Unbundled Advice: A Mailbag Episode

Summary

Money Stuff: The Podcast Episode Summary: Unbundled Advice: A Mailbag Episode Release Date: March 21, 2025

In this engaging Mailbag Episode of Money Stuff: The Podcast, hosts Matt Levine and Katie Greifeld delve into a variety of listener questions, offering insightful analyses on topics ranging from commodity futures to the evolving landscape of financial advice. Here's a detailed summary of the key discussions, notable quotes, and the conclusions drawn throughout the episode.

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1. Chocolate Futures and Warehouse Quality

Timestamp: 03:14 - 08:02

Patrick's Inquiry: Patrick questions the quality of chocolate stored in warehouses facilitating futures contracts. He observes, "If [the warehouses] exist to facilitate futures contracts, why is the quality of the chocolate often bad?" (03:14).

Discussion Highlights: Matt Levine explains the disconnect between the quality of cocoa used in futures contracts and consumer-grade chocolate. He states, "You don't expect that most people trading the futures will take delivery of the cocoa" (05:30), highlighting that the primary purpose of these warehouses is to serve as a substrate for trading rather than producing high-quality chocolate.

Notable Quote: "When there is a lot of cocoa, all cocoa is crap. When there is no cocoa, all crap is cocoa." (04:59) – This popular saying among cocoa market participants underscores the fluctuating perceptions of cocoa quality based on supply.

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2. Unbundled Financial Advice and ETF Adverse Selection

Timestamp: 08:03 - 11:57

Justin's Concern: Justin raises a critical issue regarding the emergence of private credit ETFs. He wonders, "Isn't adverse selection an inherent issue? What is to protect the retail investor and prevent the ETF manager from stuffing the fund with the loans it expects to underperform?"

Discussion Highlights: Matt addresses the fear by emphasizing the fiduciary duties of ETF managers. He notes, "The ETF manager has a fiduciary obligation to the ETF clients and they have their own independent ability to make sure they're not getting stuffed with Apollo's worst loans" (09:38).

Katie complements this by sharing insights from her interview with Ana Paglia from State Street Global Advisors, who affirmed that their team possesses the "expertise in house" to evaluate the quality of loans being added to ETFs (10:18).

Notable Quote: "If you try too hard to understand what is allowed or how things work, you'll be making mistakes because things don't work the way they're supposed to work and the rules don't necessarily apply anymore." (16:00)

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3. The "Elon Markets Hypothesis" and Market Influences

Timestamp: 14:55 - 21:29

Anonymous Listener's Scenario: A listener posits a hypothetical situation where Elon Musk becomes an omnipotent figure influencing market decisions. The question revolves around the diminishing importance of digging into financial intricacies when market moves seem dictated by a single individual's whims.

Discussion Highlights: Matt introduces his "Elon Markets hypothesis," suggesting that "financial assets are valuable not because of their cash flows, but because of their proximity to Elon Musk" (14:55). He reflects on the era of meme stocks and how social media influencers can sway market sentiments, often overshadowing fundamental financial analyses.

Notable Quote: "Everything got kind of dumber, and our current political environment has expanded that dramatically." (16:30)

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4. Tech-Heavy Hedge Funds and Fictional Narratives

Timestamp: 18:04 - 21:16

Bruce's Creative Query: Bruce shares his fictional concept for a spy novel, envisioning a hedge fund run by ex-CIA contractors involved in illicit activities. He draws parallels between his fictional narrative and real-world investment funds, questioning the plausibility of such schemes.

Discussion Highlights: Matt compares Bruce's scenario to historical cases like Bernie Madoff's Ponzi scheme, explaining the complexities and regulatory challenges involved in laundering money through legitimate-looking investment funds. He concludes that "there are a lot of ways to launder money that don't involve entering a regulated industry" (20:43).

