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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: So this week on the podcast, I have a really

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Speaker 1: fascinating guest. And I know I said that every week,

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Speaker 1: but this is really deep inside baseball. Uh, how how

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Speaker 1: the industry works, how it's supposed to work, what it

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Speaker 1: doesn't do. Ron Rhodes is a professor, lawyer, uh fiduciary.

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Speaker 1: He has been both in and around the industry and

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Speaker 1: a number of capacities, both as a lawyer setting up

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Speaker 1: trusts in the States and other such stuff, running an

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Speaker 1: r i A, running a fiduciary shop, and as a

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Speaker 1: professor teaching financial planning and other things. He's probably best

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Speaker 1: known as a gadfly who has been lobbying Congress, the SEC, FINRA,

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Speaker 1: the Department of Labor. I call him a one man

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Speaker 1: wrecking crew. He, amongst other people, prevented FINRA from becoming

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Speaker 1: the uh S r O for the r A industry.

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Speaker 1: He has been absolutely crucial in moving the ball down

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Speaker 1: the field for moving towards a fiduciary standard for all

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Speaker 1: advisors or many advisors. This is if you're interested in

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Speaker 1: managing money, running a firm, or understanding the regulatory process

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Speaker 1: and how it impacts investors and brokers and advisors. Uh,

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Speaker 1: this is really a very deep dive into that sort

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Speaker 1: of stuff. Stay with it. It gets more and more

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Speaker 1: detailed and interesting as we go on, and the podcast portion,

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Speaker 1: as you'll hear, is really terrific. So, without any further ado,

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Speaker 1: my conversation with Professor Ron Rhodes. This is Masters in

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Speaker 1: Business with Barry Ridholts on Bloomberg Radio. My special guest

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Speaker 1: this week is Ron Rhodes. He is a professor at

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Speaker 1: Western kentuck A University where he is chairman of the

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Speaker 1: Financial Planning Program and teaches applied investments, retirement planning, and

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Speaker 1: estate planning. You may not have heard of Ron if

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Speaker 1: you're not in the asset management business or if you

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Speaker 1: don't work for the SEC. But a little bit of

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Speaker 1: background as to who he is. He was voted Wealth

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Speaker 1: Management Magazines uh most influential person today. That was back

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Speaker 1: in He is the recipient of the Tamar Frankel Fiduciary

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Speaker 1: of the Year award, and he was named by Investment

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Speaker 1: Advisor magazine one of the twenty five most influential persons

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Speaker 1: in the asset management business. Ron, Welcome to Bloomberg Great

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Speaker 1: thanks good to be here. So so that was a

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Speaker 1: little bit of an ambiguous introduction. I want to ask

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Speaker 1: you a question. For someone like me, you do many

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Speaker 1: different things, You wear many different hats. But when people

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Speaker 1: first meet you and in the conversation they ask what

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Speaker 1: do you do? How do you answer that question? Well,

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Speaker 1: you know, I asked people to think back to to

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Speaker 1: their kids and as they were growing up. Um, kids

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Speaker 1: need to be pushed, uh to develop and and that's

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Speaker 1: why God invented mothers. But but those kids are sent

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Speaker 1: off to college by their mothers. And that's why God

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Speaker 1: invented college professors like myself. So your job is to

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Speaker 1: push them in the right direction, push them expand their

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Speaker 1: comfort zones, to show them how to develop and maintain

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Speaker 1: relationships other than the relationship they have with their smartphone

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Speaker 1: or their Facebook page, and uh, to get them the

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Speaker 1: set goals and and really think about self improving themselves

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Speaker 1: and and and getting ready for a career. But you

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Speaker 1: you do more than push college students. You push the SEC.

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Speaker 1: You fished, the Department of Labor. You push Finro, which

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Speaker 1: is the brokerage world's self regulating organization. Let's let's talk

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Speaker 1: little bit about how you found your way from the

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Speaker 1: practice of law into finance and ultimately into academic How

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Speaker 1: how did you find your way into finance as a lawyer? Now,

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Speaker 1: it goes back to college years. You know. When I

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Speaker 1: was going to college, I was working during the day

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Speaker 1: at wal Disney World. I was a Disney character and Uh,

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Speaker 1: I just remember all the time having a book about

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Speaker 1: stocks or bonds. Uh. This is probably about nineteen eighty

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Speaker 1: or so, tucked away in in my beer costume, and

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Speaker 1: during breaks off stage, I'd be reading it. So you

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Speaker 1: were a bear reading about stocks. There's some there's some ironing.

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Speaker 1: I know. Yeah, that's that's that's neat. Uh. Yeah, you

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Speaker 1: know ours blue and bear Bear and Little John and

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Speaker 1: Goofy as well. Just my my clients used to say

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Speaker 1: that they had a Goofy attorney. Uh, we're a bearish adviser.

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Speaker 1: It's the same thing. So you're reading about stocks. But

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Speaker 1: how do you make the transition from being a lawyer

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Speaker 1: to to being full on in finance. Well, I was

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Speaker 1: going to state planning and tax attorney, and and I

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Speaker 1: got recruited to help a major financial services company, Uh,

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Speaker 1: attack the four one K market with a retirement planning

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Speaker 1: program and that lasted for about six months. UH enjoyed.

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Speaker 1: It was glad to see the program kind of in

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Speaker 1: because it involved flying up here to New York and

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Speaker 1: back from Florida, where I was at the time, every

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Speaker 1: week for twenty six weeks straight. But after that, UH,

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Speaker 1: some c p as that I had helped put together

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Speaker 1: their firm from a legal standpoint approached me and said,

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Speaker 1: you know, we're not very happy referring who we're referring

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Speaker 1: to right now, and I said, well, I'm not very happy.

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Speaker 1: So they asked me to help them interview UH financial

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Speaker 1: advisors in our community, and we did about a dozen

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Speaker 1: interviews and nobody even came close to to meeting our expectations.

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Speaker 1: And then we got together and said, we just need

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Speaker 1: to do this ourselves. We don't want to send our

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Speaker 1: clients here and here. We we need to do it

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Speaker 1: the right way, and we explored eight different business models

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Speaker 1: and ended up forming our own independent registered investment advisory firm.

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Speaker 1: So that's kind of fascinating. So you kind of it's

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Speaker 1: the old joke about Dick Cheney. You interviewed a lot

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Speaker 1: of people for vice president and finally said there's no

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Speaker 1: capable I'll do it. That that turned out to be true.

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Speaker 1: Um so what then led to the transition to academia.

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Speaker 1: You did that for a number of years. What brought

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Speaker 1: you back to college? You know, if you're a good

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Speaker 1: financial advisor, you're you're really a good educator. You like

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Speaker 1: counseling and and kind of teaching colleges counseling on mass

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Speaker 1: in essence, so instead of doing it one on one,

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Speaker 1: you're doing it in front of a whole room full

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Speaker 1: of minds. To be most and I always thought i'd

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Speaker 1: get into teaching. When I was in law school. I

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Speaker 1: would run study groups of a hundred people, and you

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Speaker 1: know that the first year students, as a third year student,

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Speaker 1: I'd be giving them a study instruction. But at the

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Speaker 1: opportunity resented itself and I rushed for it because and

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Speaker 1: I've never looked back, because that the students. It's so

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Speaker 1: great to see them transform, even over the course of

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Speaker 1: a semester, especially over two or three years. And I

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Speaker 1: just love going to work at every day at Western

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Speaker 1: Kentucky University. It's just a fantastic place to be. So

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Speaker 1: so speaking of educating and counseling, in the last minute

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Speaker 1: or so we have you've been pretty active on Twitter.

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Speaker 1: You've been an active blogger for it seems at least

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Speaker 1: five years. How do you find those mediums um are

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Speaker 1: in terms of trying to get a message out. I'm

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Speaker 1: pretty surprised when I go to industry conferences that the

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Speaker 1: number of people who come up to me and and

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Speaker 1: said that they've read my blogs and and we have

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Speaker 1: a nice discussion about it. Um. I found you through Twitter.

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Speaker 1: That's how I first. You know, I've been running about

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Speaker 1: the fiduciary standards. Yes, yes, I thought it was kind

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Speaker 1: of a lonely thing. And there's this guy, Ron Rhodes,

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Speaker 1: just scorched earth, destroy everything in his path. I'm like,

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Speaker 1: I have to follow this guy. Do people comment to

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Speaker 1: you about Oh, I follow you on Twitter? I know

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Speaker 1: who you are from that? Oh? Absolutely yes. I I

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Speaker 1: don't really hold things back very much. I'm a little

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Speaker 1: bit on the blunt side when it comes to things

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Speaker 1: like so, I'm just I'm just a big soft bear.

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Speaker 1: Is that what it is? I'm Barry rid Hilts. You're

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Speaker 1: listening to Masters in Business on Bloomberg Radio. My special

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Speaker 1: guest today is Ron Rhodes, Professor Ron Rhodes of Western Kentucky, University.

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Speaker 1: He is an expert on fiduciary standards, has been a

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Speaker 1: gadfly for the sec Department of Labor and especially finn Roe.

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Speaker 1: We're gonna talk a little bit about that in a

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Speaker 1: little while. Let's talk a bit about the financial planning industry.

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Speaker 1: Where you have lots of background and and lots of

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Speaker 1: published work. What do you think clients shouldn't expect from

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Speaker 1: their relationship with a financial advisory In one word, trust

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Speaker 1: and and and if you look at trust, it's really

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Speaker 1: got three elements to it. The first is that the

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Speaker 1: advisor before you is a true expert in what they do.

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Speaker 1: The second is they're gonna put your best interests forth

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Speaker 1: and keep those paramount above theirs. It's not about their

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Speaker 1: commission also selling whatever product as the highest um bonus

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Speaker 1: on it. It's about the client's interest. First, Yes, there

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Speaker 1: are to be compensation that should be reasonable, agree to

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Speaker 1: in advance, transparent, absolutely completely transparent, and and then work

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Speaker 1: under that constraint to go out and find the best

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Speaker 1: investment strategies and thevest best products to implement those strategies

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Speaker 1: for the client. And lastly, it's candor. You know a

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Speaker 1: lot of times clients really need to hear something they

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Speaker 1: may not want to hear, like spend less money or

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Speaker 1: uh control thyselves in some way, or you know, keep

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Speaker 1: the emotions down, you know, stick with this market that

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Speaker 1: we have conversations with people. Sometimes I'll get emails with

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Speaker 1: people say I have this big inheritance and I want

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Speaker 1: to seed four different hedge funds and whichever one gives

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Speaker 1: me the best returns, That's what I'm giving my money to. Like,

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Speaker 1: you understand game theory, right, you understand you just gave

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Speaker 1: these guys an incentive to do nothing but throw hail

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Speaker 1: Mary's because if they lose, hey, the odds are against

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Speaker 1: them getting your money. And if they win, they they're

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Speaker 1: not going to be able to put up those numbers again.

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Speaker 1: So you've created a terrible situation. People don't seem to

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Speaker 1: think those sort of things through. I think financial advices

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Speaker 1: through a lot of keeping clients from making big mistakes

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Speaker 1: and behavioral counseling. Absolutely that. In fact, almost every financial

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Speaker 1: planner I've ever talked to you says, you know, I

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Speaker 1: wish I had a minor in psychology, and and it's

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Speaker 1: that important that that's quite interesting, So let's talk about that.

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Speaker 1: That's one of of things I think the industry is

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Speaker 1: doing right. What else is the industry doing right? And

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Speaker 1: what else is it doing wrong? Well, I think what

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Speaker 1: it's doing wrong? And where we really think seen things

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Speaker 1: change over the last forty years as we went from

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Speaker 1: this fixed commission structure and abandoned that in nine that

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Speaker 1: was a good thing, but it's been replaced with a

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Speaker 1: whole bunch of variable compensation where people can get paid

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Speaker 1: a lot more money to sell one product over another,

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Speaker 1: and just a ton of conflicts of interest and a

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Speaker 1: lot of hidden fees. Clients have no idea what they're paying.

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Speaker 1: I have had many a perspective client client coming to

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Speaker 1: see me and they say, you know what, I've never

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Speaker 1: paid my broker a dollar. You know, I get that

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Speaker 1: on the bond side of things, they don't charge me

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Speaker 1: any commissioners bonds. Well, that's because it's it's not you know,

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Speaker 1: there's a difference between an agency transaction and a principal transaction.

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Speaker 1: They're selling you by on is at a markup, not

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Speaker 1: a commission. It's even worse right, No, no, no, it

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Speaker 1: doesn't show that on any of my confidence. And then

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Speaker 1: when I when I take them through and say here's

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Speaker 1: the commission. Here's the twelve B one fees. Here's the

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Speaker 1: payment for shelf space that the brokerage firm is getting

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Speaker 1: of some amount. Okay, Like it's like it's potato chips

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Speaker 1: in the supermarket if you want to be on the

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Speaker 1: end gap. They're being the supermarkets for that placement. And

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Speaker 1: they're soft all the compensation, and there's other revenue shary

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Speaker 1: and gifts and the like. And when you start explaining

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Speaker 1: this to clients, they typically get really angry because they

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Speaker 1: thought that this guy was their best friend and it

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Speaker 1: turns out that they were a very good product salesperson.

