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- [00:00]
A
Welcome back to the Deep Dive. It is great to have you with us today. We are tackling something that I think every single one of us has experienced. And let's be honest, we've all complained about it.
- [00:11]
B
Oh, absolutely.
- [00:12]
A
You know, that specific moment you finally decide, okay, today is the day I am going to get my financial life in order. You feel motivated, you feel, you know, responsible.
- [00:23]
B
You're ready to go.
- [00:24]
A
You're ready to go. You walk into an investment firm or maybe you download one of those sleek new brokerage apps and you are ready to put your money to work. But before you, you can buy a single share of stock. Before you can even think about the market, you just, you hit a wall.
- [00:38]
B
The stack.
- [00:39]
A
The stack. The absolute mountain of digital or physical paperwork. The endless check boxes, the pages of fine print. And then come the questions. And some of them feel, frankly, a little intrusive.
- [00:52]
B
It can feel less like you're opening a bank account and more like a police interrogation or something.
- [00:57]
A
Exactly. I mean, they want to know your income. Sure, that makes sense. But. But then they're asking about your kids, your employer specific address, marital status, your risk tolerance, your social values, your citizenship, all of it. It just feels like bureaucracy for the sake of bureaucracy, like they're trying to talk you out of opening the account in the first place.
- [01:16]
B
Right.
- [01:16]
A
But today, based on this massive stack of research we've pulled together, and we're talking about everything from SEC regulations to the tax code, we're going to flip that script. We're going to uncover why that stack of forms is actually the most critical part of entire financial relationship.
- [01:34]
B
It really is. It's so easy to just dismiss it as, you know, red tape, but what's actually happening in that intake process is the construction of a financial, well, a financial DNA profile.
- [01:45]
A
A financial DNA profile. I really like that image. It implies that it's unique to every single person.
- [01:51]
B
It has to be unique and it's structural. Without that profile, an advisor is flying blind. And more importantly, legally, they are completely handcuffed. They literally cannot do their job, which is to give you advice without dissecting your life first.
- [02:08]
A
So our mission for this deep dive is to decode the know your customer rulebook. We're going to look at the transition from the old days of stockbroking, which, from the research sounds like it was a bit of a wild west.
- [02:18]
B
It was.
- [02:19]
A
To this new era of regulation. Best interest, we're going to break down the nitty gritty of taxes, account types, and. And really get into why your advisor Needs to know if you lose sleep when the market dips.
- [02:29]
B
And my goal here is that by the end of this, you'll see how all these, you know, these dry, boring rules actually create a safety net. They protect you from bad advice and they protect the financial system from bad actors like money launderers or even terrorists. Wow.
- [02:44]
A
High stakes for some paperwork. So let's set the stage here. I want to start with the why. Why does an advisor need to know things like my social values or my employment status just to open an account? If I have the money, why does it matter where I work? Is it just nosiness?
- [03:03]
B
It is definitely not nosiness. I mean, think of it as a protective mechanism. It all comes back to this one core concept of suitability.
- [03:10]
A
Suitability.
- [03:11]
B
Right. If I don't know that you might lose your job next month because you work in a really volatile industry, say a tech startup that's running out of cash, and I go and recommend you lock up all your savings in a 10 year bond that, that you can't touch without a huge penalty. Well, I've failed you.
- [03:25]
A
You've just locked away the money I might need to buy groceries next month.
- [03:27]
B
Exactly. I haven't just given you bad advice, I've given you unsuitable advice. I've put you in a position where the financial product I sold you completely contradicts your life's reality.
- [03:38]
A
And that distinction, suitable versus what you called best interest, is actually where we need to start. Because the research highlights that there was a massive shift in the regulatory landscape pretty recently.
- [03:49]
B
We moved from one standard to another.
- [03:51]
A
We did. It's the shift from the wild west of simple suitability to the modern era of regulation, best interest, which everyone in the industry just calls regbi.
- [04:00]
B
Okay, let's unpack this then. Regbi. This came into play around June 2019.
- [04:06]
A
That's correct. The SEC adopted this whole package in June of 2019. Before this, the standard for brokers was largely just suitability. Now, suitability sounds good on paper. It basically means, does this product fit?
- [04:20]
B
That seems reasonable. I mean, you want something that fits.
- [04:22]
A
It is reasonable. But it's a pretty low bar. Think of it like buying a suit. If you walk into a store and I sell you a suit that is technically your size, you know, it buttons up, sleeves aren't ridiculously long. It is suitable. Okay, but it might be made of itchy wool. It might be three times more expensive than the other suit right next to it. It might be a color that looks terrible on you, but technically it fits. So translating that to Financial terms. Under the old rules, an advisor could sell me a product that was suitable for me, even if there was a cheaper or. Or a better option available right next to it.
- [04:55]
B
Yes, and here is the kicker. They could sell you the more expensive one just because it paid them a higher commission. As long as the product wasn't actively harmful or, you know, clearly wrong for your goals. It passed the suitability test.
- [05:09]
A
That feels. Well, it feels like a conflict of interest just waiting to happen.
- [05:12]
B
It was. It was a massive conflict of interest. It allowed advisors to prioritize their own paycheck over your portfolio as long as they didn't break the basic rules of fit. But REGBI changed the game. It explicitly says that for a retail customer, a recommendation must be in the customer's best interest.
- [05:30]
A
Best interest. That sounds like a subtle semantic shift, but legally that's huge, isn't it?
- [05:35]
B
It is seismic. It changes the entire fiduciary landscape. It means the advisor cannot place their interests or their firm's interests ahead of yours. If there are two identical products, one pays the advisor a huge bonus and the other pays nothing. Under Regbi, they have to recommend the one that is best for you, not the one that buys them a new car.
- [05:53]
A
You used a specific phrase there. Retail customer. The outline makes a point that this regulation is very specific about who falls under that umbrella.
- [06:01]
B
Right. And this is important because not everyone gets this protection. A retail customer is defined as a natural person.
- [06:09]
A
A natural person meaning a human being.
- [06:11]
B
Exactly.
- [06:12]
A
Yeah.
- [06:12]
B
A flesh and blood human. Not a corporation, not a non profit organization. And specifically a human who is using the advice for personal, family or household purposes.
- [06:21]
A
Okay, so if I'm the CFO of a mid sized company and I'm investing for the company's pension fund or, you know, their cash reserves. I'm not a retail customer.