Notable Quote: "Bridgewater might be a Ponzi scheme... But those things seem to be wrong." (21:08)

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5. The Conundrum of Unbundled Financial Advice

Timestamp: 24:14 - 31:15

Andy's Dilemma: Andy questions the scarcity of unbundled financial advice services. He expresses frustration over the prevalent fee structures tied to Assets Under Management (AUM), which he finds expensive and restrictive. Andy asks, "Does unbundled financial advice exist?"

Discussion Highlights: Matt explores the business model challenges of offering fee-for-service financial advice. He explains, "If you're offering zoom calls to people to talk about their hopes and dreams and portfolio allocations... you have to charge them hundreds or thousands of dollars for the zoom call because that's just your time" (25:31). The hosts discuss potential workarounds, such as maintaining a minimal asset base with advisors to access periodic advice while managing the majority of investments independently.

Notable Quote: "You don't get into the financial services industry to bill a capped amount for your hours. You want the ability to scale." (25:55)

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Conclusion

Throughout this episode, Matt and Katie adeptly navigate complex financial topics, providing clarity and depth to listener questions. They emphasize the importance of understanding underlying mechanisms in markets, the responsibilities of financial managers, and the challenges within the advisory landscape. The hosts encourage continued listener engagement, highlighting the value of diverse questions in enriching the podcast's discourse.

Notable Final Quote: "We'd love to hear from you. You can send an email to [e-mail]. Ask us a question and we might answer it on air." (30:51)

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This episode serves as a compelling exploration of contemporary financial issues, offering both expert analysis and relatable discussions for listeners seeking to deepen their understanding of money matters.

Transcript

[Apollo]

The global industrial renaissance is transforming our world. Over the next decade, industries like energy, infrastructure and technology will need an estimated 75 to $100 trillion to modernize and meet demand. Long term projects need long duration capital. That's where Apollo steps in. With scale, flexibility and a focus on growth, Apollo partners with companies to drive the future one innovation at a time. Learn [e-mail] Renaissance how is Microsoft Security.

[Microsoft]

Helping customers stay ahead of 600 million attacks without slowing down business? From automakers to sports organizations and digital banks, Microsoft Security delivers deeper insights, scanning trillions of signals daily to help you see around corners and protect your business. Security is your job, and it's theirs too. With Microsoft Security, you have a partner that helps your business move forward confidently. To learn more, visit Microsoft.com CISO that's Microsoft.com CISO this is an ad by BetterHelp.

[BetterHelp]

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[Microsoft]

Bloomberg Audio Studios Podcasts Radio News.

[Matt Levine]

Hello and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

And today it's a mailbag.

[Katie Greifeld]

Dear listeners, just keep on sending in questions and it feels like it's about time. It also helps that I'm on vacation. We're recording this in the future, in the past, I don't know.

[Matt Levine]

On the slopes?

[Katie Greifeld]

Yeah, definitely. I am actively skiing right now. Remember we did an episode about Coco Futures?

[Matt Levine]

How could I forget?

[Katie Greifeld]

I forgot a little bit. But I was so tickled by this question.

[Matt Levine]

Did we do an episode?

[Katie Greifeld]

Yeah, we did. We talked about Hershey.

[Matt Levine]

Sorry. I said how can I forget? It's all coming back to me now.

[Katie Greifeld]

Matt Lies Hershey's we have a question from Patrick who says thanks to your podcast, I'm now obsessed with chocolate futures contracts. I have a question about these chocolate warehouses that I just can't understand. Maybe you can help me. If they exist to facilitate futures contracts, why is the quality of the chocolate often bad? I thought futures contracts specified the quality of the chocolate in advance in terms of origin and grade. Is it not a flaw in the system that worst chocolate is is being put in these warehouses? Thanks. I love that question.

[Matt Levine]

That's a good question.

[Katie Greifeld]

I did some reporting actually went to a chocolate warehouse. Yeah, I sampled the chocolate. I went to Bloomberg Intelligence when I have like a niche question about a topic I know very little about. I'm going to read this out loud.

[Matt Levine]

Sure.