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Speaker 1: The the old joke is if you want a friend

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Speaker 1: on Wall Street, get a dog, And it's really true,

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Speaker 1: because they're there to do the business of their firm.

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Speaker 1: And I'm not saying there's anything wrong with that, but

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Speaker 1: it's important that investors educate themselves and find out how

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Speaker 1: that guy who's not charging you for those bond transactions

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Speaker 1: is driving a really nice car and living in a

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Speaker 1: really big hal us and doing it without much training,

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Speaker 1: and what they do. It's almost as if sometimes when

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Speaker 1: people get hired into some of the berg which firms nowadays,

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Speaker 1: they get training and how to sell, of course, but

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Speaker 1: they don't really get training and investment strategy and investment

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Speaker 1: portfolio management, tax tax efficient investing, uh, all the things

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Speaker 1: that they really should know to be experts, to know

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Speaker 1: where close to be in ANET. Now that is a

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Speaker 1: change from years ago, because I know when I was

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Speaker 1: coming up. Look, I've been in this business for twenty

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Speaker 1: plus years. I had friends that started at mary Lynch,

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Speaker 1: started at Morgan Stanley, started at bear Stearns, and these

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Speaker 1: guys went through a rigorous six month training program. Do

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Speaker 1: these exist anymore? They have to still be around somewhere,

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Speaker 1: or has the industry given up on training people and

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Speaker 1: it's cfps and c f A s that or where

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Speaker 1: all the training take place. I think for a large

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Speaker 1: part they went away. And and the old model that

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Speaker 1: you perhaps grew up in, the old party marty commercial, Uh,

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Speaker 1: we make money the old fashioned way we earned it,

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Speaker 1: that largely disappeared and it's now just beginning to get

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Speaker 1: back come back. In part of this because people want

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Speaker 1: advice people, and it's really a lot more complicated world

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Speaker 1: out there. Sure financially tax wise, people don't need just

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Speaker 1: investment advice. They need financial advice, financial planning, and and

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Speaker 1: that's where you see things like the UH Certified Financial

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Speaker 1: Planning Board of Standards with their CFP certification becoming really

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Speaker 1: priced as a standard for investors. So we've seen the

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Speaker 1: industry change a lot over the past couple of years,

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Speaker 1: past couple of decades. What do you think are the

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Speaker 1: next couple of changes we're gonna see going forward? UH

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Speaker 1: this year is likely to be transformational. Transformational. Now we

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Speaker 1: know the Department of Labor Fiduciary standards coming. We're gonna

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Speaker 1: talk more about that in our last segment. But what

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Speaker 1: else do you see changing the landscape for investors? Well,

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Speaker 1: the fiduciary Standards is going to change it and in

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Speaker 1: a lot of different ways. So let's look at the

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Speaker 1: longer term impacts of this. There are some things that

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Speaker 1: exist now which a lot aren't you going to go away?

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Speaker 1: If not by the regulators themselves, just from a standpoint

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Speaker 1: of having a more competitive marketplace. One, fees likely to

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Speaker 1: be gone, okay, payment for self space okay, proprietary funds

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Speaker 1: a lot less, a lot less of that. How much

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Speaker 1: of this is driven by the massive inflows we see

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Speaker 1: into Vanguard. That's just in the last minute. We have

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Speaker 1: Vanguard is sucking up all the oxygen the room, and

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Speaker 1: all the active managers out there seem to be flailing.

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Speaker 1: Is that a competitive factor that's driving this to some degree? Yes,

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Speaker 1: because once you start eliminating all these hidden fees and

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Speaker 1: you get down to lower fees, all the academic research

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Speaker 1: shows lower fees means higher return for investors, and investors

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Speaker 1: to starting the catch onto this, I'm Barry Ridhults. You're

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Speaker 1: listening to Masters in Business on Bloomberg Radio. My special

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Speaker 1: guest today is Professor Ron Rhodes. He's from Western Kentucky

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Speaker 1: University and a specialist in various forms of financial planning

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Speaker 1: and the rules and regulations and standards that governed the

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Speaker 1: different participants in the market. Let's talk a little bit

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Speaker 1: about this and and and start out really broadly, put

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Speaker 1: on your lawyer's hat and explain what is it that

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Speaker 1: a duty of care is, who's it owed to and

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Speaker 1: why is this important? Well, for financial services, what it

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Speaker 1: means is you have to have a certain level of

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Speaker 1: expertise and apply that expertise uh in designing investment strategies

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Speaker 1: and selecting investment products. And that's part of a duty

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Speaker 1: of care of the fiduciary standards of duty care. The

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Speaker 1: other part is the duty of loyalty, which means you've

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Speaker 1: got to keep the client's best interest paramount. What's interesting

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Speaker 1: is that most brokers who are not acting as fiduciaries

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Speaker 1: don't have either of these duties. They're not obligated to

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Speaker 1: have any sort of expertise that when they're not obligated

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Speaker 1: to with the clients uh interest. Fact, they're just governed

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Speaker 1: by a suitability standards something that's far less. It's amazing

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Speaker 1: in this world that we have so many service providers

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Speaker 1: that have a duty of care and what the suitability

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Speaker 1: doctrine really does. It was adoptive way back in the

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Speaker 1: earlier twenty century when the whole theory of negligence was

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Speaker 1: developing in the law was. It basically was enacted because

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Speaker 1: we didn't want to hold brokers responsible for stock recommendations

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Speaker 1: when they were only executing stock trades and listen, stocks

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Speaker 1: go up and down. You can't hold people responsible for

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Speaker 1: good faith bad choices. But suitability is such a low standard.

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Speaker 1: I used to call that don't sell I p o

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Speaker 1: s to grant MS standard. But but there's a little

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Speaker 1: more to it. Explain exactly what suitability means and how

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Speaker 1: much different that is than fiduciary Suitability essentially says, don't

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Speaker 1: sell things that explode that you know we're going to explode,

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Speaker 1: and perhaps for elderly clients, don't even sell firecrackers. All right,

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Speaker 1: But suitability is basically says you don't have a duty

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Speaker 1: of care. All you have to do is make sure

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Speaker 1: that this investment could be held by this particular client.

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Speaker 1: It doesn't have to be the best investment if it's

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Speaker 1: in a taxable account, it doesn't have to be tax efficient.

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Speaker 1: It doesn't have to be a low cost investment. In fact,

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Speaker 1: it can be a very high cost investment. Yeah. And

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Speaker 1: from the standpoint, it doesn't even require you to think

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Speaker 1: about an entire portfolio together and how you can minimize

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Speaker 1: the risk in that portfolio. It doesn't even require the

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Speaker 1: application of what we've known for sixty five years now,

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Speaker 1: modern PORTFOLI theory. So is it fair to say suitability

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Speaker 1: is can be summed up as try not to be reckless?

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Speaker 1: Is it? Is it that lowest standard? I think it

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Speaker 1: actually allows people to be reckless. I think it's I

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Speaker 1: think it's below that point, so recklessness, all right? It

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Speaker 1: was reckless, but it wasn't unsuitable. Gross negligence perhaps is

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Speaker 1: is outall and a suitability is really a standard that

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Speaker 1: it's very difficult to actually say what it is. It's

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Speaker 1: so vague. So so let's talk a little bit about

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Speaker 1: the regulator in this space. The brokerage world has a

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Speaker 1: s r OH, a self regulating organization formally NASDAC or

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Speaker 1: any SDR. Now it's FINRA. You have been a major

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Speaker 1: thorn in their side, mostly about this suitability standard and

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Speaker 1: their opposition to the fiduciary standard. Tell us a little

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Speaker 1: bit about your your relationship with FINRA. Let me take

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Speaker 1: this to the back in night Senator Maloney who was

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Speaker 1: the author of the Maloney Act that led to the

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Speaker 1: creation of any s D which is now FINRAD. He said,

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Speaker 1: the purpose of this s r OH is to create

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Speaker 1: an organization that will gradually, over time raise the standard

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Speaker 1: of conduct for those in the securities business to the

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Speaker 1: various highest standard and the law, in other words, raise

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Speaker 1: it to the fiduciary standard. That vision has never been

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Speaker 1: put in place. You know, if you go back to

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Speaker 1: the forties, uh findra it's its biggest accomplishment. It wrote,

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Speaker 1: was uh not was preventing the separation of brokers from dealers.

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Speaker 1: All right, well, that's a conflict of interest situation. They

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Speaker 1: basically led to this huge conflict of interest in financial services.

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Speaker 1: They maintained that when they adopted their first rule book

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Speaker 1: in even though they acknowledged in their first newsletter that

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Speaker 1: brokers are often fiducaries to clients, that they have a

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Speaker 1: relationship of trust and confidence with there's nothing in the

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Speaker 1: finer rule book. Now we're back then this has the

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Speaker 1: word fiducry in it. So in the last minute we

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Speaker 1: have in this segment, there was a time not too

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Speaker 1: long ago when FINRA made a play to take over

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Speaker 1: managing or supervising um the r I a world, the

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Speaker 1: registered investment advisory world currently supervised by the SEC. You

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Speaker 1: pretty much were a one man wrecking ball that stopped that.

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Speaker 1: Tell us a little bit about how that happened. I

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Speaker 1: think there were a lot of people involved in that

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Speaker 1: effort to stop them. It was a bill that's coming

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Speaker 1: out of the Senate and that was proposed, and there

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Speaker 1: was just a lot of opposition from consumer groups for

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Speaker 1: myself but many others to that to basically say, listen,

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Speaker 1: we shouldn't be rewarding FINRA by giving them oversight of

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Speaker 1: investment advisors. Yes, we need more oversight, we need more inspections,

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Speaker 1: but this is not the way to do it. I'm

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Speaker 1: Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio.

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Speaker 1: My special guest today is Professor Ron Rhodes. He is

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Speaker 1: an expert on fiduciary standards and legal obligations that advisers

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Speaker 1: owe their clients, namely the investment community. Let's talk a

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Speaker 1: little bit about the fiduciary standard. Back in two thousand

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Speaker 1: and eleven, as part of the Dodd Frank Rules, the

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Speaker 1: SEC had a research a um put together a study

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Speaker 1: on the appropriate standards for brokers and advisors and all

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Speaker 1: sorts of people in the industry, and they put out

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Speaker 1: this long research report. I actually published it on the

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Speaker 1: blog some time ago. Uh that specifically said, and I'm quoting,

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Speaker 1: all financial advisors and stockbrokers should be placed under a

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Speaker 1: uniform fiduciary standard. First, what does that mean? And second,

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Speaker 1: why hasn't that happened? Back in two thousand eleven that

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Speaker 1: that study came out from the SEC staff, and we

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Speaker 1: had spent a lot of time with the SEC myself

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Speaker 1: and many other fiduciary advocates, educating them about the fiduciary

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Speaker 1: standard and why it was so important and what this

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Speaker 1: would mean if it was adopted, And it came out

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Speaker 1: with what I thought was a pretty strong report on it,

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Speaker 1: very very strong. Yeah, you can you can tell by

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Speaker 1: the pushback to it immediately from the rest of the industry.

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Speaker 1: The SEC commissioners did not sign off on. That is

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Speaker 1: not signed by any SEC commissioner. Uh. Kind of an

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Speaker 1: indication of the split and the commission that has persisted

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Speaker 1: for probably at least a decade now. UH. But you

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Speaker 1: know now that the situation at the SEC has quite changed.

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Speaker 1: You have you always have staff turnover, and the senior

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Speaker 1: staff at the SEC, they all worked on the Wall

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Speaker 1: Street before, uh, and they a lot of them worked

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Speaker 1: at the SEC, went to Wall Street, came back. A

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Speaker 1: little bit of revolving do going on tremendous And one

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Speaker 1: of the interesting things is, and it doesn't happen for

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Speaker 1: all the SEC staff, but but it does happen generally

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Speaker 1: between New York and Washington. You leave Wall Street, you

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Speaker 1: get a bonus to go work at a government agency

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Speaker 1: and a promise that you'll have a job when you

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Speaker 1: come back, Does that influence what you do in Washington?

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Speaker 1: Certainly does. Yeah, there's no way around the fact that

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Speaker 1: it's going to influence your decision making. And right now

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Speaker 1: the chair of the SEC is surrounded by senior staff

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Speaker 1: that really hold an allegiance to to Wall Street and

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Speaker 1: don't want the fiduciary standard. M that's amazing that. Um,

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Speaker 1: so let's talk a little bit. You you reference the

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Speaker 1: fiduciary standard in an earlier segment, but let's let's get

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Speaker 1: into that again. Explain exactly what the So you're an investor,

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Speaker 1: you're you open a brokerage account or you open a

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Speaker 1: an account with an advisor. What should the fiduciary standard

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Speaker 1: mean to you as an investor? First, that you're dealing

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Speaker 1: with an expert, someone who if you say I want

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Speaker 1: to prove in portfolio, that's what they'll give you. And

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Speaker 1: and and generally speaking, this in a assumption that that's

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Speaker 1: what you want, although not all advices live up to it.