- [06:31]
B
Correct. In that role, you are a professional. You are a fiduciary yourself. The SEC assumes that institutional investors, banks, pension funds, hedge funds, they have the expertise and the lawyers to look out for themselves. REGBI is designed to protect the little guy, the regular person trying to save for retirement or a house or a kid's education.
- [06:52]
A
That makes sense. It's consumer protection. Now, to make this work, REGBI lays out four specific obligations. I want to walk through these because they really define what a modern relationship with an advisor advisor should look like. The first one is the disclosure obligation.
- [07:06]
B
Right. Disclosure is the foundation. It means telling the truth up front before any money ever changes hands. Before I make a recommendation, I have to provide you with full and Fair disclosure of all material facts relating to the scope. In terms of our relationship.
- [07:20]
A
What does that look like in practice? Is it just more fine print?
- [07:23]
B
It's supposed to be clear. It means I have to tell you how I get paid. Do I charge a flat fee? Do I take a percentage of your assets? Do I get commissions on trades? I also have to tell you about the limitations of my services. For example, if I only sell products from one specific insurance company. I have to tell you that I can't pretend to shop the whole market for you if I'm only allowed to sell one brand.
- [07:45]
A
So transparency is absolutely key. Okay. The second obligation is the care obligation.
- [07:52]
B
The care obligations. This goes back to diligence. I have to exercise reasonable diligence, care and skill.
- [07:59]
A
That sounds like legal boilerplate.
- [08:01]
B
It does, but it has teeth. It means I need to understand the potential risks, rewards and costs associated with a recommendation. I can't just sell you something because the brochure looks nicer, because it's the hot new thing. I have to understand how it actually works. And I need to have a reasonable basis to believe that the recommendation is in your best interest based on your specific investment profile.
- [08:22]
A
So you can't just have a favorite stock that you put everyone into.
- [08:25]
B
Exactly. Not. Just because I love Apple stock doesn't mean it's right for your 85 year old grandmother who needs steady income and can't afford a 20% drop.
- [08:34]
A
The third obligation is the one that really caught my eye in the research. Conflicts of interest.
- [08:38]
B
This is the big one. This is where the rubber really meets the road. Firms must have written policies and procedures that are reasonably designed to mitigate or in some cases eliminate conflicts.
- [08:49]
A
And the outline mentions sales contests. This used to be a big thing in the 80s and 90s, right? Like in the movies.
- [08:55]
B
Oh, absolutely. Sales contests, sales quotas, bonuses for specific product lines. You'd have a manager come out and say, whoever sells the most of this specific tech fund this month wins a trip to Hawaii.
- [09:06]
A
And Regbi says.
- [09:07]
B
Regbi says, absolutely not. You cannot have sales contests, quotas or bonuses that are tied to the sale of specific securities within a limited time period. That creates a massive pressure on the advisor to to sell that specific thing regardless of whether the client actually needs it.
- [09:23]
A
Because if I'm pushing a stock just to win a trip to Waikiki, I'm clearly not acting in your best interest. My interest is the beach.
- [09:31]
B
Precisely. Now, it's worth noting that compensation based on total sales or asset growth or customer satisfaction is still permitted. You can Be rewarded for doing a good job overall, just not for pushing one specific product this week.
- [09:46]
A
That seems like a fair balance. And the fourth and final obligation is
- [09:49]
B
compliance, which basically just wraps it all up. You can't just say you're doing these things. You have to have the rules written down. You need policies, you need procedures, you need a paper trail. If the SEC comes knocking, you need to be able to prove that you are compliant with the other three obligations.
- [10:04]
A
Now, part of this transparency push brought us a document called form crs. It sounds like a car part or maybe a government tax form.
- [10:11]
B
It stands for Client relationship summary. And honestly, it is one of the best things to come out of this regulation for the average person. Think of it as a nutrition label for financial advice.
- [10:21]
A
I love that analogy. A nutrition label tells you exactly what's in the food. Calories, sugar, fat. So what does form CRS tell you?
- [10:29]
B
It tells you what's in the relationship. And here is the genius of has to short no more than two pages. And it has to be written in plain English, not, you know, dense legalese.
- [10:40]
A
So no heretofore and parties of the first part.
- [10:43]
B
Exactly. It details the nature of the relationship, the fees you will pay, the services they provide, and their disciplinary history. Every new retail investor gets this before they even open an account.
- [10:54]
A
So you can look at it and instantly see, okay, this guy charges a commission on every single trade. Or this woman charges a flat 1% fee on my assets.
- [11:02]
B
It allows you to comparison shop. It levels the playing field. You can put two form CRS side by side from two different firms and see which deal is actually better for you.
- [11:10]
A
Speaking of leveling the playing field, REGBI also cracked down on titles. This is a pet peeve of mine. It feels like everyone I meet at a cocktail party calls themselves a financial advisor.
- [11:21]
B
It was a huge problem. You'd have insurance salesmen, stockbrokers, even bank tellers all calling themselves advisors to sound more authoritative and trustworthy.
- [11:31]
A
And why does the title matter so much?
- [11:33]
B
Because the word advisor implies that they are giving you advice, that they're looking out for you. It implies a fiduciary relationship. But under the old rules, many of them were just salespeople with a sales quota.
- [11:45]
A
So what did Regbi do?
- [11:46]
B
It drew a very clear line in the sand. Under regbi, you cannot use the term advisor or advisor in your title unless you are actually a registered investment advisor.
- [11:56]
A
Meaning what exactly?
- [11:57]
B
Meaning you are registered with the SEC or the state, and usually you've passed the series 65 or 66 exams. These are exams specifically about laws, regulations, and ethics. They test your knowledge of fiduciary duty.
- [12:10]
A
So a standard stockbroker who hasn't taken those specific exams can't call themselves a financial advisor on their business card anymore.
- [12:16]
B
Correct. They might be a registered representative or an investment executive, but advisor is a protected term. Now. It's designed to prevent misleading the customer from the very first handshake.
- [12:27]
A
That is a crucial tip for our listeners. When you get a business card, look at the title. It tells you a lot about their legal obligations to you.
- [12:35]
B
Okay, so that's the regulatory framework. That's the rules of the road. Now let's get into the financial DNA itself. When an advisor starts grilling you about money, they're looking for hard numbers. And it always starts with income.
- [12:48]
A
Income is the fuel for the engine. If you don't have income, you can't invest. But, and this is key, not all income is created equal. The sources break this down into four main types, and the distinction matters a whole lot.
- [13:00]
B
For taxes, let's run through these. First up is earned income.