[Katie Greifeld]

I got this email and I read it really quickly so I haven't thought deeply about this. So hello, you are completely right. Contracts would specify the quality and origin of cocoa beans. And this is the reason why cocoa really doesn't have one single price, but several that reflect these differences. So to illustrate this from a higher level perspective, at the end of last year the ICCO published a report noting that the price difference between London Futures and NY was due to London having more beans from Cameroon which are perceived to be of lower quality. Now, because cocoa is a soft, maybe there is some scope for exchanges to hold lower quality or just mismanage inventories. Don't really know to what extent this is happening. Now I'll leave a quote quite popular among cocoa market participants. Quote when there is a lot of cocoa, all cocoa is crap. When there is no cocoa, all crap is cocoa. Oh dear, I hadn't read that first. That's really funny.

[Matt Levine]

It's a great episode title if we can do it.

[Katie Greifeld]

All Crap is Cocoa. That is so interesting. I guess I haven't really thought about it before that when you take a look at commodities such as this and you think about the different prices on different exchanges, I have never thought that maybe the quality in this case of cocoa explains the difference. Yeah, because with oil, I mean I don't really think about the quality of oil, but it makes sense that there's. I don't. Because I don't think about that. But it makes sense that cocoa Coker.

[Matt Levine]

Versus Yes, true sour crude, et cetera. Yeah, I mean I write about this a Lot like if you're a chocolate maker, you want cocoa to put into chocolate, and if your chocolate bars taste bad, that's bad for you. If you're a commodities futures warehouse, you need cocoa to be the underlying deliverable for the commodity futures. And so you put that in the warehouse. But you don't expect that most people trading the futures will take delivery of the cocoa. And so there's like a little bit more of a disconnect. Like you have to, you specify a grade and everything, but like it's a little bit less important that the cocoa tastes good if it's mostly being used as a substrate for commodities futures contracts than if you're actually just putting it directly into chocolate bars. And so there are a couple of like examples of this from the not chocolate market, of which my very favorite is that in the nickel market, yes, there's a warehouse put nickel in it. You trade futures on the nickel. Nickel is kind of non perishable. And so you never really have to take the nickel out of the warehouse. And so it just sits in the warehouse for years. And at some point someone discovered that some nickel that J.P. morgan owned, not because it was like J.P. morgan's nickel, because they happened to take delivery on the futures contract, the nickel in this warehouse that J.P. morgan owned was actually a bag of rocks. And it was fine. Who cares? They never took it out, they never made anything with it. It's just a bag of rocks in the thing. But once you discover it's a bag of rocks, you can no longer use it to trade nickel futures. But until then, it doesn't matter, you're not building anything. But the other great example is coffee futures. In the coffee market, coffee is like cocoa perishable. And so there are rules about quality of the coffee that goes into the coffee warehouses. And one of the rules is you can't leave it there forever, right? Because it's perishable. And so there's an age penalty where you get paid less if you deliver old coffee. But it used to be that you could take your older beans off the exchange and then resubmit them for a new round of certification and get rid of the age penalty. So, so the beans are so like abstracted that like taking them out and putting them back in makes them fresh new beans again. Wow. Which is not how like actual coffee brewing works, but for commodities futures, it's fine, it's good enough. And they changed that rule. So like now you have to have.

[Katie Greifeld]

Slightly fresher coffee that would be a disgusting cup of coffee.

[Matt Levine]

I mean, yes, like I think coffee, probably you could go.

[Katie Greifeld]

I don't know. I have pretty high standards.

[Matt Levine]

You have. Okay, fine. You would not drink?

[Katie Greifeld]

No.

[Matt Levine]

Commodities futures exchange coffee. I probably would just for. Just for a stop.

[Katie Greifeld]

I mean, if I was dying, perhaps that would be kind of fun.

[Matt Levine]

I think we should do it. So different commodities have different rules, but in general, the need to have the freshest possible commodity, you want that for your industrial uses, not for your putting in a warehouse.