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Speaker 1: And and second this what really makes the fiduciary standard

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Speaker 1: distinctive is the duty of loyalty, the duty to keep

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Speaker 1: your best interest first paramount best interest of the client

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Speaker 1: over that of the advisor and the and the only

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Speaker 1: way to do that is to avoid conflicts of interest.

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Speaker 1: They say, Hey, we agree on how much I'm gonna

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Speaker 1: get paid, I'm going to do my best to not

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Speaker 1: receive any third party compensation whatsoever. When you say do

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Speaker 1: your best, you know someone's giving you a check, you

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Speaker 1: know it. It should be pretty easy to not get

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Speaker 1: paid by anybody but the clients or am I wrong?

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Speaker 1: Generally it's easy. But for example, I'll go to a

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00:25:43,240 --> 00:25:48,639
Speaker 1: custodial conference, uh that I use the custodian for my

431
00:25:48,680 --> 00:25:51,679
Speaker 1: client funds, and I don't pay for the education at

432
00:25:51,680 --> 00:25:53,800
Speaker 1: the conference. I pay my own way there the hotel,

433
00:25:54,400 --> 00:25:57,119
Speaker 1: but they give some free food and and even some

434
00:25:57,200 --> 00:26:02,280
Speaker 1: free entertainment and up in the in the in the boothroom.

435
00:26:02,400 --> 00:26:04,800
Speaker 1: So that that's a minor conflict of interest that I

436
00:26:04,840 --> 00:26:07,400
Speaker 1: would say, it's not going to influence my judgment at all.

437
00:26:08,119 --> 00:26:10,080
Speaker 1: But if I went to twelve of those conferences a

438
00:26:10,160 --> 00:26:13,120
Speaker 1: year of mine, right, So so you have to there

439
00:26:13,119 --> 00:26:17,440
Speaker 1: aren't small conflicts, and everybody has, but it's avoiding those

440
00:26:17,440 --> 00:26:20,600
Speaker 1: major conflicts. But even if you don't avoid a conflict,

441
00:26:21,400 --> 00:26:23,640
Speaker 1: then this is the key to the duty of loyalty.

442
00:26:23,840 --> 00:26:27,520
Speaker 1: A lot of people out there, including someone Wall Street lawyers,

443
00:26:27,560 --> 00:26:30,159
Speaker 1: they think that all that's required is you have to

444
00:26:30,200 --> 00:26:32,879
Speaker 1: disclose the conflict of interest. But that's not what the

445
00:26:32,920 --> 00:26:39,000
Speaker 1: fiduciary laws. Interests must come first. And so having a

446
00:26:39,040 --> 00:26:42,440
Speaker 1: conflict of interest is a breach of a fiduciary duty.

447
00:26:42,920 --> 00:26:45,200
Speaker 1: You have to cure that breach. How do you do that?

448
00:26:45,600 --> 00:26:49,639
Speaker 1: You disclose the conflict and its ramifications to the client.

449
00:26:50,359 --> 00:26:53,639
Speaker 1: You do that affirmatively. You make sure the client understands,

450
00:26:53,640 --> 00:26:57,919
Speaker 1: and that's a duty that's subjectively applied. You get the

451
00:26:57,960 --> 00:27:01,800
Speaker 1: clients informed consent. And here's the key. No clients ever

452
00:27:01,840 --> 00:27:06,120
Speaker 1: going to consent to be to be harmed. One would help.

453
00:27:06,200 --> 00:27:08,320
Speaker 1: So so if you say, well, I'm going to get

454
00:27:08,320 --> 00:27:13,040
Speaker 1: an extra fifty basis points when I sell you this

455
00:27:13,440 --> 00:27:16,640
Speaker 1: on an ongoing conversation, as opposed to the exact same

456
00:27:16,680 --> 00:27:21,560
Speaker 1: product elsewhere. That course, by the way, when I've reviewed portfolios,

457
00:27:21,600 --> 00:27:26,200
Speaker 1: I've seen people with SMP holdings at like one in

458
00:27:26,280 --> 00:27:29,960
Speaker 1: a quarter internal expense or one percent. You can pick

459
00:27:30,000 --> 00:27:34,639
Speaker 1: that up at a vanguard or a dimensional for almost nothing,

460
00:27:34,680 --> 00:27:38,119
Speaker 1: eight bits, twelve bits something in insane six basis points.

461
00:27:38,520 --> 00:27:41,880
Speaker 1: How can anyone justify an index fund with a one

462
00:27:42,680 --> 00:27:45,760
Speaker 1: internal expense rate. You can't. You can't, and there's way

463
00:27:45,800 --> 00:27:48,440
Speaker 1: of doing it. So so we talked about the the

464
00:27:48,600 --> 00:27:52,960
Speaker 1: SEC study and how they proposed a uniform standard. That

465
00:27:53,040 --> 00:27:56,920
Speaker 1: hasn't happened, but the Department of Labor has now stepped

466
00:27:56,920 --> 00:28:00,800
Speaker 1: in and said, retirement accounts are a form of compensation.

467
00:28:01,400 --> 00:28:05,479
Speaker 1: We cover compensation, and therefore we're going to cover the

468
00:28:05,600 --> 00:28:09,920
Speaker 1: standards for people who are managing these because essentially they're

469
00:28:09,960 --> 00:28:15,520
Speaker 1: managing compensation and therefore we're implying the fiduciary standard. How

470
00:28:15,520 --> 00:28:19,679
Speaker 1: did that come about? Well, Assistant Secretary Phyllis Borsey over

471
00:28:19,720 --> 00:28:22,440
Speaker 1: at the Department of Labor, who are really admire When

472
00:28:22,480 --> 00:28:25,040
Speaker 1: she came on board about seven years ago, she asked

473
00:28:25,080 --> 00:28:27,520
Speaker 1: her staff what are the things that we can do

474
00:28:27,640 --> 00:28:32,240
Speaker 1: to improve retirement security for for Americans? And they came

475
00:28:32,320 --> 00:28:34,200
Speaker 1: up with a list and some two of those things

476
00:28:34,200 --> 00:28:39,320
Speaker 1: have already been implemented. Disclosures to plan sponsors and disclosures

477
00:28:39,360 --> 00:28:43,000
Speaker 1: to plan participants. They've already had a huge impact. Once

478
00:28:43,040 --> 00:28:46,040
Speaker 1: you disclose all the fees and costs, attends to lower things.

479
00:28:46,360 --> 00:28:48,040
Speaker 1: I can't by the way, I can't tell you how

480
00:28:48,080 --> 00:28:50,400
Speaker 1: often we look at a four one K plan and

481
00:28:50,440 --> 00:28:54,000
Speaker 1: the answers, who the heck put this together? Oh, the

482
00:28:54,040 --> 00:28:56,560
Speaker 1: boss's brother in law did it. That sort of stuff

483
00:28:56,560 --> 00:29:00,800
Speaker 1: has really tailed off because there's an obligation on employer

484
00:29:01,480 --> 00:29:04,320
Speaker 1: to they have a food dociary standard. If they're offering

485
00:29:04,320 --> 00:29:07,480
Speaker 1: a four one, they do, and it's uh. They need

486
00:29:07,800 --> 00:29:10,880
Speaker 1: employers that they're not in the business of of creating

487
00:29:10,920 --> 00:29:14,480
Speaker 1: portfolios for their employees. They run a business, so they

488
00:29:14,520 --> 00:29:16,720
Speaker 1: need a trusted advisor. And if they don't have a

489
00:29:16,720 --> 00:29:20,360
Speaker 1: trust advisor, the employer is the one who is on

490
00:29:20,440 --> 00:29:24,160
Speaker 1: the hook. But under the suitability standard, if some broker

491
00:29:24,200 --> 00:29:27,920
Speaker 1: recommend it, here's twenty funds and all horrible funds. The

492
00:29:28,000 --> 00:29:30,960
Speaker 1: brokers down on the hook, and that's that's a real problem.

493
00:29:31,040 --> 00:29:35,160
Speaker 1: Not usually the aforementioned brother in law. That's department Well,

494
00:29:35,200 --> 00:29:37,320
Speaker 1: Department Labor is in the middle of fixing this with

495
00:29:37,440 --> 00:29:40,840
Speaker 1: something called its conflict of interest rule, supposed to be finalized,

496
00:29:41,600 --> 00:29:46,440
Speaker 1: come out later this spring and hopefully hopefully implemented by

497
00:29:46,440 --> 00:29:48,920
Speaker 1: the end of two thousand sixteen, and it's going to

498
00:29:49,400 --> 00:29:54,360
Speaker 1: basically say, if you're providing advice to either define contribution

499
00:29:54,440 --> 00:29:56,920
Speaker 1: plans that are government by aresa like four one K

500
00:29:57,080 --> 00:30:00,920
Speaker 1: plans some four three bis or if you're providing advice

501
00:30:01,000 --> 00:30:07,400
Speaker 1: to IRA accounts, then you are a fiduciary and and

502
00:30:08,040 --> 00:30:13,200
Speaker 1: all these fiduciary obligations result. Imagine when going from about

503
00:30:13,440 --> 00:30:17,720
Speaker 1: twenty of of publicly traded investments being subject to a

504
00:30:17,720 --> 00:30:21,840
Speaker 1: fiduciary standard, mostly in defined benefit plans and endownment funds,

505
00:30:22,080 --> 00:30:27,400
Speaker 1: to somewhere between forty that's a tipping point. Yeah, that's massive.

506
00:30:27,440 --> 00:30:29,920
Speaker 1: I will tell you in my own office, outside of

507
00:30:29,920 --> 00:30:32,560
Speaker 1: the four oh one case stuff I would say about

508
00:30:33,120 --> 00:30:36,959
Speaker 1: the portfolios are in i ras, people have rollovers they

509
00:30:36,960 --> 00:30:40,280
Speaker 1: set up there. That's a huge, huge change. So about

510
00:30:40,400 --> 00:30:44,440
Speaker 1: half of the total assets under management are going to

511
00:30:44,520 --> 00:30:48,040
Speaker 1: be governed by a fiduciary standard by the time this

512
00:30:48,120 --> 00:30:51,160
Speaker 1: year rolls around. Can anything stop this rule from being

513
00:30:51,200 --> 00:30:55,600
Speaker 1: put into effect? Well? Wall Street is really heavily, heavily

514
00:30:55,600 --> 00:30:59,360
Speaker 1: alarming in Congress to stop it. They didn't succeed in

515
00:30:59,480 --> 00:31:02,120
Speaker 1: the budget negotiations back in December. That was really their

516
00:31:02,120 --> 00:31:06,000
Speaker 1: biggest chance. Uh. They're still trying desperately to get some

517
00:31:06,080 --> 00:31:10,120
Speaker 1: bills past. Uh. I'm going down to d C right

518
00:31:10,160 --> 00:31:13,160
Speaker 1: after this to to to meet on Capitol Hills. To

519
00:31:13,160 --> 00:31:15,400
Speaker 1: try to stop some of that, A lot of this

520
00:31:15,600 --> 00:31:19,200
Speaker 1: a D organizations that are pro fiduciary supporting the rule.

521
00:31:19,720 --> 00:31:21,920
Speaker 1: I think it's got a really really good chance of

522
00:31:22,000 --> 00:31:26,240
Speaker 1: getting through this year. That that's that's really quite quite amazing.

523
00:31:26,680 --> 00:31:29,480
Speaker 1: For the life of I've I've seen all these arguments

524
00:31:29,520 --> 00:31:32,360
Speaker 1: against it, which will come down to, hey, we're gonna

525
00:31:32,360 --> 00:31:34,880
Speaker 1: lose a lot of money and fees. But without me

526
00:31:34,920 --> 00:31:40,040
Speaker 1: being glib or snarky, are there any credible arguments against

527
00:31:40,080 --> 00:31:45,400
Speaker 1: the fiduciary standard? Not? Not really. You know, it's not

528
00:31:45,480 --> 00:31:48,680
Speaker 1: just me because I look, we both went to law school.

529
00:31:48,800 --> 00:31:50,680
Speaker 1: You know, you know what mood court is. You have

530
00:31:50,800 --> 00:31:55,480
Speaker 1: to adopt the other parties argument and argue on their behalf.

