart or knowledgeable or educated about the fees that are being charged in the space, that a huge cottage industry of small firms are starting to pop up that are charging these flat fees. And that the assertion, the light assertion you're making that it's harder relatively to find those is less true and is getting less true all the time. And that there are an abundance of quality flat fee financial planners who will manage assets and who will make a great living. You know, at 7,500 bucks, times, you know, a couple dozen or maybe up to 100 clients doing that, they'll make a great living and begin taking market share from the AUM model. What's your reaction to that? That school of thought that might be true.
- [57:24]
C
And I think like any industry, things evolve. I think about how the broker was replaced by more of this advisory model. There has been and there will continue to be fee compression. There's no question about that. Which is also where, if you look at our fee schedule, I think it's fair to say that we are on the lower side compared to what a lot of the AUM fee structures are out there. Is that fair to say? Yeah, and that's very intentional because I've been a steadfast proponent that, that there needs to be fee compression in this industry. We've already seen it. That's going to continue to happen. So number one is I think fees are going to continue to be compressed on the AUM side, period. Number two is if it does make a lot more sense when you're talking about the full range of the planning, coaching and investing and you are seeing more competitors sprout out who are doing the ultra high net work worth at a fee only level and doing it really well. Yeah, I think the industry might have to change and, and by the way, like maybe we change with it.
- [58:28]
A
Love it. I, I want to, I want to wrap up here with one, one thought here around a case, a specific case where I think the AUM model may make a lot of sense because I don't, because I want to come in and say, you know, I am not 100% against Aum. I'm, I just, I just came in with the bias and I, it was wonderful to talk with you here. I think I still have that, that lean, but also concede several points that you made that are really well today that kind of opened my eyes to some new possibilities here. But one specific case where I think that there's a really good argument for AUM is in the case where, you know, you need a kind of full service financial planning relationship and you are right on the cusp of kind of that lean or traditional fire or lean or traditional, you know, one to two and a half million dollar retirement account number. And in that case if you're in the kind of lower end of fees because the AUM fees wax and wane with portfolio performance that will reduce sequence of returns risk relative to the fixed ongoing flat fee nature of a model. And so I, and I think in some situations and some fee models comparing between some, some folks, there's actually a really good financial reason to go with the AUM fees instead of the flat fee in some specific instances. Do you have any thoughts on, on that?
- [59:42]
C
I think there's some, some truth to that. I think, I think that does make a lot of sense. You know, look, I, I think, I think when I think about what are, what is a really good client for us. You know, it is somebody who is on the wealth building journey who is, is not listening necessarily to these podcasts, is not an FI evangelist but needs to understand that fi, as I keep saying is mandatory. And I think think that person, that avatar who also quite frankly, and not to pull up another point here, but one thing I've heard from clients who've come from flat fee advisors is that evangelical piece can sometimes be off putting where it is a, you know what, like they went too hard to the hoop on what I need to be doing right now. And I want to get better, but I don't need to do it all right now. That person who wants and needs a long term relationship, who potentially would be subject to firing an advisor because they don't like to see that money leaving their bank account once a year or putting on the credit card, that's a really good client for us and the client that we should serve and a client that we will serve very well over a decade plus. So when I look, look at, you know, again like you go the sequence of returns, risk and retirement, I think there's a valid point there because AUM does kind of scale with where the portfolio is like I totally get that, but I wouldn't hold that out as like that's an argument to hire us. The last thing I'll say is, you know, wealth is very personal and I think at the end of the day people need to work with someone who they, who they trust and who they see themselves working with in a multi decade experience. And I think we would all agree here that if somebody finds something that works that's seeing progress over time, like your recent guest who had actively managed mutual funds, I would argue they shouldn't be an actively managed mutual fund, but it works for them and I kind of get it. And I think again, that's our client where they need a multi decade relationship. And the AUM model is really the model that keeps the planning, coaching, investing tied together.
- [61:52]
A
Ryan, thank you so much for coming on and sharing this. Can you tell us where people can find out more about you?