- [13:03]
A
That's the money you work for. Salary, wages, bonuses, tips. If you show up and do a job, it's earned income. This is taxed at your marginal tax rate, the highest rate you pay. It's the most straightforward type.
- [13:15]
B
Then there's passive income. This one always trips people up. In the, you know, the hustle culture world, people think passive income means making money while you sleep from an online course or something. In the tax world, it means something very specific. Passive income usually comes from business ventures where you don't have an active role. The classic example is a limited partnership. In a real estate deal, you put up the money, but someone else manages the building.
- [13:40]
A
And why does the IRS care so much about this distinction?
- [13:44]
B
Because of the passive loss rules. This is a walled garden. Passive losses can only be used to offset passive gains.
- [13:52]
A
So if I lose $10,000 in a bad real estate partnership, I can't use that loss to lower the taxes on my salary for my day job?
- [13:59]
B
Exact. You can't take a loss from your passive bucket and use it to lower the tax bill in your earned bucket. You can only use it to offset a $10,000 gain from another passive real estate deal you might have.
- [14:10]
A
That is a nasty surprise if you aren't expecting it. Okay, then we have investment income, dividends and interest and deferred income, which is your retirement stuff. We'll get deep into those later. But once we know the income, we have to look at cash flow.
- [14:22]
B
This is where fantasy meets reality, you might earn $200,000 a year. On paper, you look rich. But if your taxes, your mortgage, your student loans, car payments, and living expenses add up to $195,000, you're broke. You're effectively broke. Your discretionary income, your play money, is only $5,000 a year.
- [14:43]
A
And that number, that discretionary income is what determines how aggressive you can be, right?
- [14:47]
B
Absolutely. If you have no discretionary income, you have no business taking high risks. You simply cannot afford to lose. If you lose that $5,000, you have no buffer. An advisor needs to know that net number, not just the gross number on your W2.
- [15:01]
A
Let's talk about the tax racket ladder or the marginal tax rate. I feel like this is one of the most misunderstood concepts in all of personal finance. I have literally heard friends say, oh, I don't want to raise because it'll bump me into a higher bracket and I'll actually take home less money.
- [15:15]
B
That is a complete and total myth. It drives accountants and financial planners absolutely crazy. The US Tax system is progressive. Think of it like a ladder or maybe a series of buckets you have to fill up.
- [15:26]
A
Okay, walk us up the ladder.
- [15:28]
B
The first chunk of money you make, say for a single person up to around $11,000, is taxed at 10%. Everyone pays 10% on that first chunk, whether you're a janitor or a CEO. Once that bucket is full, you move to the next one. The next chunk of your income, up to about $45,000, is taxed at 12%. Then the next one is 22% and so on.
- [15:48]
A
So the marginal rate is just the rate on the last dollar you earn. The rate for the highest bucket you've reached.
- [15:53]
B
Exactly. It's the rate you pay on the last dollar you earned. If you get a raise that pushes you from the 12% bracket into the 22% bracket, only the money above that line is taxed at 22%. All the money below it stays at 12% and 10%. You never, ever take home less money by earning more. It's mathematically impossible.
- [16:11]
A
But knowing that marginal rate is absolutely crucial for an advisor.
- [16:14]
B
It is because it tells us the value of a tax deduction. If you are in the 37% tax bracket, the top bracket, a thousand dollar tax deduction, saves you $370 in actual taxes. If you're in the 12% bracket, that same $1,000 deduction only saves you $120.
- [16:30]
A
So high earners get more bang for their buck from deductions.
- [16:33]
B
Correct. Which heavily influences whether we recommend things like tax deductible contributions to a traditional IRA or tax free municipal bonds. It's all about that marginal rate.
- [16:45]
A
Speaking of investments and taxes, let's get into the nitty gritty. This is where the eyes usually glaze over. But this is where the actual money is saved or lost. Let's talk dividends.
- [16:55]
B
Dividends are simply payments from a company to its shareholders. It's their way of sharing the profits.
- [17:00]
A
But there are different types, right? Cash versus stock dividends.
- [17:04]
B
Right. If a company pays you cash, that's taxable in the year you receive it, period. Even if you don't spend it. Even if you have the brokerage automatically reinvest it into more shares. The IRS sees it as income you receive now.
- [17:16]
A
But what if the company pays a stock dividend, meaning they just give me
- [17:20]
B
more shares instead of cash that is not taxable immediately. The IRS views that as just slicing the pizza into more slices. You own the same amount of pizza, it's just in 12 slices instead of eight. You have more shares, but each share is worth a little less. Your total value hasn't changed, so no tax is due until you eventually sell the stock.
- [17:37]
A
That's a nice deferral. What about this term, qualified dividends? I hear that a lot.
- [17:42]
B
This is a gift from the tax code. If you hold a U.S. stock for a certain period of time, usually more than 60 days around the ex dividend date, the dividends you receive are qualified. That means they are taxed at the much lower long term capital gains rate,
- [17:57]
A
which is lower than your regular income
- [17:59]
B
tax, usually much lower. It might be 15% or 20%. Whereas your regular income might be taxed at 32% or 37%. So you get to keep a lot more of the money. But you have to watch out for
- [18:09]
A
things like REITs, Real Estate Investment Trusts.
- [18:12]
B
Right? REITs are special. They don't pay corporate tax themselves, so they pass the tax burden directly to you. Their dividends are usually taxed as ordinary income. At your high marginal rate. They don't get the special qualified rate. So a 5% yield from a REIT is worth a lot less after taxes than a 5% yield from a regular corporation like Microsoft now bonds.
- [18:32]
A
The outline calls this the taxation triangle. It's a matrix of who taxes what.
- [18:36]
B
It's simpler than it sounds. You have three basic issuers. Corporations, the US Government and municipalities, which are cities and states.
- [18:43]
A
Let's do corporate bonds first. I buy a bond from Ford or Microsoft.
- [18:47]
B
Taxed everywhere. Federal tax, state Tax? Yes. Local tax? Yes. You pay full freight on that interest.
- [18:53]
A
Okay. U.S. government bonds like Treasuries, T bills,
- [18:57]
B
T notes, T bonds, these have a special privilege. They are taxed by the federal government, but they are exempt from all state and local taxes.
- [19:06]
A
That seems like a huge deal if you live in a high tax state.
- [19:09]
B
It is if you live in California, New York or Massachusetts, where state income taxes are very high. Buying Treasuries can save you a bundle compared to corporate bonds with a similar yield.