531
00:31:55,880 --> 00:31:57,480
Speaker 1: You have to be able to switch hats, and you

532
00:31:57,520 --> 00:32:00,840
Speaker 1: cannot understand your own position unless you can argue your

533
00:32:00,840 --> 00:32:04,240
Speaker 1: opponents position. And I feel like I have a blind

534
00:32:04,280 --> 00:32:07,040
Speaker 1: spot with this because, for the life of me, I

535
00:32:07,080 --> 00:32:10,920
Speaker 1: cannot find a single credible our argument other than we're

536
00:32:10,920 --> 00:32:14,160
Speaker 1: gonna lose a lot of of fees if we go

537
00:32:14,280 --> 00:32:17,880
Speaker 1: from suitability to fiduciary. Uh. You know, I would say this,

538
00:32:18,000 --> 00:32:22,120
Speaker 1: there's there's always a tension in our society between one

539
00:32:22,240 --> 00:32:25,440
Speaker 1: one body of thought that says people have to have

540
00:32:25,640 --> 00:32:29,840
Speaker 1: self responsibility for what they do themselves. And there's another

541
00:32:29,840 --> 00:32:32,960
Speaker 1: body of thought that says, well, wait a minute, the

542
00:32:33,080 --> 00:32:35,600
Speaker 1: law needs to protect people. Sometimes it needs to be

543
00:32:35,640 --> 00:32:40,440
Speaker 1: a little paternalistic, and people hate that word paternalistic. Uh.

544
00:32:40,480 --> 00:32:45,520
Speaker 1: And financial services, really, the question is does the average

545
00:32:45,520 --> 00:32:50,200
Speaker 1: American does almost any American can they? Can they navigate

546
00:32:50,320 --> 00:32:54,840
Speaker 1: this complex financial and investment world themselves when people are

547
00:32:54,880 --> 00:32:59,080
Speaker 1: trying to sell some really lousy stuff to them? Uh,

548
00:32:59,240 --> 00:33:02,720
Speaker 1: my experience that is maybe one in a thousand. We've

549
00:33:02,720 --> 00:33:06,400
Speaker 1: been talking with professor Ron Rhodes of Western Kentucky University.

550
00:33:06,440 --> 00:33:09,440
Speaker 1: If you enjoy this conversation, be sure and hang around

551
00:33:09,680 --> 00:33:12,280
Speaker 1: for a podcast extras where we keep the digital tape

552
00:33:12,360 --> 00:33:15,920
Speaker 1: rolling and continue chatting about all sorts of things. Be

553
00:33:16,040 --> 00:33:19,240
Speaker 1: sure and check out my daily column on Bloomberg View

554
00:33:19,280 --> 00:33:22,880
Speaker 1: dot com. Uh. Follow me on Twitter at rid Halts.

555
00:33:22,920 --> 00:33:25,320
Speaker 1: I'm Barry rid Halts. You've been listening to Masters in

556
00:33:25,360 --> 00:33:29,400
Speaker 1: Business on Bloomberg Radio. Welcome to the podcast. Uh, this

557
00:33:29,480 --> 00:33:34,040
Speaker 1: is the portion too loud. Welcome to the podcast. I

558
00:33:34,120 --> 00:33:37,280
Speaker 1: have as a my special guest this week, Ron Rhodes. Ron,

559
00:33:37,280 --> 00:33:39,120
Speaker 1: thank you so much for coming all the way up

560
00:33:39,560 --> 00:33:41,440
Speaker 1: from d C and doing this. I know you're heading

561
00:33:41,760 --> 00:33:46,480
Speaker 1: back down to d C. Um, you're gonna you're gonna

562
00:33:46,480 --> 00:33:50,280
Speaker 1: meet with a bunch of UM organizations and people on

563
00:33:50,360 --> 00:33:54,160
Speaker 1: the hill about the fiduciary standard. Who who's on your

564
00:33:54,200 --> 00:33:57,520
Speaker 1: hit parade? Are you're gonna be seeing the Consumer Financial

565
00:33:57,560 --> 00:34:00,880
Speaker 1: Protection Board? Are they on your your list? Sometimes they are,

566
00:34:00,960 --> 00:34:05,440
Speaker 1: but not this trip. Typically, uh, it's uh the Senate

567
00:34:05,480 --> 00:34:11,080
Speaker 1: Finance uh and Senate Banking Committees, House Education, Workforce Committee,

568
00:34:11,200 --> 00:34:16,200
Speaker 1: Senator Warren she as part of your yes in the past. Uh,

569
00:34:16,280 --> 00:34:18,759
Speaker 1: not not on this trip. You know, there's so many

570
00:34:18,760 --> 00:34:24,680
Speaker 1: senators and representatives theory every trip we in, every trip

571
00:34:24,719 --> 00:34:27,799
Speaker 1: to d C, it's usually seeing you know, about five

572
00:34:27,840 --> 00:34:31,440
Speaker 1: a day, either them or their staffs, their Legislative Council,

573
00:34:31,480 --> 00:34:37,400
Speaker 1: their General Council, or the committee staff, very influential committee staff.

574
00:34:38,120 --> 00:34:41,080
Speaker 1: But also you know, while when there, we typically reach

575
00:34:41,120 --> 00:34:45,239
Speaker 1: out to some of the organization's uh uh visits to

576
00:34:45,280 --> 00:34:48,000
Speaker 1: the SEC. There's still some stuff going on there, right.

577
00:34:48,840 --> 00:34:51,080
Speaker 1: Does it feel like the tide is shifting on this

578
00:34:51,120 --> 00:34:54,279
Speaker 1: on this on this fight? Is it? I feel like

579
00:34:54,560 --> 00:34:57,000
Speaker 1: it doesn't seem like an uphill battle anymore? It seems

580
00:34:57,040 --> 00:35:00,160
Speaker 1: like this is going to happen. Definitely. I would say

581
00:35:00,200 --> 00:35:05,160
Speaker 1: once we got past the December budget negotiations, I don't

582
00:35:05,160 --> 00:35:09,279
Speaker 1: see anything on the horizon that is a hurdle to

583
00:35:09,400 --> 00:35:14,200
Speaker 1: this being implemented. Is not to say that the most intensive,

584
00:35:14,800 --> 00:35:19,239
Speaker 1: coordinated lobbying effort that Capitol Hill has ever seen is

585
00:35:19,239 --> 00:35:23,799
Speaker 1: not occurring as we speak right. Oh. Absolutely, every time

586
00:35:23,840 --> 00:35:26,839
Speaker 1: I go to Capitol Hill is like, Wow, we can't

587
00:35:26,880 --> 00:35:31,160
Speaker 1: believe it. We've seen forty fifty people on the anti

588
00:35:31,200 --> 00:35:34,560
Speaker 1: fiduciary side, including the CEOs of some of our big

589
00:35:34,640 --> 00:35:38,480
Speaker 1: investment banks, making personal trips down there in the lobby. Well,

590
00:35:38,480 --> 00:35:41,359
Speaker 1: they got stock options at risks, so they they see

591
00:35:41,400 --> 00:35:43,960
Speaker 1: forty or fifty of them for every one person on

592
00:35:44,200 --> 00:35:46,760
Speaker 1: the pro fiduciary side, and they say, we're very happy

593
00:35:46,840 --> 00:35:49,440
Speaker 1: to see you. Well, I've been actually going back and

594
00:35:49,520 --> 00:35:51,960
Speaker 1: forth with the sene Warre and staff of having her

595
00:35:52,040 --> 00:35:54,920
Speaker 1: as a guest, and I would love to discuss this

596
00:35:55,040 --> 00:35:56,920
Speaker 1: with her the next time you're in your her office,

597
00:35:57,400 --> 00:36:01,520
Speaker 1: Point her to this podcast, get her down in New

598
00:36:01,600 --> 00:36:03,680
Speaker 1: York for this um. So let's go over a few

599
00:36:03,719 --> 00:36:07,040
Speaker 1: of the questions that that we missed during the actual

600
00:36:08,080 --> 00:36:13,080
Speaker 1: broadcast portion um and we were all over the map.

601
00:36:13,520 --> 00:36:16,120
Speaker 1: So let's talk a little bit about the proper roles

602
00:36:16,239 --> 00:36:20,400
Speaker 1: of advisors. I never got to that question. You mentioned

603
00:36:20,600 --> 00:36:26,200
Speaker 1: expertise and and fiduciary standard, But a broker and an advisor,

604
00:36:26,320 --> 00:36:30,400
Speaker 1: how do they operate as counselors to investors? What should

605
00:36:30,480 --> 00:36:35,879
Speaker 1: their proper roles be? I I think that a good

606
00:36:35,920 --> 00:36:39,600
Speaker 1: financial counselor is a steward of not only wealth, but

607
00:36:39,760 --> 00:36:43,640
Speaker 1: also the client's hopes and dreams. And and when we

608
00:36:43,760 --> 00:36:48,040
Speaker 1: think about wealth and the accumulation of wealth, that's not

609
00:36:48,160 --> 00:36:51,560
Speaker 1: an ends, that's a means to an end. And what

610
00:36:51,680 --> 00:36:54,120
Speaker 1: do you do with wealth is you buy things like

611
00:36:54,719 --> 00:36:58,600
Speaker 1: financial security, or you buy time that you can spend

612
00:36:58,680 --> 00:37:03,000
Speaker 1: a better develop your relationships and maintain relationships with family

613
00:37:03,080 --> 00:37:05,920
Speaker 1: and friends. Or or you explore the world with it

614
00:37:06,000 --> 00:37:09,319
Speaker 1: in some way, expand your horizons. Or you give back

615
00:37:09,760 --> 00:37:12,640
Speaker 1: to the community in some way. Uh, And and all

616
00:37:12,719 --> 00:37:15,280
Speaker 1: of those things. If you ask what is the purpose

617
00:37:15,360 --> 00:37:19,400
Speaker 1: of all those things, it all leads the one thing, happiness.

618
00:37:20,239 --> 00:37:24,080
Speaker 1: And and not happiness as a destination, but happiness every

619
00:37:24,200 --> 00:37:28,840
Speaker 1: day along the journey. And so I really think financial

620
00:37:28,840 --> 00:37:32,880
Speaker 1: advisors do that. They they are stewards of clients happiness.

621
00:37:34,200 --> 00:37:37,600
Speaker 1: Quite quite interesting. You know, we never got to talk

622
00:37:37,640 --> 00:37:40,839
Speaker 1: about the robo advisors. Any thoughts about that. That that's

623
00:37:40,920 --> 00:37:45,000
Speaker 1: kind of an interesting, uh um change over the past

624
00:37:45,040 --> 00:37:47,719
Speaker 1: couple of years. I think it was a change that

625
00:37:47,960 --> 00:37:54,120
Speaker 1: was developed from software that financial advisors have been using

626
00:37:54,160 --> 00:37:59,840
Speaker 1: for over a decade for rebalancing portfolios tax efficiently. Also

627
00:38:00,160 --> 00:38:04,360
Speaker 1: software that has been used to gather client information more efficiently,

628
00:38:04,920 --> 00:38:09,760
Speaker 1: and also report out, especially portfolio reporting software online updated

629
00:38:09,800 --> 00:38:13,120
Speaker 1: every day. And you combine those three things with a

630
00:38:13,200 --> 00:38:20,160
Speaker 1: slick interface, and you adopts a mass market market methodology

631
00:38:20,239 --> 00:38:23,319
Speaker 1: to it lower the fees, and and that's essentially where

632
00:38:23,320 --> 00:38:27,600
Speaker 1: a robo advisor is. Uh, it's been an interesting development.

633
00:38:27,680 --> 00:38:30,959
Speaker 1: I'm not sure how long it's gonna last. Uh it'll

634
00:38:31,040 --> 00:38:34,839
Speaker 1: last till the next major financial crisis when people don't

635
00:38:34,840 --> 00:38:37,520
Speaker 1: know what they have to do with themselves. Look, well,

636
00:38:38,800 --> 00:38:42,000
Speaker 1: it depends. Uh. You know, we talked about this the

637
00:38:42,080 --> 00:38:46,160
Speaker 1: other day in the office. Asset allocation is a commodity product.