[Katie Greifeld]

Yeah, great question, Patrick. That was a lot of fun.

[Matt Levine]

Mailbag.

[Katie Greifeld]

Mailbag. This question comes from Justin, straight after my own heart. With the advent of a private credit etf, isn't adverse selection an inherent issue? What is to protect the retail investor and prevent the ETF manager from stuffing the fund with the loans it expects to underperform with respect to similar loans from a particular vintage. That is like the most pessimistic fear here.

[Matt Levine]

It's like a very reasonable fear.

[Katie Greifeld]

I know, but you would hope that Apollo isn't trying to like use retail as exit liquidity or whatever.

[Matt Levine]

I mean, you would hope, you'd hope that all the loans are good.

[Katie Greifeld]

Yeah.

[Matt Levine]

And like as an asset manager, you have fiduciary duties to all of your clients and you try to make only the best loans. It is weird. You look at Apollo, much of their capital is their balance sheet. They run a big retirement services company. So a lot of it is their balance sheet, a lot of it is client money that pays stereotypically 2 and 20. It's probably not really 2 and 20, but people who pay kind of alternatives manager fees. And some of it is ETF money who pay lower fees. So like where do you put the best loans? Your insurance company, your balance sheet? Very smart people run that. Your limited partners in your institutional private credit funds, Smart repeat player allocators, your retail ETF clients, Who knows?

[Katie Greifeld]

Well, I actually did reporting for this question as well. I sat down with Ana Paglia from State Street Global Advisors on March 13 on Bloomberg Television and I asked her this question. Does State street have the in house expertise to sort of evaluate what Apollo is putting in the etf? And this was her answer. She said, we do have the expertise in house, but we also made the new hire to make sure that we had the right talent in seeds. SSGA is the advisor by design. We wanted us to be in a position to make selections and have investment discretion on what assets to take or not to take from Apollo.

[Matt Levine]

That's the sensible answer, right? The ETF manager has a fiduciary obligation to The ETF clients and they have their own independent ability to make sure they're not getting stuffed with Apollo's worst loans. Plus, Apollo is not in the business of trying to make the worst loans. They're trying to also make good loans. If you think about a bond etf, you have the same risk there. And the reason people don't think about it very much like they do a little bit. Right. Because there are sometimes worries about cherry picking. But the reason people don't think about it that much is because a bond fund has a track record. There's an incentive for Pimco to not do a bad job managing its public bond funds because then people won't put money into them. The private credit ETF stuff is new and so there's no through the cycle performance data where you can tell whether a fund is good or not. And so you have to worry about this stuff in the long run. You sort of assume that like people will try to manage funds well because that's how they raise money.

[Katie Greifeld]

Yeah, it doesn't have a track record. And I think that's an important point because there are a lot of very pessimistic concerns about this etf, but it just hasn't been alive for very long.

[Matt Levine]

Right. You could sort of tell a story of like private credit has had this like massive boom and the market might be turning a little bit and now is the perfect time to stuff retail with it. But yeah, that's like a kind of a simple.

[Katie Greifeld]

I mean we're recording this in the future, so who knows what it looks like. Yeah, maybe things will be totally better by the time this episode comes out. But great question.

[Apollo]

The global industrial renaissance is transforming industries and reshaping our world. Over the next decade, sectors like energy, infrastructure and technology will require an estimated $75 to $100 trillion in CapEx to modernize and meet the growing demand. This unprecedented level of investment is beyond the scope of public markets alone. Long term projects need long duration capital. That's where private capital comes in and that's where Apollo leads. With significant scale. The flexibility to adapt to evolving capex needs and a steadfast focus on enabling economic growth, Apollo is partnering with companies to provide the financing solutions that fuel the future. Learn [e-mail] Renaissance what are some ways.