- [19:18]
A
And finally, municipal bonds, munis. These are bonds issued by a city to build a school or a sewer system.
- [19:27]
B
These are the darlings of the wealthy. Generally, the interest from municipal bonds is exempt from federal tax. The IRS doesn't touch it.
- [19:35]
A
And what about state tax?
- [19:36]
B
That depends on where you live. If you buy a bond issued by the state you reside in, say a New Yorker buying a New York City bond, it is usually exempt from state tax too. We call that double tax free.
- [19:47]
A
But if a New Yorker buys a
- [19:48]
B
California bond, then they will pay New York state tax on the interest from that California bond. It's only completely tax free if you keep it home.
- [19:57]
A
Speaking of the wealthy, there's a trapdoor mentioned in the research called the amt, the alternative minimum tax. What in the world is that?
- [20:05]
B
It's often called the wealthy person's problem, but it can definitely snag the upper middle class too. Years ago, the government noticed that some very rich people were using so many legal deductions like depreciation on businesses and lots of tax free municipal bonds, that they paid zero federal tax.
- [20:22]
A
The public probably didn't love that.
- [20:24]
B
They hated it. So Congress created a parallel tax system. You literally have to calculate your taxes twice, once the normal way and once under AMT rules.
- [20:33]
A
And the AMT rules are stricter, much stricter.
- [20:36]
B
They add back in certain tax preference items, things that were deductible under the normal rules, like certain private purpose municipal bonds or accelerated depreciation on equipment get added back into your income. For the AMT calculation, you calculate the tax both ways and you pay whichever amount is higher. It essentially ensures that everyone with a high income pays at least something. It sets a floor.
- [20:59]
A
Before we leave the hard numbers, we have to touch on net worth assets minus liabilities. But the sources distinguish between net worth and liquid net worth. Why is that distinction so important?
- [21:10]
B
Because you can't buy groceries with a warehouse.
- [21:12]
A
Fair point.
- [21:13]
B
Imagine a small business owner. She owns a factory worth $5 million. She has very little debt, so her net worth is $5 million. On paper, she looks rich, but she only has $2,000 in her checking account.
- [21:26]
A
She's asset rich but cash poor.
- [21:28]
B
Exactly. If she has a sudden medical emergency or if the roof of the factory collapses, she is in big trouble. She can't sell a brick from the factory. She might have to sell the whole business at a fire sale price just to get cash quickly.
- [21:40]
A
So an advisor looks at liquid net worth, things like stocks, bonds, cash, things you can sell tomorrow to see if you can handle a shock without blowing up your long term assets.
- [21:49]
B
Precisely. It measures your financial resilience. An advisor might look at that business owner and say, you have a high net worth but your liquidity dangerously low. We need to build up a cash reserve before we even think about buying more stocks.
- [22:02]
A
Okay, we've done the math, we've looked at the cold hard numbers. Now let's move to section three, the human element. Because we aren't just spreadsheets. We are people with anxieties, goals and timelines.
- [22:16]
B
This is my favorite part. This is where psychology meets finance. It's the art, not just the science.
- [22:21]
A
Let's start with the timeline, or what the industry calls time horizon. The basic rule we always hear is the younger you are, the more risk you can take.
- [22:29]
B
Generally, yes. And the reason for that is that volatility, the ups and downs of the market, it smooths out over time. If the market crashes 20% tomorrow, a 20 year old has 40 years to wait for it to recover. A 7 year old who needs to pay their rent next month doesn't have that luxury.
- [22:45]
A
But the sources give us a great comparison that challenges that. Frankie versus Larry. Let's look at this because it challenges the income bias.
- [22:52]
B
Right? So Frankie is in his 20s, he's single, he makes $75,000 a year, he rents an apartment. Then you have Larry. Larry is in his 50s. He's a high powered executive making $250,000 a year. But he has two kids in college and he's five years away from retirement.
- [23:08]
A
Intuition says Larry can take more risk because he makes way more money. He's richer.
- [23:12]
B
But the answer is usually Frankie. Frankie has a 40 year time horizon. He can afford to ride out a crash or even two or three. Larry has a major liquidity event coming up. Retirement and tuition bills. His time horizon is very short, even though his wallet is thick. If the market crashes the year before Larry retires, his entire lifestyle is ruined.
- [23:31]
A
So time horizon often trumps income.
- [23:33]
B
Often, yes. The biggest constraint is when you need the money.
- [23:37]
A
There's a rule of thumb Mentioned in the text. The 100 minus age rule.
- [23:40]
B
It's a classic heuristic, a general guideline. You take 100, you subtract your age, and that's the percentage of your portfolio that should be in stocks or equities.
- [23:47]
A
So if I'm 30, 100 minus 30 is 70. So 70% stocks, 30% bonds.
- [23:53]
B
Right. And if you're 70, 100 minus 70 is 30. It's only 30% in stocks. It illustrates the glide path, the idea that you should automatically get more conservative as you age. Now people are living longer. So some advisors now say 110 minus age. But the principle remains the same.
- [24:09]
A
Now, here's a critical distinction that I think people miss. Risk tolerance versus risk capacity.
- [24:16]
B
Oh, this is a huge difference. They sound the same, but they're totally different measures. Risk capacity is financial. It's math. Can you afford to lose money? Risk tolerance is psychological. It's a notion. Can you stand to lose money?
- [24:28]
A
Let's use the Doug vs. Susan example from the notes to illustrate this.
- [24:31]
B
Okay. Doug is a young lawyer. He makes good money. He loves risk, goes to Vegas. He skydives. He wants to day trade aggressive tech stocks. Then you have Susan. She's a young doctor. She makes the exact same money as Doug. She has the exact same risk capacity. But she grew up poor. She's terrified of debt. She gets anxious if her account balance drops by even 1%.
- [24:51]
A
So they have the same bank balance, but totally different brains.
- [24:55]
B
Exactly. Even though Susan could afford to lose money capacity, her risk tolerance is zero. An advisor who puts Susan into Doug's aggressive portfolio is committing malpractice because it
- [25:07]
A
would keep her awake at night.
- [25:09]
B
And worse, when the market inevitably dips, which it will, Susan will panic. She will sell at the bottom just to stop the pain. And that locks in the loss permanently. The best strategy isn't just the one with the highest theoretical return. It's the one the client can actually stick with during a storm.
- [25:26]
A
That is so profound. It's not just about the numbers. It's about the sleep factor.
- [25:30]
B
It's always about the sleep factor.