638
00:38:46,239 --> 00:38:50,720
Speaker 1: It's it's inexpensive of free, but advice, and good advice

639
00:38:51,239 --> 00:38:54,600
Speaker 1: is fairly expensive. I don't know how you can set

640
00:38:54,760 --> 00:38:58,640
Speaker 1: a person's ouset allocation without having a personal conversation with

641
00:38:58,760 --> 00:39:01,800
Speaker 1: them because it's about risk tolerance. And a lot of

642
00:39:01,840 --> 00:39:05,000
Speaker 1: times you'll see the robo advisors do these online risk

643
00:39:05,040 --> 00:39:10,640
Speaker 1: tolerance questionnaires. But they're helpful, they're helpful, but they're limited,

644
00:39:11,160 --> 00:39:15,000
Speaker 1: the inherently limited. You cannot design a risk tolerance questionnaire,

645
00:39:16,000 --> 00:39:18,440
Speaker 1: UH that has enough questions to really fire it out

646
00:39:18,520 --> 00:39:22,200
Speaker 1: where someone needs to be as opposed to what their

647
00:39:22,280 --> 00:39:26,520
Speaker 1: tolerance for risk is. It helps you, but people's need

648
00:39:26,600 --> 00:39:29,279
Speaker 1: to take on risk is something completely different, and and

649
00:39:29,400 --> 00:39:32,520
Speaker 1: that's set by a lot of different factors. You need

650
00:39:32,640 --> 00:39:38,600
Speaker 1: to have this hand holding with the client to ascertain

651
00:39:38,680 --> 00:39:43,800
Speaker 1: their need for risk. Yeah, investment management, you know, I

652
00:39:43,880 --> 00:39:45,600
Speaker 1: tell my students I can train you to be a

653
00:39:45,719 --> 00:39:51,400
Speaker 1: great investment portfolio manager in a year, but if you

654
00:39:51,440 --> 00:39:53,719
Speaker 1: want to be a great financial planner, it's going to

655
00:39:53,800 --> 00:39:57,080
Speaker 1: take you five to teen years. It is that? Is

656
00:39:57,120 --> 00:40:00,239
Speaker 1: it just a matter of life experience and no the

657
00:40:00,320 --> 00:40:03,000
Speaker 1: sort of cycles clients go through or is it something

658
00:40:03,320 --> 00:40:07,560
Speaker 1: something else? Financial planning is both broad and what it

659
00:40:07,640 --> 00:40:14,200
Speaker 1: covers tax planning and state planning, insurance issues, UH, maintaining debt,

660
00:40:14,320 --> 00:40:17,680
Speaker 1: paying off debt, major expenditure is planning. So many people

661
00:40:17,760 --> 00:40:22,239
Speaker 1: make huge mistakes in that area. Uh and investments is

662
00:40:22,280 --> 00:40:24,759
Speaker 1: only one part of that. So you have this very

663
00:40:24,840 --> 00:40:29,880
Speaker 1: broad area, but it's also pretty deep. And so the

664
00:40:30,000 --> 00:40:32,719
Speaker 1: only way to start connecting those dots, you know, if

665
00:40:32,760 --> 00:40:34,840
Speaker 1: you do one decision over here, how does it affect

666
00:40:34,880 --> 00:40:39,120
Speaker 1: something way over here is through experience, and and it's

667
00:40:39,160 --> 00:40:41,359
Speaker 1: gonna take five to ten years of experience, I think

668
00:40:41,400 --> 00:40:45,000
Speaker 1: for most people to become an excellent financial planner. Hmm,

669
00:40:45,120 --> 00:40:48,719
Speaker 1: that's that's fascinating. I'm glad I asked that question because

670
00:40:48,800 --> 00:40:51,920
Speaker 1: we uh we missed it. UM a couple of questions.

671
00:40:51,960 --> 00:40:55,080
Speaker 1: We talked a little bit about UH FINRA. One of

672
00:40:55,160 --> 00:40:57,600
Speaker 1: the things I wanted to ask about was the so

673
00:40:57,800 --> 00:41:00,719
Speaker 1: called hybrid model that seems to exist at some of

674
00:41:00,800 --> 00:41:04,800
Speaker 1: the big brokerage firms. So they have a suitability standard

675
00:41:05,360 --> 00:41:09,279
Speaker 1: most of the time, but to sell certain products they

676
00:41:09,480 --> 00:41:13,120
Speaker 1: use a an r A, so someone's both an r

677
00:41:13,280 --> 00:41:17,320
Speaker 1: A and a broker. So sometimes it's a fiduciary standard

678
00:41:17,800 --> 00:41:21,960
Speaker 1: and sometimes it's just suitability. How do you resolve that

679
00:41:22,239 --> 00:41:25,320
Speaker 1: that conflict of interest? You can't. You can't not for

680
00:41:25,400 --> 00:41:27,200
Speaker 1: the same client if you're if you're trying to be

681
00:41:27,280 --> 00:41:29,960
Speaker 1: a fiduciary to a client and at the same time

682
00:41:30,040 --> 00:41:34,000
Speaker 1: in trying to sell them something. No person can wear

683
00:41:34,080 --> 00:41:36,080
Speaker 1: two hats at the same time. It's it's an old

684
00:41:36,120 --> 00:41:40,799
Speaker 1: adage that goes back really millennia. Basically says no man

685
00:41:40,920 --> 00:41:45,120
Speaker 1: can serve two masters that one time, So you cannot

686
00:41:45,960 --> 00:41:49,919
Speaker 1: reconcile those functions. You can also remember under fiduciary law,

687
00:41:51,200 --> 00:41:55,719
Speaker 1: fiduciary is a status. You become a fiduciary to that client,

688
00:41:55,800 --> 00:41:59,279
Speaker 1: which means the entire relationship should be subject to that

689
00:41:59,360 --> 00:42:02,200
Speaker 1: fiduciary can't be a part time thing. It has to

690
00:42:02,280 --> 00:42:06,000
Speaker 1: be correct and and and if people get sued, if

691
00:42:06,080 --> 00:42:08,640
Speaker 1: if brokers get sued, they don't get sued under the

692
00:42:08,719 --> 00:42:11,560
Speaker 1: Advisor's Act and the way the sec applies that they

693
00:42:11,600 --> 00:42:14,360
Speaker 1: get sued under state common law and how that's applied.

694
00:42:15,120 --> 00:42:20,080
Speaker 1: And fiduciary status attaches to the entirety of the relationship

695
00:42:20,719 --> 00:42:23,920
Speaker 1: and and it really constrains what you're able to do.

696
00:42:24,480 --> 00:42:27,000
Speaker 1: So wait, if if someone's working at a big brokerage

697
00:42:27,000 --> 00:42:29,759
Speaker 1: firm that is a hybrid model where some of the

698
00:42:29,800 --> 00:42:32,440
Speaker 1: work they do is brokerage and commission based and some

699
00:42:32,600 --> 00:42:36,120
Speaker 1: of it is are i a fee based you're saying

700
00:42:36,280 --> 00:42:40,320
Speaker 1: you really can't have both standards with the same client,

701
00:42:41,239 --> 00:42:44,520
Speaker 1: because if they sue you, your brokerage behavior is going

702
00:42:44,560 --> 00:42:47,440
Speaker 1: to be governed under the fiduciary standard. Is that what

703
00:42:47,560 --> 00:42:50,440
Speaker 1: happens in certain states? Am I hearing that right? That

704
00:42:50,640 --> 00:42:53,480
Speaker 1: is that is likely to be applied in certain states.

705
00:42:54,040 --> 00:42:55,960
Speaker 1: The rules are not the same in every state the

706
00:42:56,040 --> 00:42:59,480
Speaker 1: way the common law has developed. Of course, you're you're

707
00:42:59,520 --> 00:43:01,480
Speaker 1: being sub it to arbitration here too. That I was

708
00:43:01,520 --> 00:43:03,920
Speaker 1: about to ask that. So if you have the arbitration

709
00:43:04,719 --> 00:43:07,520
Speaker 1: um agreement, so really that's the way out? Is that

710
00:43:07,600 --> 00:43:10,600
Speaker 1: a way out of the arbitration agreement is to basically say, hey,

711
00:43:10,800 --> 00:43:13,600
Speaker 1: I'm subject to arbitration rules, but there's a conflict because

712
00:43:13,640 --> 00:43:17,200
Speaker 1: there's a fiduciary standard here, and therefore you're out. I

713
00:43:17,280 --> 00:43:19,879
Speaker 1: haven't seen a lot of those cases. One would think

714
00:43:20,000 --> 00:43:24,239
Speaker 1: that's a ripe area of for litigation. In fact, our

715
00:43:25,600 --> 00:43:28,760
Speaker 1: complaint of breach of fiduciary is the most common complaint

716
00:43:28,840 --> 00:43:32,719
Speaker 1: in arbitration, but but not that many of those make

717
00:43:32,800 --> 00:43:36,480
Speaker 1: it forward because you have to overcome this threshold is

718
00:43:36,520 --> 00:43:38,960
Speaker 1: the person of fiduciary, then you have to apply the

719
00:43:39,000 --> 00:43:42,160
Speaker 1: fiduciary standard. One of the big problems in arbitration is

720
00:43:42,360 --> 00:43:46,400
Speaker 1: is arbitrators are trained to do what's fair, and in essence,

721
00:43:46,800 --> 00:43:50,640
Speaker 1: they're trained to ignore some of the procedural hurdles that

722
00:43:50,719 --> 00:43:53,960
Speaker 1: it takes to get into arbitra to make a lawsuit

723
00:43:54,400 --> 00:43:57,879
Speaker 1: under the thirty four Act, the Exchange Act, and they're

724
00:43:57,920 --> 00:44:01,520
Speaker 1: trained to do what's fair with clients. But that application

725
00:44:01,600 --> 00:44:05,920
Speaker 1: of fairness actually works to lower the fiduciary strict the

726
00:44:06,040 --> 00:44:08,680
Speaker 1: strictness of the fiduciary standard in the way it's applied.

727
00:44:08,840 --> 00:44:13,400
Speaker 1: How is that well, the fiduciary standard says, for example,

728
00:44:13,480 --> 00:44:15,000
Speaker 1: when you have a conflict of induct you have to

729
00:44:15,080 --> 00:44:19,480
Speaker 1: do all these things, and even then the transaccident you

730
00:44:19,840 --> 00:44:23,239
Speaker 1: propose to a client must remain substantially fair even with

731
00:44:23,360 --> 00:44:29,279
Speaker 1: informed consent. Well broker's the arbitration process. A lot of

732
00:44:29,360 --> 00:44:32,960
Speaker 1: the arbitrators come from the industry, but they don't come

733
00:44:33,000 --> 00:44:36,120
Speaker 1: from the r A side of the industry. They come

734
00:44:36,280 --> 00:44:39,920
Speaker 1: mainly from the broker side of the industry. And if

735
00:44:39,960 --> 00:44:42,440
Speaker 1: you haven't operated in a fiduciary environment orhere, you have

736
00:44:42,600 --> 00:44:46,239
Speaker 1: not studied fiduciary law and what it requires and why

737
00:44:46,360 --> 00:44:50,520
Speaker 1: fiduciary standards are applied. Your perception of what is fair

738
00:44:51,000 --> 00:44:53,719
Speaker 1: is going to be dramatically different. Take a look at

739
00:44:53,760 --> 00:44:58,120
Speaker 1: William Cohen's um work on the arbitration issues with FINRA.

740
00:44:58,680 --> 00:45:01,880
Speaker 1: He's absolutely been brutal. He and I know that they've

741
00:45:02,400 --> 00:45:05,120
Speaker 1: changed up some of the things they've done, but if

742
00:45:05,120 --> 00:45:07,759
Speaker 1: you look in the ninety nineties and the two thousand's,

743
00:45:08,840 --> 00:45:12,279
Speaker 1: it was not a pleasant situation to be a planiff in.

744
00:45:12,880 --> 00:45:16,360
Speaker 1: Even if you were egregiously ripped off, it wasn't a

745
00:45:16,400 --> 00:45:20,439
Speaker 1: place to go get justice. And Cohen just scorched earth

746
00:45:20,560 --> 00:45:24,080
Speaker 1: columns on this, both here at Bloomberg and elsewhere. Um.

747
00:45:24,360 --> 00:45:26,000
Speaker 1: You read some of his and it's like, how is

748
00:45:26,040 --> 00:45:29,279
Speaker 1: this even allowed to exist? The New York Times just

749
00:45:29,440 --> 00:45:33,279
Speaker 1: had a massive series on the problems with arbitration and

750
00:45:33,400 --> 00:45:36,719
Speaker 1: how inherently unfair it is and how biased it is.

751
00:45:37,080 --> 00:45:39,600
Speaker 1: Not just in finance, but any industry that has a

752
00:45:40,239 --> 00:45:45,800
Speaker 1: arbitration clause they're running the arbitration process. It's very industry friendly.

753
00:45:46,360 --> 00:45:48,480
Speaker 1: Arbitrators come in because they want to be rehired over

754
00:45:48,560 --> 00:45:51,400
Speaker 1: and over again. It's amazing that this has developed the

755
00:45:51,440 --> 00:45:54,520
Speaker 1: way it has. Yeah, we need to do away with

756
00:45:54,719 --> 00:45:58,040
Speaker 1: mandatory arbitracition, there's no question about it. Wow, that that

757
00:45:58,360 --> 00:46:00,440
Speaker 1: and what are the odds of that happening anytime arm soon?

758
00:46:01,000 --> 00:46:04,200
Speaker 1: The SEC actually has authority to do that. But who

759
00:46:04,239 --> 00:46:09,480
Speaker 1: controls the SEC? It's five commissioners, three three from the

760
00:46:10,160 --> 00:46:13,160
Speaker 1: party that controls the White House to from the opposition party.