[Microsoft]

That Microsoft Security is helping customers stay ahead of 600 million attacks without slowing down business? For sports organizations, it means letting fans share in the action without sharing sensitive information. For automakers, it means driving change and securely innovating their development. Process. And for digital banks, it means staying ahead and keeping up with evolving cyber attacks. Microsoft Security equips you with deeper insights to help you pinpoint vulnerabilities, see around corners and innovate confidently. They scan trillions of signals daily, giving you the guidance, expertise and tools to protect your business without sacrificing speed for safety. Security is your job, and it's also theirs. With Microsoft Security, you have a partner that looks deeper, keeps you ahead, and helps your business move forward securely. To learn more, visit Microsoft.com CISO that's.

[Stifel]

Microsoft.com CISO deep domain expertise Strong relationships Broad capabilities. It's what makes Stifel one of the industry's leading providers of M and A and capital raising services in the middle market. But don't just take anyone's word for it. IFR has named Stifel US Mid Market Equity House of the Year five times in the last 10 years. When it comes to investment banking, Stifel is the name you should know. To learn more about how Stifel can help you address your most complex investment banking needs, visit stifelinstitutional.com Stifel Nicholas & Co. Inc. Member SIPC and New York Stock Exchange.

[Katie Greifeld]

Mailbag Mailbag we have another question. I don't have a name to attach to this one, but the question is fun as we accelerate descend into the scenario where Elon Musk is God king. And the answer to every question is because that's what Elon wants. What's the point of digging into anything? Matt, take us into this existential spiral.

[Matt Levine]

Right I used to think of my job as trying to understand and explain complex structural financial topics. And then meme stocks hit and I found myself writing a lot of very dumb stuff and coining the Elon Markets hypothesis, which is that financial assets are valuable not because of their cash flows, but because of their proximity to Elon Musk. Because there was a time, and it's kind of continuing, where Elon would tweet about a thing and the thing would go up and it was like Dogecoin or there's a story about Signal where he tweeted used Signal, and an unrelated company with Signal in his name went up. Just anything he turned his attention to would go up. And if you sort of looked at that and thought, well, the present value of the expected future cash flows of this company has gone up because Elon tweeted about it, then you would be missing the point. And what was actually happening was just like, yeah, people like Elon Musk and the stock goes up. And then meme stocks kind of crystallized that a lot of mental energy went into understanding the technicalities of GameStop, where it's like, oh, you could have a thesis about the company's turnout, or you could be like, oh, there's a gamma squeeze and a short squeeze. There's all this technical stuff that you can understand. But mostly it was like, people online liked it and so they bought it and it went up. Everything got kind of dumber, and our current political environment has expanded that dramatically. I wrote, let's say last week now about the U.S. consumer Financial Protection Bureau. The CFPB has written some rules about how financial companies are supposed to interact with consumer customers. And those rules have been suspended by everyone at the CFPB being told to go home, but they're still there. And so there's all this stuff you can look at and be like, oh, the rules say this, or this is how you're supposed to do stuff. But, like, it's not clear that how you're supposed to do stuff matters anymore or that the rules are enforceable. And so we're in this sort of weird gray area where, like, if you try too hard to understand what is allowed or how things work, you'll be making mistakes because, like, things don't work the way they're supposed to work and the rules don't necessarily apply anymore. And that's a frustrating position to be in if you're in the business of trying to understand things.

[Katie Greifeld]

How does it make you feel as a person who writes a newsletter, though? Because it seems like you had fun with the GameStop era.

[Matt Levine]

I did have fun with the GameStop era, but it ate at me because I was like, I wish I had insight to offer. I have only jokes.

[Katie Greifeld]

Well, when all else fails, at least we can laugh. We still have our laughter, sort of.

[Matt Levine]

No. Yeah. I don't know. I mean, as a person who writes a newsletter, there are always events, but they are not.

[Katie Greifeld]

Yeah, I mean, there's a parallel to be drawn with my life on TV. News is always happening. I anchor from 9 to 11 and there's just so many tape bombs coming across all the time. But, you know, you have to wonder at the end of the day, like, did I add value?

[Matt Levine]

I wonder every day.