- [25:32]
A
What about social values? This is becoming huge with esg, environmental, social, and governance investing.
- [25:39]
B
It is. More and more clients are saying, I don't want my money to support things I disagree with. They might say, no oil companies, no tobacco, no weapons manufacturers.
- [25:47]
A
And that's their right. It's their money, after all.
- [25:50]
B
Absolutely. But. And here's the important hard expert note. Advisors have a duty to explain the trade off involved.
- [25:58]
A
What trade off is that?
- [25:59]
B
If you Tell me. I refuse to invest in the entire energy sector. You are shrinking your investment universe. You are removing a huge slice of the pie that might limit your returns or it might increase your risk because your portfolio is now less diversified.
- [26:14]
A
So the advisor has to say, okay, we can do that, but you need to realize you might make 1% less per year or your portfolio might be more volatile.
- [26:23]
B
Exactly. The advisor needs to ensure the client understands and accepts that trade off before building the portfolio. Informed consent is key. It's not about judging their values. It's about explaining the potential financial consequences.
- [26:36]
A
So we've profiled the human. We know their income, their timeline, their fears, and their values. Now we have to define the goal. What are we actually trying to do with the money? The menu of investment objectives is pretty specific.
- [26:48]
B
It's like a hierarchy of needs. But for your money, you have to build the foundation before you can build the skyscraper.
- [26:54]
A
Let's climb that hierarchy. At the very bottom, you have the capital reserve.
- [26:57]
B
This is your safety net. This isn't really investing in the traditional sense. This is three to six months of living expenses kept in something incredibly safe and liquid, like cash in a high yield savings account or a money market fund. It's for when the car breaks down or you lose your job. You do not gamble with this money.
- [27:16]
A
Then there's preservation of capital.
- [27:17]
B
The motto here is simple. Don't lose my money. This is for the ultra conservative investor, maybe an elderly person on a fixed income. You're looking at U.S. government securities t bills. The return is low. Maybe it barely keeps up with inflation. But the principle is as safe as it gets. You will get your dollar back.
- [27:35]
A
Next up, liquidity.
- [27:37]
B
This is about access. The objective is I need access to my cash quickly. This is for people who might be saving for a down payment on a house in six months. They need the money to be available instantly without a penalty. So again, you're in money market funds, short term P bills.
- [27:52]
A
Okay, now we're starting to invest a little current income, right?
- [27:55]
B
I need a paycheck from my investments. This is the classic retiree objective. They have a pile of money and they need it to generate cash flow to pay the bills.
- [28:03]
A
So what are they buying?
- [28:04]
B
Bonds, preferred stocks, fixed annuities, Things that pay regular interest or dividends. But the big risk here, the silent killer, is inflation, right?
- [28:14]
A
If you're living on a fixed income of $2,000 a month, in 10 years,
- [28:18]
B
that $2,000 won't buy nearly as much as it does today. So even current income investors still need a Little bit of growth in their portfolio just to offset inflation.
- [28:27]
A
Which brings us to the next objective. Growth.
- [28:29]
B
This is stocks, equities. You aren't looking for a paycheck today. You want the capital itself to appreciate over 10, 20 or 30 years. This is for building wealth, not for spending it. Right now, this is for your 30 year old self. Saving for retirement.
- [28:43]
A
And finally, at the very top of the pyramid, speculation.
- [28:47]
B
The danger zone. High risk, high reward. We're talking about options, small cap, biotech stocks, crypto day trading.
- [28:54]
A
Who is this for?
- [28:55]
B
It's for people with money to burn. The rule here is simple and it is brutal. You must be able to afford to lose the entire principal.
- [29:03]
A
Not some of it, all of it.
- [29:05]
B
Every single cent.
- [29:06]
A
Yeah.
- [29:06]
B
If you invest $10,000 in a speculative trade, you have to be emotionally and financially okay with that $10,000 going to zero. If you can't flush that money down the toilet and still pay your rent and sleep at night, you have no business speculating.
- [29:18]
A
Stark, but very true. Okay, Section five. We've done the profile. We know who you are and what you want. Now we physically open the account.
- [29:28]
B
The logistics, the paperwork, the signatures, the fine print.
- [29:32]
A
Let's start with the new account form. What is absolutely required by law?
- [29:35]
B
It's surprisingly minimal for requirements, but it's extensive for requests. What's required? Name, residence, address. And here's a fun. No PO Boxes are allowed to open the account.
- [29:46]
A
Why no PO Boxes?
- [29:48]
B
The feds need to know where you physically sleep. It's a law enforcement and anti money laundering thing. They need to know where to find you if they have to. Now you could have your mail sent to a P.O. box, but the account record itself must show a physical street address.
- [30:00]
A
What else is required?
- [30:02]
B
Legal age. You have to be an adult. And they need to know who the authorized signers are on the account.
- [30:08]
A
But then they ask for your Social Security number, your occupation, your income, your net worth. What if I say that's none of your business?
- [30:17]
B
You can say that if a client refuses to give financial info like income or net worth, the advisor can still open the account. But, and this is a huge but, the advisor cannot make any recommendations because
- [30:33]
A
they don't know if anything is suitable.
- [30:34]
B
Exactly. You become an unsolicited client, you tell me what to buy, I'll buy it for you. But I can't help you plan. I'm just an order taker at that point. I can't give you advice because I don't have the data to back it up. And I would be Violating the care obligation under regbi.
- [30:48]
A
Here's a trivia fact that blew my mind from the research. The customer doesn't actually have to sign the standard new account form.
- [30:55]
B
Crazy, right? In almost every contract in the world, both parties sign. But for a standard cash brokerage account, only the principal or manager at the CIRM has to sign it to accept the account. The customer doesn't technically have to put pen to paper unless it's a margin account or an options account. Those involve borrowing money from the firm, which is a form of credit, and they involve extra risk. So they legally require a customer signature on a separate agreement. But a plain vanilla cash account. No signature required from the client, strictly speaking.
- [31:28]
A
But there is one clause that is almost always there and it's very controversial. The arbitration clause.
- [31:36]
B
The pre dispute arbitration clause. If you open a brokerage account today, you will almost certainly see this and have to agree to it.
- [31:43]
A
What does it mean for me?
- [31:44]
B
It means you are waiving your constitutional right to sue the brokerage firm in a court of law.
- [31:49]
A
So no Judge Judy, no dramatic courtroom scene with a jury.