761
00:46:13,640 --> 00:46:15,600
Speaker 1: And like you said, there's a lot of a lot

762
00:46:15,719 --> 00:46:19,719
Speaker 1: of influence from Wall Street over the SEC. And it's

763
00:46:19,800 --> 00:46:25,279
Speaker 1: really gonna take an extremely strong SEC chair and two

764
00:46:26,040 --> 00:46:29,600
Speaker 1: at least two commissioners who are also extremely strong to

765
00:46:29,920 --> 00:46:33,480
Speaker 1: to really start protecting consumers instead of protecting Wall Street

766
00:46:33,520 --> 00:46:37,280
Speaker 1: in finer quite quite fascinating. So there was an article

767
00:46:37,640 --> 00:46:41,279
Speaker 1: in the Wall Street Journal earlier this this month that

768
00:46:41,480 --> 00:46:48,160
Speaker 1: specifically talked about the outflow of brokers two advisors. Have

769
00:46:48,400 --> 00:46:51,960
Speaker 1: you noticed any trends in the industry about people leaving

770
00:46:52,040 --> 00:46:54,680
Speaker 1: the money center banks and the big brokerage firms and

771
00:46:54,800 --> 00:46:59,399
Speaker 1: either going to independence shops or gonna our a advisors

772
00:46:59,480 --> 00:47:03,120
Speaker 1: where they're is a fiduciary standard? Hey, what's what's going

773
00:47:03,160 --> 00:47:05,120
Speaker 1: on with that? Why is that happening? And what does

774
00:47:05,160 --> 00:47:09,279
Speaker 1: this mean for investors? Uh? You see that and you

775
00:47:09,360 --> 00:47:12,279
Speaker 1: see it accelerating. I think there's been several reasons for that.

776
00:47:13,120 --> 00:47:15,719
Speaker 1: One is there's there's firms out there that are roll

777
00:47:15,840 --> 00:47:18,880
Speaker 1: up firms we call them, that are actually recruiting brokers

778
00:47:18,960 --> 00:47:22,560
Speaker 1: out of the wirehouse environment that the good teams. Uh,

779
00:47:22,840 --> 00:47:28,000
Speaker 1: and they are fostering the process of getting out beyond that.

780
00:47:28,960 --> 00:47:32,400
Speaker 1: As the article mentioned, a lot of the ties that

781
00:47:32,520 --> 00:47:36,920
Speaker 1: they have in these deferred compensation packages are going away. Uh,

782
00:47:37,080 --> 00:47:42,600
Speaker 1: and that's really gonna give brokers the freedom. Uh. When

783
00:47:42,640 --> 00:47:46,160
Speaker 1: brokers do leave, about of the clients typically follow them.

784
00:47:46,280 --> 00:47:50,000
Speaker 1: That's pretty healthy. Yeah, it's not to say that there

785
00:47:50,040 --> 00:47:53,759
Speaker 1: aren't fights about that, but uh, they end up with

786
00:47:53,800 --> 00:47:56,719
Speaker 1: about eight of the clients on average. That's a pretty

787
00:47:56,760 --> 00:48:00,719
Speaker 1: healthy number. So despite all the anti solicitation provisions that

788
00:48:00,880 --> 00:48:07,279
Speaker 1: you see and brokerage broker firm broker agreements UM, a

789
00:48:07,400 --> 00:48:09,759
Speaker 1: lot of the clients are following them. I bet, I

790
00:48:09,920 --> 00:48:13,080
Speaker 1: bet the average listener is not familiar with the broker's

791
00:48:13,160 --> 00:48:19,280
Speaker 1: protocol which governs the process of hiring and recruiting brokers

792
00:48:19,520 --> 00:48:24,000
Speaker 1: from UM major brokerage firms. Talk about that for a second,

793
00:48:24,000 --> 00:48:26,560
Speaker 1: if you if you would, well, I was designed to

794
00:48:26,719 --> 00:48:31,440
Speaker 1: eliminate the lawsuits that were flying between brokerage firms. And

795
00:48:31,520 --> 00:48:33,880
Speaker 1: there's about four hundred brokerage firms that have signed on

796
00:48:33,960 --> 00:48:36,920
Speaker 1: to that agreement, and for the life of me, I

797
00:48:37,040 --> 00:48:41,560
Speaker 1: can't imagine why any investment advisory firm or even a

798
00:48:41,640 --> 00:48:44,840
Speaker 1: smaller broker dealer who wants to recruit would sign that

799
00:48:44,920 --> 00:48:48,200
Speaker 1: protocol because it's basically say, Okay, we get this team,

800
00:48:48,280 --> 00:48:50,359
Speaker 1: we have to pay you some money and and that's

801
00:48:50,400 --> 00:48:54,080
Speaker 1: how we resolve it. And and if if a team

802
00:48:54,200 --> 00:48:58,120
Speaker 1: from a wire house wants to go independent, they can

803
00:48:58,200 --> 00:49:00,440
Speaker 1: do that. They can start you on firm and go independent.

804
00:49:00,880 --> 00:49:03,600
Speaker 1: Nobody's gonna pay for their clients. They just take the

805
00:49:03,640 --> 00:49:08,239
Speaker 1: clients perhaps with them. So the way i've I've read

806
00:49:08,320 --> 00:49:12,279
Speaker 1: the protocol rules are, if you hire somebody from a

807
00:49:12,360 --> 00:49:16,719
Speaker 1: brokerage firm, here are the rules that the brokers must file.

808
00:49:16,960 --> 00:49:20,120
Speaker 1: They can't take any documentation out with them. It's like

809
00:49:20,200 --> 00:49:23,799
Speaker 1: a whole run of things. They could take names, email addresses,

810
00:49:23,880 --> 00:49:27,360
Speaker 1: phone numbers, but in theory they can't take account numbers.

811
00:49:27,400 --> 00:49:31,759
Speaker 1: It's kind of crazy, but it means when these people leave,

812
00:49:32,239 --> 00:49:38,000
Speaker 1: there's no litigation. So to some degree it encourages or

813
00:49:38,040 --> 00:49:41,920
Speaker 1: allows brokers to go without causing a lawsuit or a

814
00:49:42,000 --> 00:49:45,680
Speaker 1: fear of a lawsuit from where they land. If they

815
00:49:45,760 --> 00:49:48,160
Speaker 1: join another brokerage firm that's a member at the protocol,

816
00:49:49,000 --> 00:49:51,120
Speaker 1: but a lot of them are going independent and not

817
00:49:51,480 --> 00:49:53,680
Speaker 1: going that way, and that's where you still see the litigation.

818
00:49:53,920 --> 00:49:56,040
Speaker 1: So this is not for the benefit of the investors.

819
00:49:56,120 --> 00:49:57,960
Speaker 1: This is strictly for the benefit of the broker. It

820
00:49:58,080 --> 00:50:00,560
Speaker 1: hurts the investor. And and here's a better a way

821
00:50:00,600 --> 00:50:03,680
Speaker 1: of explaining why why does it hurt the investors? Well,

822
00:50:03,960 --> 00:50:07,040
Speaker 1: what happens is your broker leaves, you want to follow them.

823
00:50:07,239 --> 00:50:12,080
Speaker 1: The broker since transfer forms back over the broker firm

824
00:50:12,200 --> 00:50:15,120
Speaker 1: is upset about this. They'll slow down the transfer process,

825
00:50:15,200 --> 00:50:19,120
Speaker 1: they won't return calls. The client is not being served

826
00:50:19,200 --> 00:50:22,520
Speaker 1: in the middle of all of this most of the time. Yeah,

827
00:50:22,680 --> 00:50:26,399
Speaker 1: then the old firm is still calling the client trying

828
00:50:26,440 --> 00:50:30,560
Speaker 1: to establish a relationship with another advisor at that firm,

829
00:50:31,000 --> 00:50:35,120
Speaker 1: while the other broker who left is is out there

830
00:50:35,440 --> 00:50:38,880
Speaker 1: also trying to deserve the client but can't get information.

831
00:50:39,360 --> 00:50:41,800
Speaker 1: And it's just a mess for a client to be in.

832
00:50:42,160 --> 00:50:44,760
Speaker 1: So what what should be that what should exist instead

833
00:50:44,800 --> 00:50:47,360
Speaker 1: of this protocol? What's the proper way for this to happen?

834
00:50:48,280 --> 00:50:53,839
Speaker 1: I think the solution is to recognize that financial advisors

835
00:50:54,480 --> 00:50:57,440
Speaker 1: have investments in these client relationships just as much as

836
00:50:57,520 --> 00:51:01,640
Speaker 1: firms do. And perhaps this client relationships should not be

837
00:51:01,800 --> 00:51:05,200
Speaker 1: owned by the firm itself but ought to be shared

838
00:51:05,320 --> 00:51:09,200
Speaker 1: with the financial advisor. And if a financial advisor leaves,

839
00:51:10,200 --> 00:51:15,160
Speaker 1: whatever clients are taken, the financial advisor has to remit

840
00:51:15,400 --> 00:51:17,640
Speaker 1: part of the fees from those clients for a certain

841
00:51:17,719 --> 00:51:20,960
Speaker 1: number of years. But if those clients stay with the firm,

842
00:51:21,520 --> 00:51:24,319
Speaker 1: the firm has to pay for part of that client

843
00:51:24,440 --> 00:51:28,440
Speaker 1: relationship over to the financial visor. That's a fair way

844
00:51:28,480 --> 00:51:31,719
Speaker 1: of doing it, and and it eliminates all this litigation.

845
00:51:32,239 --> 00:51:36,839
Speaker 1: I can't imagine that ever happened that that that's amazing. Um.

846
00:51:37,520 --> 00:51:40,200
Speaker 1: So as we see more people exiting the brokerage world,

847
00:51:40,239 --> 00:51:42,919
Speaker 1: to the to the r I A side of things,

848
00:51:43,000 --> 00:51:47,040
Speaker 1: to the fee only advisor side, that also is going

849
00:51:47,080 --> 00:51:53,440
Speaker 1: to drive more assets into the fiduciary standard. That's fair state, absolutely.

850
00:51:53,600 --> 00:51:57,600
Speaker 1: And advisors are leaving because a lot of times that

851
00:51:57,680 --> 00:52:01,160
Speaker 1: the brokers firms then being sold told push this proprietary

852
00:52:01,280 --> 00:52:05,200
Speaker 1: mutual fund, or push these bonds out that maybe long

853
00:52:05,360 --> 00:52:10,080
Speaker 1: term bonds, or push this investment i p O initial

854
00:52:10,120 --> 00:52:13,880
Speaker 1: public offering. The greatest commercial was the Schwabs put a

855
00:52:13,920 --> 00:52:17,920
Speaker 1: little lipstick on this pig. I remember that. That's got

856
00:52:18,000 --> 00:52:19,880
Speaker 1: to be ten years ago when it stayed with me

857
00:52:20,360 --> 00:52:23,160
Speaker 1: because you recognize those people if you worked in the

858
00:52:23,239 --> 00:52:25,440
Speaker 1: industry for any length of time. It's like, I know

859
00:52:25,640 --> 00:52:27,560
Speaker 1: that guy. I watched people stand in front of the

860
00:52:27,680 --> 00:52:31,320
Speaker 1: room and say something similar to that. It was quite amazing.

861
00:52:32,080 --> 00:52:34,880
Speaker 1: There's really a difference between what brokers want to do.

862
00:52:35,160 --> 00:52:38,200
Speaker 1: Most individual brokers want to do the right thing for

863
00:52:38,239 --> 00:52:42,000
Speaker 1: their clients. Most brokerage firms are worried about their top

864
00:52:42,080 --> 00:52:46,000
Speaker 1: line and bottom line, and and it's really this this

865
00:52:46,160 --> 00:52:49,360
Speaker 1: huge disconnect there, that's a tent, that's an inherent tension

866
00:52:49,480 --> 00:52:53,080
Speaker 1: between the employee and the employer the investor right, and

867
00:52:53,120 --> 00:52:54,719
Speaker 1: it's going to get worse with the d O L

868
00:52:54,840 --> 00:52:58,040
Speaker 1: role because the d O L roule says individual advisors

869
00:52:58,160 --> 00:53:01,239
Speaker 1: cannot be paid more to ending on what they recommend,

870
00:53:01,880 --> 00:53:04,719
Speaker 1: but at the firm level, the firms can still receive more.

871
00:53:05,520 --> 00:53:09,200
Speaker 1: And and this this disconnect is going to become a

872
00:53:09,960 --> 00:53:13,600
Speaker 1: much bigger And the result of that is brokers are

873
00:53:13,680 --> 00:53:16,560
Speaker 1: not going to be happy when they go to work,

874
00:53:17,040 --> 00:53:18,920
Speaker 1: and they want to go someplace where they will be

875
00:53:19,000 --> 00:53:21,120
Speaker 1: happy going to work, where they will be on the

876
00:53:21,200 --> 00:53:23,879
Speaker 1: same side of the table as their clients, and they'll

877
00:53:24,000 --> 00:53:26,759
Speaker 1: enjoy working with their clients and in a more or

878
00:53:26,880 --> 00:53:30,200
Speaker 1: less conflict free environment, put them on the same side

879
00:53:30,239 --> 00:53:33,040
Speaker 1: of the table as a client and not have so.

880
00:53:33,360 --> 00:53:36,400
Speaker 1: One would think market forces would have forced this to

881
00:53:36,480 --> 00:53:40,719
Speaker 1: take place decades ago, but it really hasn't happened for

882
00:53:40,800 --> 00:53:44,480
Speaker 1: a long long time. I mean this, this, this tension

883
00:53:44,600 --> 00:53:49,040
Speaker 1: has existed for a while, and yet there's a certain

884
00:53:49,120 --> 00:53:52,759
Speaker 1: comfort level with big name brand ferns who have a

885
00:53:52,960 --> 00:53:58,080
Speaker 1: legal fiducial obligation to their shareholders, not their outside clients.