[Katie Greifeld]

I can't answer this question on this podcast. Cool. Great question.

[Matt Levine]

Mailbag.

[Katie Greifeld]

Mailbag. I like this one. This question comes from Bruce. It's a little bit of a long one, so tuck in. Bruce says, I'm intrigued by your recent coverage.

[Matt Levine]

It goes to some good Places.

[Katie Greifeld]

So stick with us. All right, Bruce. Bruce says, I'm intrigued by your recent coverage of super performing private investment funds stuffed heavily with techies. For my spy novel, I invented a tech heavy hedge fund whose principals are former CIA contractors who go from stealing oligarch secrets to stealing oligarch cash, which they then launder through a private fund whose operations are a black box to the outside world. My villains reverse engineer capital market data to fake trade reports for their tame auditor that explained the fund's quote unquote returns. I'm not accusing the funds you wrote about of anything nefarious. I'm just struck by how much they resemble the fictional high tech high return MacGuffin in my book. Is that crazy? Is there a reason a real world operator with bad intentions couldn't take, say, the cash from his cocaine business and report it as fictional market returns from a proprietary model investment fund, pay some tax and then have untraceable money to spend? Just asking the question and not for legal advice, Bruce. Don't give away this gold material. As someone who's also working on a kooky novel, you know you can't say too much.

[Matt Levine]

Have you not described your entire novel on this podcast? I think you have. Off mic.

[Katie Greifeld]

Off mic. For sure.

[Matt Levine]

It's a little bit like Bernie Madoff. It's a little different. But Bernie Madoff pretended to have investing returns and in fact had Ponzi returns. And people who were knowledgeable noticed that and said, he can't really have these investment returns. Someone who's just like, he was doing more pretend volume than there was volume in the stocks he was pretending to trade. And so you have a little of that here. If you were the business of selling drugs and then taking the money and pretending the money was returns from your hedge fund, you would be reporting to a regulator something about your trades, and the regulator would be like, but you don't have a custodian, you don't have audited financial. And maybe you bribe your auditor and maybe the SEC is fooled, as they kind of were with Bernie Madoff. But it seems like a lot of effort to go through and a lot of surface area for regulatory exposure. And you'd probably rather run a coin op laundromat or something, right? Yeah, there's a lot of ways to launder money that don't involve entering a regulated industry.

[Katie Greifeld]

So, Bruce, I do want you to keep in touch though.

[Matt Levine]

Let's see where this goes.

[Katie Greifeld]

Yes, as you get further along with the novel, we'd love to know the.

[Matt Levine]

Title he's not the only person who's ever thought this. A while back there was like a kerfuffle when someone speculated that Bridgewater might be a Ponzi scheme because they weren't trading with someone who they expected them to be trading with. People had this with Tether too, where they're like, who trades with Tether? Who do they get all their stuff from? But those things seem to be wrong.

[Katie Greifeld]

Yeah, I don't think Bridgewater is a Ponzi scheme.

[Matt Levine]

No, I don't either.

[Katie Greifeld]

Okay, good.

[Matt Levine]

There was a minute where people were like, oh, that's interesting.

[Katie Greifeld]

I feel like some of those Tether questions are still out there. Yeah, great question, Bruce. Good luck with the novel. Maybe people have had this thought before, but turns out it's really hard to actually write a novel, so I respect it.

[Matt Levine]

Almost as hard as making money in quant trading.

[Apollo]

The global industrial renaissance is transforming industries and reshaping our world. Over the next decade, sectors like energy, infrastructure and technology will require an estimated 75 to $100 trillion in CapEx to modernize and meet the growing demand. This unprecedented level of investment is beyond the scope of public markets alone. Long term projects need long duration capital. That's where private capital comes in and that's where Apollo leads with significant scale, the flexibility to adapt to evolving capex needs and a steadfast focus on enabling economic growth. Apollo is partnering with companies to provide the financing solutions that fuel the future. Learn [e-mail] Renaissance what are some ways.