- [31:53]
B
No Judge Judy and no jury of your peers. If the broker loses your money through fraud or negligence and you want to sue them, your dispute has to be settled by a private panel of arbitrators, usually run by FinRT.
- [32:05]
A
And is that better or worse for the investor?
- [32:07]
B
It's a mixed bag. It's usually faster and cheaper than court. But the decision is final and binding. There are virtually no appeals. If the arbitrators get it wrong, you are stuck with a verdict. There is no higher court to appeal to.
- [32:21]
A
That feels heavy. And it has to be highlighted on the form, right? They can't just bury it.
- [32:25]
B
Yes, the SEC mandates that they can't bury it in the fine print. It has to be conspicuous. But let's be honest. Most people just check the box without ever reading what they're giving up.
- [32:34]
A
Moving on to section six, Account ownership structures. This is the whose money is it really? Section. This gets tricky with couples and business partners.
- [32:44]
B
It's really the what happens when you die section. That's what defines these different ownership types.
- [32:48]
A
Let's compare JTWros versus Tencom. Sounds like jargon, but the difference is life changing or after life changing.
- [32:57]
B
JTWROS stands for joint Tenancy with Right of survivorship. We call this the Spouse special.
- [33:04]
A
How does it work?
- [33:04]
B
Two people are on the account, usually a married couple. They both own 100% of the account. If one person dies, the other person gets it all immediately, automatically. It Bypasses probate court. Probate is the long expensive public legal process of distributing a will. JTWRS skips all that. The surviving spouse just keeps the money
- [33:26]
A
10 tencom tenancy in common.
- [33:29]
B
This is the business partner special. Imagine you and I start a business and we open an account. We each put in $50,000.
- [33:36]
A
Okay.
- [33:37]
B
If I die, I don't want you to suddenly inherit my $50,000. I want my share to go to my kids or my wife as laid out in my will.
- [33:45]
A
Right. I don't want my business partner's family to be cut out of their share.
- [33:48]
B
Exactly. So in a 10 column account, the deceased person's share goes to their estate to be distributed by their will. It does not automatically go to the other account holders.
- [33:57]
A
That is a massive difference. You do not want to check the wrong box there. If you're married and you check 10Com by mistake, you might accidentally disinherit your spouse and send half your joint account to your estranged kids from a first marriage or someone else named in an old will.
- [34:10]
B
Correct. Details matter immensely here.
- [34:12]
A
What about corporate accounts?
- [34:14]
B
If a corporation wants to open a brokerage account, it's not as simple as a person doing it. The broker needs proof that the person calling and placing trades is actually allowed to do so.
- [34:24]
A
That's the corporate resolution.
- [34:25]
B
Yes. It's a legal document from the board of directors saying yes, we are opening this account and yes, Bob from accounting is authorized to place trades on our behalf. Without that resolution, Bob can't do anything.
- [34:38]
A
And if they want to trade on margin or borrow money, they need to
- [34:42]
B
provide the corporate charter, which is like the constitution of the company. The broker has to read the charter to make sure the company is even legally allowed to borrow money to trade stocks. Some old corporate charters actually forbid speculative trading or borrowing.
- [34:55]
A
Let's talk about kids fiduciary accounts.
- [34:57]
B
The most common ones are UGMA and UTMA accounts. That's the Uniform Gifts to Minors act or the Uniform Transfers to Minors Act.
- [35:04]
A
How do these work?
- [35:05]
B
It's a simple way to give assets to a child without setting up a complicated and expensive must fund. You, the adult open the account. You are the custodian, you manage it. But the legal title to the assets belongs to the kid.
- [35:20]
A
So it's really the kid's money.
- [35:21]
B
It is an irrevocable gift. Once you put the money in, you can't take it back because you need a new roof or want a vacation. It belongs to the child.
- [35:29]
A
And who pays the taxes on the gains and dividends?
- [35:31]
B
The Minor does. It's filed under the child's Social Security number, often at the child's lower tax rate, which is a nice benefit.
- [35:38]
A
Can I get aggressive and day trade with my kid's college fund in an ugma?
- [35:43]
B
Generally, no margin trading is usually prohibited in these accounts. It's a fiduciary account. You are supposed to be protecting and prudently growing the assets for the minor, not gambling with them on leverage. And here is the thing parents always forget. When the kid reaches the age of majority, which is usually 18 or 21, depending on the state, the account becomes theirs.
- [36:05]
A
Entirely theirs, no strings attached.
- [36:07]
B
Entirely. They can take all the money you save for college and go buy a sports car. And you can't legally stop them. It's their money.
- [36:14]
A
That is a sobering thought. Section 7 Power and Control Trading Authorizations Sometimes you want someone else to drive the car for you.
- [36:22]
B
This is where power of attorney, or poa, comes in. There are two main flavors, full and limited.
- [36:28]
A
Full poa.
- [36:29]
B
With a full power of attorney, I can trade your account and I can withdraw money from it. I have the keys to the vault. I can write checks to myself from your account. This is a very, very high level
- [36:39]
A
of trust and limited poa.
- [36:42]
B
With a limited POA, I can trade, but I can't touch the cash. I can buy and sell stocks for you, but I can't wire the money to my own bank account. This is what most independent money managers have.
- [36:53]
A
And what about durable poa? This seems important for health reasons.
- [36:56]
B
This is absolutely crucial, especially for aging clients. A regular power of attorney is based on your consent. If you become mentally incompetent, say you have a stroke or you get dementia, you can no longer legally give consent. So a regular POA becomes void.
- [37:11]
A
Wait. So exactly when I need the most help managing my money, the POA vanishes
- [37:15]
B
with a regular poa? Yes. That's why you need a durable poa. The word durable means it survives your incompetence. So if you get dementia, the person with your durable POA can still manage your finances and pay your bills.
- [37:27]
A
But all forms of POA end when at death.
- [37:31]
B
The moment the heart stops, the POA is void. The power instantly transfers to the executor of the estate. You can't use a POA to move money or make trades after someone has died.
- [37:43]
A
Now, discretionary accounts. This is where the advisor just trades without calling you for every little thing.
- [37:50]
B
Right? And discretion is defined very specifically in the industry. It means the advisor decides at least one of the three. The Asset, what to buy, the amount, how much and the action, whether to buy or sell.
- [38:02]
A
If they have the power to decide one of those things, they don't have to call.
- [38:06]
B
Correct. They can just execute the trade. But this requires written permission from the client and specific approval from a principal at the firm.
- [38:13]
A
Why does the firm have to approve it?