886
00:53:58,960 --> 00:54:01,560
Speaker 1: I was at a a conference of large firms are

887
00:54:01,600 --> 00:54:05,400
Speaker 1: speaking at it a couple of years ago Rotten Tomatoes,

888
00:54:05,520 --> 00:54:09,040
Speaker 1: and I was talking about their need to evolve UH

889
00:54:09,200 --> 00:54:12,680
Speaker 1: and how they could evolve to embrace the fiduciary standards,

890
00:54:13,000 --> 00:54:15,560
Speaker 1: set up different divisions and the like. And at the

891
00:54:15,640 --> 00:54:19,000
Speaker 1: end of that the first question was, but but run,

892
00:54:19,320 --> 00:54:22,239
Speaker 1: we have a fiduciary duty to our shareholders. And my

893
00:54:22,400 --> 00:54:25,520
Speaker 1: reply to that was simple and straightforward. Yes, you do.

894
00:54:26,360 --> 00:54:29,879
Speaker 1: Your market share as a large firm is going down

895
00:54:30,040 --> 00:54:33,600
Speaker 1: every year. Every day you keep up this trend, you

896
00:54:33,719 --> 00:54:36,759
Speaker 1: won't have a firm for your shareholders. If you have

897
00:54:36,840 --> 00:54:39,839
Speaker 1: a fiduciary duty to your shareholder. You have an obligation

898
00:54:39,920 --> 00:54:42,800
Speaker 1: to change who moves by cheese people. This is this

899
00:54:42,960 --> 00:54:46,080
Speaker 1: is not that difficult. Did it resonate or they still

900
00:54:46,160 --> 00:54:49,240
Speaker 1: stuck in the look, if anybody's stuck in the quarterly

901
00:54:50,040 --> 00:54:52,640
Speaker 1: dash for profits, it's got to be Wall Street farms.

902
00:54:53,040 --> 00:54:56,040
Speaker 1: Did was a glimmer of recognition from any of the

903
00:54:56,120 --> 00:54:59,600
Speaker 1: farms because, by the way, these aren't dumb people. These

904
00:54:59,640 --> 00:55:04,480
Speaker 1: are I've met with, spoken to, interviewed a lot of

905
00:55:04,560 --> 00:55:09,000
Speaker 1: these folks. They're wicked sharp, they're very smart, and yet

906
00:55:09,040 --> 00:55:11,160
Speaker 1: it seems this is an issue that's a blind spot

907
00:55:11,239 --> 00:55:13,600
Speaker 1: for a lot of them. It's it's hard to take

908
00:55:13,960 --> 00:55:18,000
Speaker 1: a salesperson and adopt a fiduciary culture, and a fiduciary

909
00:55:18,000 --> 00:55:20,360
Speaker 1: culture needs to be driven from the very top of

910
00:55:20,440 --> 00:55:24,600
Speaker 1: the firm. And and there's such a big difference between

911
00:55:24,600 --> 00:55:27,719
Speaker 1: a sales culture and a fiduciary culture. It's a big transformation.

912
00:55:27,760 --> 00:55:30,560
Speaker 1: But I will say this, just over the last couple

913
00:55:30,560 --> 00:55:35,520
Speaker 1: of years, we have seen some large firms adopt fiduciary platforms,

914
00:55:37,120 --> 00:55:40,080
Speaker 1: some of them kind of halfway. We still have some

915
00:55:40,160 --> 00:55:42,480
Speaker 1: conflicts of interest, but we're gonna eliminate bost of them.

916
00:55:43,680 --> 00:55:47,240
Speaker 1: One firm, one platform, and one firm is almost completely

917
00:55:47,320 --> 00:55:50,600
Speaker 1: conflict for it's an asset under management using E T

918
00:55:50,840 --> 00:55:54,879
Speaker 1: f s, no proprietary products. Uh that has that firm

919
00:55:54,920 --> 00:55:57,279
Speaker 1: has a history of not doing underwriting. But it's a

920
00:55:57,320 --> 00:56:00,719
Speaker 1: fairly large firm. So I see the movement, but it's

921
00:56:00,800 --> 00:56:02,680
Speaker 1: not to use names if you want to use names,

922
00:56:03,840 --> 00:56:06,920
Speaker 1: all right. Uh so you know, I see the movement,

923
00:56:07,400 --> 00:56:10,279
Speaker 1: and I see that they were recruiting a lot of

924
00:56:10,320 --> 00:56:13,480
Speaker 1: the firms are recruiting individuals to teams now that the

925
00:56:13,640 --> 00:56:18,400
Speaker 1: newer teams that the younger brokers are are forming. Teams

926
00:56:18,440 --> 00:56:23,719
Speaker 1: are financial planners and entrepreneurs and uh those who go

927
00:56:23,800 --> 00:56:26,279
Speaker 1: out and get clients and those who help run run

928
00:56:26,320 --> 00:56:30,400
Speaker 1: the portfolios. Uh, much more fiduciary base, much more asset

929
00:56:30,440 --> 00:56:35,160
Speaker 1: on the management base. Uh So there's some happening. But

930
00:56:36,000 --> 00:56:38,239
Speaker 1: if you want to, you can't do a part way.

931
00:56:38,600 --> 00:56:41,120
Speaker 1: If you do a part way, you're just you're just

932
00:56:41,200 --> 00:56:44,440
Speaker 1: going to continue to see your market share shrink. So

933
00:56:44,719 --> 00:56:47,520
Speaker 1: so I've drank the kool aid. So I it's hard

934
00:56:47,560 --> 00:56:51,360
Speaker 1: for me to get back into a brokerage head mentality.

935
00:56:51,400 --> 00:56:53,719
Speaker 1: I spent the first half of my career for us,

936
00:56:53,719 --> 00:56:56,560
Speaker 1: not a trading desk and then as a strategist at

937
00:56:56,600 --> 00:57:01,520
Speaker 1: a brokerage shop. So flipping to a fiduciary side was

938
00:57:01,600 --> 00:57:04,520
Speaker 1: really a very easy transition for me. It's really hard

939
00:57:04,600 --> 00:57:06,800
Speaker 1: to go back to that old way of thinking. But

940
00:57:07,040 --> 00:57:09,600
Speaker 1: I would imagine at the biggest shops in the world,

941
00:57:09,680 --> 00:57:13,560
Speaker 1: the Merrill Lynches and Morgan Stanley's and ubs is, isn't

942
00:57:13,600 --> 00:57:18,000
Speaker 1: it so much easier for them to manage a fiduciary platform.

943
00:57:18,120 --> 00:57:21,680
Speaker 1: You would think their compliance overhead and the costs and

944
00:57:21,760 --> 00:57:25,600
Speaker 1: the arbitrations and all that stuff that practically goes away.

945
00:57:26,120 --> 00:57:28,320
Speaker 1: You don't have to worry about guys running around doing

946
00:57:28,400 --> 00:57:32,440
Speaker 1: stupid things, all the things we've seen, all the big scandals,

947
00:57:32,520 --> 00:57:36,560
Speaker 1: the I p O spinning stuff, the after hours market

948
00:57:36,640 --> 00:57:41,200
Speaker 1: trading stuff, the mutual fun timing nonsense, like everything about

949
00:57:41,320 --> 00:57:43,880
Speaker 1: all the major scandals we've seen over the past decade

950
00:57:44,000 --> 00:57:48,000
Speaker 1: or two outside of Bernie made Off. Had there been

951
00:57:48,160 --> 00:57:53,120
Speaker 1: a pretty straightforward the only r I a fiduciary standard,

952
00:57:53,600 --> 00:57:58,760
Speaker 1: all that stuff practically disappears, and the administrative and and

953
00:57:59,080 --> 00:58:02,040
Speaker 1: compliance call us for these Look, if you have ten

954
00:58:02,200 --> 00:58:08,800
Speaker 1: or advisors, that administrative compliance overhead and legal overhead is monstrous.

955
00:58:09,320 --> 00:58:13,120
Speaker 1: You get rid of that incentive. Granted, your fees are

956
00:58:13,200 --> 00:58:16,920
Speaker 1: dropping dramatically, but your costs are dropping much more dramatically.

957
00:58:17,320 --> 00:58:20,760
Speaker 1: Or am I just naive and I've already drank from

958
00:58:20,840 --> 00:58:23,160
Speaker 1: that from that bowl. If you get away from the

959
00:58:23,240 --> 00:58:26,360
Speaker 1: door registrant and you go to a strict fee only,

960
00:58:27,080 --> 00:58:34,760
Speaker 1: conflict free environment, the amount of complaints falls dramatically. Your

961
00:58:34,880 --> 00:58:40,600
Speaker 1: your liability insurance per per advisor goes down dramatically because

962
00:58:40,640 --> 00:58:43,600
Speaker 1: it's just not that much exposure. As you said, your

963
00:58:43,640 --> 00:58:46,760
Speaker 1: compliance cost fall. You still need compliance systems, but they're

964
00:58:46,760 --> 00:58:49,760
Speaker 1: set up differently, and and really the only way for

965
00:58:49,880 --> 00:58:52,800
Speaker 1: the wirehouses to make this transformation is to really create

966
00:58:53,560 --> 00:58:57,080
Speaker 1: units of feel only advisors and only. You're only going

967
00:58:57,120 --> 00:58:59,280
Speaker 1: to be a registered investment advisor. You're not gonna sell

968
00:58:59,320 --> 00:59:02,920
Speaker 1: any products. We're gonna set up some Chinese walls when

969
00:59:03,000 --> 00:59:07,320
Speaker 1: it comes to, for example, buying bonds, uh, in buying

970
00:59:07,360 --> 00:59:10,040
Speaker 1: it out of our own inventory. UH, we'll have a

971
00:59:10,120 --> 00:59:14,920
Speaker 1: different trading desk that surveys the universe, including our offerings.

972
00:59:14,960 --> 00:59:19,440
Speaker 1: So that you really need to to take a look

973
00:59:19,520 --> 00:59:23,840
Speaker 1: at your structure and pretty much commit to having a

974
00:59:23,920 --> 00:59:27,480
Speaker 1: completely different division UH. For these people to work under.

975
00:59:27,560 --> 00:59:30,120
Speaker 1: Are any of the big firms experimenting with their own

976
00:59:30,320 --> 00:59:32,800
Speaker 1: all right, let's set up a skunk works project project

977
00:59:33,280 --> 00:59:36,920
Speaker 1: and just do an r I only fiducial only division,

978
00:59:37,240 --> 00:59:39,800
Speaker 1: because that's where the wind is blowing or has has

979
00:59:39,880 --> 00:59:42,520
Speaker 1: no one tried that yet? I think there are teams

980
00:59:42,640 --> 00:59:45,880
Speaker 1: that are doing that in firms, but I haven't seen

981
00:59:46,080 --> 00:59:48,880
Speaker 1: an entire division set up that way. One one would

982
00:59:48,920 --> 00:59:52,560
Speaker 1: think that that sort of experiment is look for guys

983
00:59:52,640 --> 00:59:54,520
Speaker 1: like you and me, this has let them keep doing

984
00:59:54,560 --> 00:59:57,560
Speaker 1: it wrong. It just means more more clients, more assets,

985
00:59:57,640 --> 01:00:00,680
Speaker 1: more advisors are coming over to our side of the street.