- [61:57]
C
Yeah. First off, thank you so much for having me. This is an absolute pleasure. Again, fan of the show and thank you guys for all that you're doing. You can find me on LinkedIn, Ryan Sterling, or you can go to nerdwalletwealthpartners.com and you can set up a meeting with one of our advisors.
- [62:14]
B
Ryan, I really appreciate your time. I learned a lot. I got a lot of changes to my mentality after this conversation. So I appreciate it.
- [62:22]
C
Oh, my pleasure. Again, thank you guys so much.
- [62:24]
B
All right, Scott, that was Ryan Sterling with Nerd Wallet Wealth Partners. And I gotta say, Scott, I am starting to feel a little bit different about the AUM fee based planners after this episode. I mean, I was fully not expecting to start to see the other side, but I think that AUM fees do have a place, can have a place for the right situation. If you identify with what Ryan was saying about, you know, paying your upfront advisor. Feels weird to take money out of your pocket now or maybe you would just cancel it, you know, oh, that's a budget item I don't need. Then maybe the AUM fee is a better choice for you. Just know what you're paying. Know this upfront. I love that they put it on the first page of their reports to people. Scott, what did you think of the show? Are you sold like me? Are you more steadfast in your beliefs?
- [63:13]
A
I want to say two things can be true at once. One is I thought Ryan Brand was fantastic. I, I thought that was a wonderful interview. I came at him in particular hot the entire way through with question after question challenging his model. Let me know in the comments if you think I did a good job on that. But I, I, I really thought I came in pretty hot and did not let up or allow, you know, as much as I could any separation of of course good financial planning services are valuable and why AUM versus flat fee is better.
- [63:39]
C
Right?
- [63:40]
A
Because those are two different things.
- [63:41]
C
Right?
- [63:41]
A
Good financial planning can be valuable and that does not change whether AUM fees or flat fees are better. But I thought he did a fantastic job handling the conversation, conceded several really important points and also made some really good points there. I am still at the same time not convinced that I will really ever search start my search for a financial planner that charges AUM fees and certainly will continue to keep my bias against those who make money selling life insurance products or earning commissions on the sale of financial products. So that that's a non starter for me and continues to be and I think that's pretty common as well for for many of the financial planners who are fee only and charge either hourly flat fee or assets under management fees. So I'm still pretty unconvinced. But again I thought he had a really strong take here on it. So I, I was really impressed and really grateful for what he's contributing here.
- [64:30]
B
I felt he made some really great points for why the AU AUM model would work for different types of people. I agree with you. I'm probably not going to go and get an AUM based advisor right now, but I can see more of why people do it after this conversation. So I'm really glad that he had time for us today. I thought it was a great conversation.
- [64:52]
A
Absolutely. I want to call out as well that this is somebody who's actually fairly aligned with some of the things that we think about in many cases here on bigger pockets money. It's more expensive with the AUM fees but you can tell those are lower general fees than what we see in other financial planning services. And I need to think about a noodle on. Maybe the audience can help me with some feedback and the questions. Or email me@scottigerpocketsmoney.com what the implications are. If you have 100 grand to invest and you need a financial planner, if you go with the fee only financial planner and pay that 900 bucks or whatever, is that very valuable? Are you going to get rejected or not get the same service as other folks? That's a question that I think still lingers for me that I don't think I did a good job of addressing in today's show, but would love some feedback on or thoughts from the audience on there because that's interesting, right? If a flat fee model is 2,500 bucks and a AUM fee model is 0.9% of 100 grand and I'm getting several thousand dollars worth of financial planning outputs, that makes sense on the surface, but that doesn't seem right to me. It doesn't seem like that's exact that's how it will actually work in practice. Maybe it is, but I would love feedback on that.
- [65:53]
B
Yeah, I would love to see that feedback too. So cc mindy biggerpocketsmoney.com when you email email scottiggerpocketsbuddy.com one of the things that.