- [38:15]
B
Because discretionary accounts are a breeding ground for a prohibited practice called churning.
- [38:20]
A
Churning? That's a nasty word in finance.
- [38:22]
B
It is. Churning is excessive trading in a client's account just to generate commissions. If I'm buying and selling the same stocks every day in your retirement account just so I can rack up trading fees, that's churning.
- [38:33]
A
Even if I make money on the trades?
- [38:35]
B
Yes, you could actually make a profit. But if I traded 500 times unnecessary and ate up 20% of your profit in fees, I have still churned the account. It's about the frequency and the intent, not just the bottom line. Profit or loss.
- [38:48]
A
Is there an exception where an advisor can decide something without having full discretion?
- [38:53]
B
Yes, there is. It's called a not held order. This is the time and price exception.
- [38:58]
A
How does that work?
- [38:59]
B
You call me and you say, buy 100 shares of Apple today. You've given me the asset Apple, the amount, 100 shares and the action buy. You provided the three A's, but you didn't tell me when to buy it or at what price.
- [39:12]
A
So you can watch the market for a few hours and try to get a better price.
- [39:15]
B
Exactly. I can use my professional judgment to wait for a dip in the price later that afternoon. That's not discretion in the legal sense. That's just smart execution. But that power is only good for that trading day. If I don't buy it today, I have to call you again tomorrow.
- [39:29]
A
Got it. Section 8 special account arrangements. Let's talk about the adrenaline junkies. Pattern day trading.
- [39:36]
B
If you execute four or more day trades within a five business day period, congratulations. Your firm is going to flag you as a pattern day trader.
- [39:46]
A
What counts as a day trade? Exactly.
- [39:48]
B
Buying and selling the same security on the same day.
- [39:51]
A
And if I get flagged, what happens?
- [39:53]
B
There are strings attached. Big ones. You now have a $25,000 minimum equity requirement in your account at all times. If your account value drops below 25k, you are frozen. You can't place any more day trades until you deposit more cash.
- [40:09]
A
It's a velvet rope to a risky club.
- [40:11]
B
It is. It's designed to ensure that people playing that high speed, high leverage game have the capital to survive it.
- [40:18]
A
What about the really Big players, hedge
- [40:20]
B
funds and institutions, they often use what's called prime brokerage. Imagine you are a hedge fund. You trade with 10 different brokers to get the best prices and research on different types of stocks. But you don't want 10 different monthly statements and 10 different cash accounts.
- [40:33]
A
That would be a complete paperwork nightmare.
- [40:35]
B
So you hire one big bank to be your prime broker. All the other brokers, we call them executing brokers, send their trade confirmations to the prime broker. The prime broker holds all the cash and securities in one central location. It consolidates everything into one nice clean
- [40:51]
A
statement that sounds very efficient. And for the active individual trader who
- [40:56]
B
hates paying commissions, that's where the wrap account comes in. Instead of paying say $10 per trade, you pay a flat fee, usually 1% or 2% of your assets per year. That fee wraps everything together. It covers advice, administration and all of your trading costs.
- [41:12]
A
So if you trade a thousand times, it costs the same as if you trade just once, right?
- [41:17]
B
Which makes it great for very active traders. But it's terrible for buy and hold investors.
- [41:21]
A
Because if I just buy some Apple stock and sit on it for 10
- [41:24]
B
years and you're paying a 2% fee every single year for the privilege of doing nothing, you are wasting a huge amount of money. That's actually a compliance issue called reverse churning. Placing a buy and hold client into a high fee wrap account where they get no benefit from the unlimited trading section 9.
- [41:41]
A
The retirement landscape this is the bedrock of most people's financial planning. We have to navigate the Alphabet soup of plans.
- [41:48]
B
It all starts with a big divide. Qualified versus non qualified plans.
- [41:53]
A
Qualified means what it means.
- [41:55]
B
It qualifies for special tax breaks and protection under a federal law called esa. ERESA is the law that protects your pension and retirement money. To get these benefits, qualified plans must be non discriminatory.
- [42:07]
A
Meaning?
- [42:08]
B
Meaning you can't just give the plan to the CEO and ignore the janitor. Everyone who works there and meets some basic criteria like age and years of service gets to participate. Think of your 401k or a profit sharing plan.
- [42:21]
A
And non qualified.
- [42:22]
B
These can discriminate. They're often used as a perk for key executives. A deferred compensation plan is a common example. They're a perk for the bosses. But they don't have the same safety guarantees as qualified plans. What's the risk there if the company goes bankrupt? The money in the 401k is safe. It's held in a trust separate from the company's assets. But the non qualified deferred Comp. That's just a promise from the company. If the company folds, the executive might become a general creditor and lose all that deferred money.
- [42:50]
A
Lets focus on the 401k and its cousin the 403.
- [42:53]
B
Right. They are funded with pre tax contributions. This lowers your taxable income today. If you make $100,000 and put $10,000 into your 401k, the IRS only taxes you on $90,000 for that year. The money then grows tax deferred.
- [43:07]
A
But the catch is the zero cost basis, right?
- [43:10]
B
Since you never pay tax on the money going in, the IRS owns a piece of every single dollar coming out. When you retire and withdraw the money, the entire withdrawal is taxed as ordinary income.
- [43:20]
A
Can I borrow from it if I need to?
- [43:21]
B
Usually yes. Most plans allow loans. You can typically borrow the lesser of 50% of your vested balance or $50,000. It seems like a great easy way to access cash.
- [43:31]
A
There's always a but.
- [43:32]
B
But be very careful. If you leave the job or if you get fired, the entire loan balance often becomes due immediately. If you can't pay it back right, then the outstanding loan amount is treated as a taxable withdrawal.
- [43:45]
A
And withdrawals are bad if you're young.
- [43:47]
B
Very bad. This is the penalty box. If you take money out of a retirement plan before you turn 59 and a half, Uncle Sam slaps you with a 10% penalty on top of the regular income taxes you owe.
- [43:58]
A
Are there exceptions to that penalty?
- [44:00]
B
There are a few. Death and total disability. Obviously you can use up to $10,000 for a first time home purchase, certain high medical expenses and a recent rule allows for up to $5,000 for the birth or adoption of a child. But generally you want to leave that money alone until retirement.
- [44:18]
A
And at the other end of life, you can't just keep the money in there forever.
- [44:21]
B
No, the IRS wants its tax money eventually. That's where RMDs required minimum distributions come in. Under the Secure Act 2.0, you must start taking money out of your traditional retirement accounts by age 73. If you don't, the penalty is hefty.