[Microsoft]

That Microsoft Security is helping customers stay ahead of 600 million attacks without slowing down business? For sports organizations, it means letting fans share in the action without sharing sensitive information. For automakers, it means driving change and securely innovating their development process. And for digital banks, it means staying ahead and keeping up with evolving cyber attacks. Microsoft Security equips you with deeper insights to help you pinpoint vulnerabilities, see around corners, and innovate confidently. They scan trillions of signals daily, giving you the guidance, expertise and tools to protect your business without sacrificing speed for safety. Security is your job, and it's also theirs. With Microsoft Security, you have a partner that looks deeper, keeps you ahead, and helps your business move forward securely. To Learn more, visit Microsoft.com CISO that's.

[Stifel]

Microsoft.com CISO deep domain expertise, Strong relationships, broad capabilities. It's what makes Stifel one of the industry's leading providers of M and A and capital raising services in the middle market. But don't just take anyone's word for it. IFR has named Stifel US Mid Market Equity House of the Year five times in the last 10 years. When it comes to investment banking, Stifel is the name you should know. To learn more about how Stifel can help you address your most complex investment banking needs, visit stifelinstitutional.com Stifel Nicholas & Co. Inc. Member SIPC and New York Stock Exchange.

[Katie Greifeld]

Mailbag mailbag one more from Andy let's bring it home, Andy says. Matt's newsletter today mentioned how financial advice was traditionally bundled where the overpriced stock picking paid for the useful advice. This reminded me of a dumb question I've had for years. Why doesn't anyone offer unbundled financial adv on a fee for service basis? I want to pay someone a fixed fee to chat with me once per quarter about my goals, asset allocation, tax considerations, when I can retire, et cetera. But as far as I can tell, and I've looked, no one offers these services without bundling them with money management services where the fee structure is a percent of AUM and then they charge like 1% of AUM, which feels like a lot. Sounds like Vanguard is offering a cheaper version of this for like 20 basis points of AUM. An improvement. But if I have like $5 million to invest, that works out to 2,500 per quarterly Zoom call or whatever. Seems like a bit expensive anyway. Does unbundled financial advice exist?

[Matt Levine]

I feel like it must a little bit. But like, right, there's not a lot. And you see why it's like the opposite of his problem. Right. Like if you're offering zoom calls to people to talk about their hopes and dreams and portfolio allocations.

[Katie Greifeld]

Yeah.

[Matt Levine]

And you do four zoom calls a year with that person. You have to market yourself. You have to find hundreds of clients, and you have to amortize the cost of that over the zoom calls. You do have to charge them hundreds or thousands of dollars for the zoom call because that's just your time on the zoom call. It's your time marketing and building the business. And then who wants to pay $1,000 for a Zoom call? When you put it like that, right?

[Katie Greifeld]

Yeah.

[Matt Levine]

If you put it as like, I'll provide you holistic services in exchange for a small percentage of your assets, then people are like, yeah, sure, and if the small percentage is 1%, it works out to thousands of dollars. But I don't know. You don't get into the financial services industry to bill a capped amount for your hours. You want the ability to scale. And it's also a natural form of price discrimination where if you get a small client, you can charge them a small amount of money because you're charging them a fixed percentage of assets under management. And if they then grow into a large client, you charge them a large amount of money. And they don't notice because it's the same percentage of assets under management. And it's just like a better business model for someone who is like, you know, kind of largely in the business of marketing and finding clients. That just seems like the answer, right? Like, it seems like a bad business model for someone to be in to be like, I'll give you some financial advice for an hour for 100 bucks. Like, I just don't think you can make a living doing that. I will say that Andy found a solution. So he continues, I think I found a workaround. I signed up for a wirehouse financial advisor who charges like 1% of AUM, but I only pay him for the accounts I keep with him, which I keep around the minimum he'll tolerate. Andy's not the only person who has done this. You find a financial advisor, you're like, how much do I need to put with you? He tells you $500,000. You put $500,000 with him. Put the rest of the money in index funds, you know, in like your self directed Vanguard account. And then you call your financial advisor every quarter for advice, Right. Does that mean you get like a lot of the tax advice and whatever that you get from the bundled fee, but you're not paying him 1% of all of your assets. You're paying him 1% of the minimum amount of assets to get him on the phone.