- [66:01]
A
I think was really interesting about what Ryan said is this concept of if people are paying it and the service is there, I can push them to actually receive those outputs over the long haul. And I still really have a hard time with that argument. Right. Hey, because the fees are deducted automatically and even though they're on the statement, they're right there. I'm sure I'm not doubting him that they're right there on the front page page. I have a really hard time with hey, the fees are deducted automatically. The client is paying. They don't feel it coming out of their checkbook, so they don't mind paying it and therefore they stick with the relationship longer. I have a really hard time with that particular argument. In fact, it's one of the things that I think bugs me the most about the AUM model and that part, I heard it. I believe the guy that that's how he feels about that part of the model. But it's still something that just doesn't sit right with me about the AUM model in a foundational way that that's one of the reasons why it's so successful.
- [66:56]
B
I'm going to Push back on that, Scott, and say that you are a very logical person and there's some people in this world who are not as logical as you. And you say to yourself, well, that's just what it costs. So it's going to come out of my pocket. It's not going to come off the top. And there are other people who say, when it comes out of my pocket, I truly believe people feel that I've got today Mindy put problems, and I've got future Mindy problems, and I don't want to pay for future Mindy problems with today Mindy money.
- [67:24]
A
Fair enough.
- [67:25]
B
And if you're logical, great. Listen to Scott do his thing. If you're more Mindy esque, then. Then, you know, my argument makes a little more sense and maybe the AUM model is the one for you.
- [67:36]
A
That argument, I hear it, I understand it. I just. I just can't wrap my head around it. You're right, Mindy. It's not, it's not how my brain works. It just bugs me that that particular point and the other thing that I think is common to a lot of this is I think that some of the financial planners I talked to and Ryan was not like this. But there has to be a little bit of this. It has to be, I'm really good at this, right? Like you're going to hire a lawyer who charges top dollar and hear I'm okay. They're going to tell you they're really, really good at what they do, you know, to a T in there. And I think that that's a challenge for me to hear. Hey, they're really good ones, you know, are going to charge you top dollar here. Well, what is good? What does a good financial planner do versus, you know, someone who's not, who's less good? I have a really hard time when I hear that argument or a version of that argument from a financial planner, you know, in, in the AUM fee or the, the commission space. And I think that, you know, a flat fee or hourly advisor will come in pretty hot saying, what are you talking about? I'm very good. Let me show you exactly how good I am am in all these cases. And I think it's gonna be really hard for a typical person hiring a financial planner who doesn't have a very clear playbook to discern between the skill sets of financial planners. I think it's gonna be a core challenge you have to develop if you're gonna hire any financial planner in any of these capacities, because they're all Gonna sound good to a layperson who's, who's trying to hire that first one. I think it's a skill you're have to develop over time in finances and really kind of understand what you're looking for and what you're hiring for. But I'm really skeptical that the good ones are in the AUM space or the fee based space and that the discount advisors are over here in flat fee or hourly. I just don't buy it at all. I think it's, I think it's, I think it's bs, frankly. Can't say the other one because we're, we're a family friendly podcast here.
- [69:17]
B
I'll throw this out to everybody who's listening. If you have an advisor, what do you like about your advisor? What makes your advisor good? Or if you have let an advisor go, what made them bad? What was the thing that they did that made you say, I don't want to be with you anymore and let's see what a good advisor looks like?
- [69:35]
A
Absolutely. And by the way, last thing I want to say here on this, because I know we've gone on for a long time, I do not think AUMV advisors are bad or even that some of the commission folks are necessarily bad. There's probably great financial advisors in every one of these categories and there's probably lousy ones as well. And so interviewing a financial advisor for their quality of their financial planning, their investment toolkit, their tax strategy, those types of things, things I think is independent of the fee model that they charge. I think you can find good and bad in each of those fee models that we discussed.
- [70:08]
B
I agree. All right, Scott, should we get out of here?
- [70:10]
A
Let's do it.
- [70:11]
B
That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying I got to hip hop out of here.