- [44:35]
A
What about Roth IRAs? Do they have RMDs?
- [44:38]
B
Roth IRAs are the golden child of retirement. Since you paid tax before you put the money in, the original owner does not have RMDs during their lifetime. You can let that money grow completely tax free forever and pass it to your heirs tax free.
- [44:53]
A
Now there is one specific trap mentioned in the sources that I want to highlight because it destroys people. The rollover rule oh, this is a
- [45:01]
B
classic and devastating mistake. If you leave your job and you want to move your 401 1k money to an IRA, you have two choices. A direct transfer or an indirect rollover.
- [45:10]
A
Direct transfer is the safe one.
- [45:12]
B
Yes. The money goes from institution A directly to institution B. You never touch the check. It's clean, no tax, no stress.
- [45:18]
A
And the indirect rollover?
- [45:20]
B
That's when your old company cuts a check payable to you. You hold the money. If they do that, they require by law to withhold 20% for federal taxes.
- [45:29]
A
Walk us through the math on that.
- [45:30]
B
Okay, say you have $100,000 in your 401. You want to move it. You choose the indirect rollover. Your old company cuts you a check for $80,000. They send the other $20,000 straight to the IRS as a prepayment of your potential taxes.
- [45:43]
A
Okay, so I have this check for $80,000.
- [45:46]
B
You now have 60 days to deposit the full $100,000 into the new IRA to complete the tax free rollover.
- [45:53]
A
Wait, but I only have the check for $80,000. Where does the other $20,000 come from?
- [45:58]
B
Exactly. You have to come up with that other $20,000 from your own savings account to bridge the gap and make the new IRA whole.
- [46:04]
A
And if I can do that?
- [46:05]
B
Then you get that $20,000 back as a tax refund. When you file your taxes the next year, you're made whole, but after a long delay.
- [46:11]
A
But if I can't find an extra
- [46:12]
B
$20,000 lying around, then that missing $20,000 is treated as a permanent taxable withdrawal. You owe income taxes on it, plus the 10% penalty if you're under 59 and a half.
- [46:22]
A
That is a cash flow nightmare.
- [46:24]
B
It is. It catches people off guard all the time. The lesson is simple. Always, always do a direct transfer. Never take the check yourself.
- [46:31]
A
Great advice. Finally, section 10, policing the system. This is all about security and compliance.
- [46:37]
B
This brings us full circle back to the stack of forms and why they ask for your driver's license. A lot of it is about anti money laundering or AML.
- [46:45]
A
This is the Patriot act stuff, right?
- [46:47]
B
Yes. Since 911 financial firms are on the front lines of national security, the cip, the Customer Identification Program, mandates that we verify you are who you say you are. We need to prevent terrorists, drug cartels or sanctioned nations from moving money through the US Financial system.
- [47:06]
A
So they check your name against a government list.
- [47:08]
B
They check it against the SDN list, the Specially Designated Nationals list. It's a list maintained by the Treasury Department of known terrorists Criminals and rogue states.
- [47:18]
A
And if my name is on that list, for some reason, your assets are
- [47:21]
B
blocked, frozen and law enforcement is notified immediately, no questions asked.
- [47:25]
A
Then there's the privacy side of things.
- [47:27]
B
Regulation sp this is what protects your personal data. It distinguishes between a consumer, someone just shopping around for services, and a customer, someone who has an ongoing relationship with the firm. Customers must get a privacy notice annually explaining how their data is used and shared.
- [47:43]
A
And what about the opt out provision?
- [47:45]
B
Firms often share non public data with third parties for marketing. You have the right to say no. And the firm must make it easy for you to opt out. Like a toll free number or a checkbox on a website. They can't make you write a formal letter and mail it in. That's considered unreasonable under the law.
- [48:02]
A
One last regulatory area, insider trading. Who actually counts as an insider?
- [48:07]
B
It's not just the CEO. It's all officers, all directors and anyone owning more than 10% of a company's stock. They are all considered insiders and they
- [48:17]
A
have very strict rules.
- [48:18]
B
They do. For example, they can't make short swing profits. If an insider buys their own company stock and sells it at a profit within six months, they have to give that profit back to the company.
- [48:28]
A
What's that called?
- [48:29]
B
Disgorgement. The idea is that insiders should be focused on the long term value of the company, not trading on short term news and volatility.
- [48:37]
A
And they can't short sell their own company stock?
- [48:40]
B
Never. That's betting against your own team. It's a massive conflict of interest and it is completely illegal for insiders.
- [48:46]
A
And finally, the away account rule. If I work for a brokerage firm, can I open an account at a different competing firm?
- [48:55]
B
You can, but it's not private. You have to get written permission from your employer first. And the new firm has to notify your employer that the account has been opened. They will send duplicate copies of your account statements to your boss.
- [49:07]
A
Why would they do that?
- [49:08]
B
To prevent you from doing shady trades where your own compliance department can't see them. Things like front running your clients trades or insider trading on a tip you heard at work. Sunlight is the best disinfectant.
- [49:20]
A
Wow. We have covered a massive amount of ground today, from the birth of RGBI to the tax implications of a municipal bond, to the specifics of corporate charters and the nightmares of indirect rollovers.
- [49:32]
B
It's a lot, but I hope the listeners are starting to see the pattern here. The thread that connects all of it.
- [49:36]
A
What's the synthesis? What's the big takeaway?
- [49:38]
B
That stack of forms isn't bureaucracy, it's a shield. The financial DNA profile it creates protects the client from unsuitable advice that could ruin their financial future. And at the same time, it protects the firm and the entire system from bad actors.
- [49:55]
A
It's about empathy, really. The rules, when they work right, force the advisor to stop just selling a product and start actually understanding the human being sitting across the table.
- [50:04]
B
Precisely. You can't act in someone's best interest if you don't actually know who they are.
- [50:08]
A
So here is our final provocative thought for you to chew on. We talked about how critical this profile is, but profiles aren't static. Life changes. You get married, you have kids, you lose a job, you inherit money.
- [50:21]
B
That's right. A profile that was perfect five years ago might be totally wrong for you today.
- [50:26]
A
So if your financial advisor hasn't asked you about your time horizon or your risk tolerance or your liquidity needs in the last year or two, are they really managing your wealth or are they just gambling with it based on old data?
- [50:39]
B
That is the question to ask.
- [50:40]
A
Thanks for diving depth with us. We'll see you on the next one.