[Katie Greifeld]

Does that feel a little mean to the financial advisors? Like, hey, I have this sum with you, but I have like $2 million in my Vanguard account. Give me advice based on my holistic.

[Matt Levine]

I don't think the financial advisor would give you advice based on you. I don't think the financial advisor would be like, oh, here's what you should do with your Vanguard account, right?

[Katie Greifeld]

Yeah.

[Matt Levine]

But what you're looking for from the financial advisor is not only what should my asset allocation be, by the way, he'll give you that. I hate to undermine financial advisor, but he'll give you a thing being like, this is how much you should have in stocks or bonds. And you can believe that or not, right? Because not like the financial advisor knows that and you don't. Right? But like, whatever.

[Katie Greifeld]

They're probably buying a model portfolio from BlackRock.

[Matt Levine]

So sure, they've got some professional deciding how much you should have in stocks and bonds or whatever, and they'll tell you that, and they'll do that with the portfolio they manage. And then you can mirror that with your Vanguard account. Right. You know, kind of more or less.

[Katie Greifeld]

I just feel though that it's rude to mirror it.

[Matt Levine]

Exactly.

[Katie Greifeld]

It's rude. But also I feel like maybe you'd invest differently if you have more money rather than less. If that makes sense.

[Matt Levine]

Maybe.

[Katie Greifeld]

I think that the only way to really know is if Andy would let us listen to one of these phone calls that he has with his financial advisor.

[Matt Levine]

But the other thing I was going to say is you're not mainly looking for advice about how to invest. You're looking for advice about tax harvesting. You're looking for advice about what the gift tax limits are on putting money into a 529. You're looking for advice about how much money you'll need to save for retirement. You've all this stuff that a financial advisor does that is useful for you that is not like, here's how much you should have in stock.

[Katie Greifeld]

I know, but I'm saying that's the least useful part.

[Matt Levine]

Yeah, no one knows.

[Katie Greifeld]

But like retirement planning, for example, it would probably be useful if the financial advisor had a holistic view at all of your portfolios.

[Matt Levine]

That's right.

[Katie Greifeld]

Yeah, that's right.

[Matt Levine]

And some financial advisors will consider all of your money in providing you that advice, even though not all of it is with them. Because Andy's not the only person who has money elsewhere. Right. And the financial advisor tries to give you a holistic picture and they'll be mad if most of your money is elsewhere and you're calling them every day. But it's not all or nothing.

[Katie Greifeld]

True.

[Matt Levine]

So I don't know. That's the way to do it.

[Katie Greifeld]

Good question, Andy.

[Matt Levine]

Good question and good answer.

[Katie Greifeld]

Solve the conundrum.

[Matt Levine]

But right, no, I mean there's some minimum that the financial advisor charges. And if you have that minimum with them, you're paying a certain number of thousands of dollars a year for your quarterly zoom call with him. And that's the going rate for financial advice. And if you have 100 times the minimum with him, then you're paying more. And you could put 99% of that money into a Vanguard self directed account and pay less, but you don't want that. You're paying for service.

[Katie Greifeld]

Yeah. All right. Well, that was our mailbag episode. And what a good reminder it is to always send us questions. We love questions.

[Matt Levine]

Please send us questions. And that was the Money Stuff Podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodoon bloomberg.net Ask us a question and we might answer it on air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff podcast is produced by Anna Mazarakis and Moses Andam.

[Katie Greifeld]

Our theme music was composed by Blake Maples.

[Matt Levine]

Brendan Frances Newnham is our Executive Producer.

[Katie Greifeld]

And Sage Bauman is Bloomberg's Head of Podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

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