986
01:00:01,000 --> 01:00:03,040
Speaker 1: If I was a wirehouse right now, I'd be doing

987
01:00:03,120 --> 01:00:06,040
Speaker 1: what the roll ups are doing. I'd be buying registered

988
01:00:06,120 --> 01:00:10,160
Speaker 1: investment advisory practices that be taking the best of those practices,

989
01:00:10,680 --> 01:00:13,120
Speaker 1: forming a large r A firm out of it. I'd

990
01:00:13,160 --> 01:00:17,080
Speaker 1: be transitioning brokers out of the current environment or the

991
01:00:17,160 --> 01:00:20,920
Speaker 1: dual registered space, over to this feel only are a

992
01:00:21,200 --> 01:00:25,560
Speaker 1: only space, uh, and allowing that to happen. Allowing this

993
01:00:25,680 --> 01:00:29,320
Speaker 1: transition to happening, giving those people who say I don't

994
01:00:29,360 --> 01:00:32,840
Speaker 1: like this brokerage environment anymore a place to go. And

995
01:00:34,360 --> 01:00:36,200
Speaker 1: there's a little bit of that going home, But it's

996
01:00:36,280 --> 01:00:39,600
Speaker 1: not as pure as I would I would say it

997
01:00:39,680 --> 01:00:44,080
Speaker 1: needs to be, and it's not promoted as much as

998
01:00:44,120 --> 01:00:45,880
Speaker 1: it should be. It's tough to get a leopard to

999
01:00:46,000 --> 01:00:50,400
Speaker 1: change their spots, and it's tough to cannibalize your own business,

1000
01:00:50,520 --> 01:00:54,360
Speaker 1: you know. Not a lot of companies have that ability

1001
01:00:54,480 --> 01:00:57,600
Speaker 1: to engage in creative destruction of their own model. I

1002
01:00:57,760 --> 01:01:00,840
Speaker 1: used to love watching Apple I'm out with a new

1003
01:01:01,040 --> 01:01:04,040
Speaker 1: version of the iPod every year in the two thousands

1004
01:01:04,560 --> 01:01:08,600
Speaker 1: that pretty much destroyed the previous version. Wait, why am

1005
01:01:08,640 --> 01:01:11,080
Speaker 1: I gonna pay five hundred for this when half as

1006
01:01:11,160 --> 01:01:14,160
Speaker 1: much money I get twice as much storage. And every

1007
01:01:14,240 --> 01:01:16,720
Speaker 1: year they would do that, they wouldn't just introduce something

1008
01:01:16,800 --> 01:01:18,240
Speaker 1: at the top of the line. On the bottom of

1009
01:01:18,240 --> 01:01:21,560
Speaker 1: the line, they would destroy Not a lot of companies

1010
01:01:21,720 --> 01:01:26,040
Speaker 1: have the long term perspective to say, we're gonna destroy

1011
01:01:26,200 --> 01:01:27,800
Speaker 1: part of our own business because it's going to be

1012
01:01:27,880 --> 01:01:30,840
Speaker 1: so much better for the rest of us. Look at

1013
01:01:30,880 --> 01:01:33,560
Speaker 1: what they did with the iPad and then the iPhone.

1014
01:01:33,600 --> 01:01:35,760
Speaker 1: Once they went to the big iPhone, they started losing

1015
01:01:35,840 --> 01:01:40,240
Speaker 1: sales on the on the iPads. It's it's fascinating that

1016
01:01:40,680 --> 01:01:44,959
Speaker 1: the finance industry that funds. All these companies never really

1017
01:01:45,080 --> 01:01:50,480
Speaker 1: brought into that approach. The typical wirehouse firm on the

1018
01:01:50,560 --> 01:01:53,080
Speaker 1: brokerage business wants to make about two percent a year,

1019
01:01:53,800 --> 01:01:56,840
Speaker 1: two percent a year, two percent a year of the

1020
01:01:56,880 --> 01:01:59,720
Speaker 1: assets that they manage. That's not going to happen. That

1021
01:02:00,000 --> 01:02:02,880
Speaker 1: it's not gonna happen under a fiducry standard. That that's

1022
01:02:03,520 --> 01:02:06,760
Speaker 1: pretty uh stiff. The I think of our I as

1023
01:02:06,840 --> 01:02:11,160
Speaker 1: typically full service I as is one percent shops and

1024
01:02:11,680 --> 01:02:14,760
Speaker 1: sometimes a little cheaper. And the way you look at

1025
01:02:15,600 --> 01:02:18,320
Speaker 1: justifying that is, Okay, this is gonna be a better

1026
01:02:18,400 --> 01:02:21,760
Speaker 1: portfolio than you're gonna have access to. That will cover

1027
01:02:21,840 --> 01:02:24,080
Speaker 1: a third of your fee, and we're gonna talk you

1028
01:02:24,200 --> 01:02:26,640
Speaker 1: off the ledge when things get really bad, and that'll

1029
01:02:26,720 --> 01:02:30,440
Speaker 1: justify your fee. And by the way, here's all the planning,

1030
01:02:30,520 --> 01:02:34,640
Speaker 1: the wealth transfer, the estate planning, the generational sale of

1031
01:02:34,680 --> 01:02:37,240
Speaker 1: a business, all these different things that that a full

1032
01:02:37,280 --> 01:02:41,320
Speaker 1: service are I A firm offers that helps to justify

1033
01:02:41,440 --> 01:02:45,560
Speaker 1: their fees. But you can't really justify more than one

1034
01:02:45,640 --> 01:02:48,200
Speaker 1: percent if you're a fiduciary. Two percent is really a

1035
01:02:48,280 --> 01:02:53,640
Speaker 1: stiff fee. Yeah, for any for any substantial sized portfolio,

1036
01:02:53,760 --> 01:02:56,600
Speaker 1: two percent is really getting up there. And what's interesting

1037
01:02:56,720 --> 01:03:01,520
Speaker 1: is the feeling advisors they're prevailing in the marketplace. Just's

1038
01:03:01,520 --> 01:03:04,360
Speaker 1: not enough of him right now? Is that true? There's

1039
01:03:04,400 --> 01:03:07,880
Speaker 1: not enough? The only advisors there are about fifteen thousand

1040
01:03:07,960 --> 01:03:11,120
Speaker 1: as far as we can figure out, the only advisors

1041
01:03:11,360 --> 01:03:14,240
Speaker 1: out there. Uh, there's a lot more r A s.

1042
01:03:14,320 --> 01:03:18,120
Speaker 1: But a lot of them sell insurance products. They focus

1043
01:03:18,200 --> 01:03:21,840
Speaker 1: insurance or is the focus the investment or or a

1044
01:03:21,880 --> 01:03:25,800
Speaker 1: little of each. Probably the majority of it is focus

1045
01:03:25,880 --> 01:03:29,240
Speaker 1: of insurance. Because the state securiteous regulators said, listen, if

1046
01:03:29,240 --> 01:03:33,680
Speaker 1: you're gonna go out and sell a equity index anuity

1047
01:03:34,240 --> 01:03:36,200
Speaker 1: to some morning you're telling them to cash out of

1048
01:03:36,240 --> 01:03:40,200
Speaker 1: their UH account or whatever, you have to have be

1049
01:03:40,240 --> 01:03:42,520
Speaker 1: an investment advisor to give that advice to cash out.

1050
01:03:43,240 --> 01:03:45,880
Speaker 1: So they get the investment advisor license to then turn

1051
01:03:45,920 --> 01:03:49,640
Speaker 1: around and sell some annuity problems insurance license and insurance

1052
01:03:49,760 --> 01:03:54,360
Speaker 1: is wildly profitable as a salesperson the entire I would

1053
01:03:54,400 --> 01:03:57,280
Speaker 1: not want to be owning insurance company stock if I

1054
01:03:57,400 --> 01:03:59,440
Speaker 1: was a stock picker right now. Really, well, I know

1055
01:03:59,560 --> 01:04:02,600
Speaker 1: the first use premium, almost all of that is commissioned

1056
01:04:02,720 --> 01:04:05,800
Speaker 1: pretty close to it, and you've got variable nuities have

1057
01:04:06,000 --> 01:04:09,360
Speaker 1: very very high call structures and very high ongoing compensation

1058
01:04:10,040 --> 01:04:12,480
Speaker 1: and equity index and nuities. Some of them paying ten

1059
01:04:13,640 --> 01:04:18,360
Speaker 1: commissions are more. Uh. You apply a fiducry standards of this,

1060
01:04:19,040 --> 01:04:22,960
Speaker 1: and you create this, You create this army of purchasers

1061
01:04:23,040 --> 01:04:26,760
Speaker 1: representatives and kind of what you're alluding to, it's gonna

1062
01:04:27,400 --> 01:04:31,640
Speaker 1: it's gonna cut the asset managers fees dramatically. Asset managers

1063
01:04:31,720 --> 01:04:33,920
Speaker 1: are coming out with more and more products every day,

1064
01:04:34,760 --> 01:04:37,520
Speaker 1: four fee only advisors, but the fees and costs have

1065
01:04:37,600 --> 01:04:40,640
Speaker 1: to be transparent and they need to be a lot lower.

1066
01:04:41,440 --> 01:04:44,000
Speaker 1: And the asset managers, some of them are realizing this.

1067
01:04:44,520 --> 01:04:48,240
Speaker 1: Some of them are obviously stuck in quicksand some people

1068
01:04:48,320 --> 01:04:52,080
Speaker 1: have been calling this the Vanguard effect that whatever sector

1069
01:04:52,200 --> 01:04:56,200
Speaker 1: Vanguard plows its way into, in general, the fees tend

1070
01:04:56,280 --> 01:04:59,960
Speaker 1: to go down because Vanguard is so inexpensive. We see

1071
01:05:00,160 --> 01:05:05,280
Speaker 1: something comparable with Dimensional Funds. I had David Booth here

1072
01:05:05,400 --> 01:05:08,840
Speaker 1: is the CEO of UM of Dimensional Funds. We also

1073
01:05:08,920 --> 01:05:11,800
Speaker 1: had Bill McNabb from Vanguard. But there are another shop

1074
01:05:11,920 --> 01:05:15,800
Speaker 1: that's very inexpensive, and any space they go into, their

1075
01:05:15,880 --> 01:05:20,800
Speaker 1: competitors sort of see their their fees drop it and now,

1076
01:05:20,920 --> 01:05:24,480
Speaker 1: I think the robo advisors they've done two things. They've

1077
01:05:24,560 --> 01:05:27,880
Speaker 1: helped drive fees lower, but they've also made people realize

1078
01:05:27,920 --> 01:05:30,400
Speaker 1: that sometimes you need to speak to a person if

1079
01:05:30,480 --> 01:05:35,080
Speaker 1: you have anything more sophisticated than here's a quarter million dollars.

1080
01:05:35,120 --> 01:05:36,959
Speaker 1: I want to invest this for the next twenty years.

1081
01:05:37,480 --> 01:05:40,120
Speaker 1: So are we going to just continue to see fees

1082
01:05:40,560 --> 01:05:44,680
Speaker 1: come under pressure both for products and advice or or

1083
01:05:44,760 --> 01:05:47,760
Speaker 1: what does the future of that area look like. I

1084
01:05:47,920 --> 01:05:51,400
Speaker 1: think the investment fees will come down, and I think

1085
01:05:51,760 --> 01:05:54,280
Speaker 1: what we're gonna see is a split between investment advice,

1086
01:05:54,760 --> 01:05:59,160
Speaker 1: which degree can be commoditized at least it's scalable, and

1087
01:05:59,520 --> 01:06:03,360
Speaker 1: and finding interplanning advice, which really is not scalable. It's

1088
01:06:03,480 --> 01:06:08,400
Speaker 1: very time intensive, it's expertise intensive. Uh. Yeah, you can

1089
01:06:08,760 --> 01:06:12,440
Speaker 1: have basically the professional services model out there. We have

1090
01:06:12,520 --> 01:06:14,680
Speaker 1: a lot of junior partners, a lot of associates, and

1091
01:06:14,800 --> 01:06:18,000
Speaker 1: you give advice that way, and you take some of

1092
01:06:18,080 --> 01:06:20,680
Speaker 1: their fees, and the senior partners make more money. A

1093
01:06:20,760 --> 01:06:24,680
Speaker 1: professional services firm environment like a law firm, counterm and

1094
01:06:24,800 --> 01:06:27,960
Speaker 1: and and the top senior partners may make a million

1095
01:06:28,000 --> 01:06:31,280
Speaker 1: a year. But in a financial planning firm, but not

1096
01:06:31,440 --> 01:06:34,440
Speaker 1: ten million a year because they get they're just great

1097
01:06:34,480 --> 01:06:37,640
Speaker 1: at selling the high net worth clients. That's going to disappear.

1098
01:06:38,920 --> 01:06:41,680
Speaker 1: I mean, I I see exactly what you're saying. We've

1099
01:06:41,760 --> 01:06:44,840
Speaker 1: been watching this take place now for how many years.

1100
01:06:45,640 --> 01:06:48,640
Speaker 1: In the nineties, I was saying to people who were brokers,

1101
01:06:49,080 --> 01:06:51,480
Speaker 1: you should really think about moving to a feel only thing.

1102
01:06:51,920 --> 01:06:54,800
Speaker 1: This whole broke re universe is going away. But here

1103
01:06:54,840 --> 01:06:58,120
Speaker 1: it is. It's almost twenty years later, and they're still

1104
01:06:58,560 --> 01:07:01,720
Speaker 1: the biggest, most powerful opts on the street. So has

1105
01:07:01,920 --> 01:07:05,880
Speaker 1: has my forecast about this all moving to feel only

1106
01:07:06,040 --> 01:07:09,400
Speaker 1: been wrong? Or is it just taking longer? And it's

1107
01:07:09,440 --> 01:07:13,760
Speaker 1: eventually going in that direction. But you're fighting huge entrenched

1108
01:07:13,880 --> 01:07:18,600
Speaker 1: forces with massive marketing budgets. There's a huge amount of

1109
01:07:18,640 --> 01:07:22,120
Speaker 1: marketing going on there and that's hard to overcome. But

1110
01:07:22,200 --> 01:07:24,840
Speaker 1: I think your forecast is right because it's been happening

1111
01:07:25,000 --> 01:07:30,680
Speaker 1: gradually and and right now the investment independent investment advisory firms,

1112
01:07:30,760 --> 01:07:33,480
Speaker 1: independent broker dealer firms are going to have as much

1113
01:07:33,560 --> 01:07:36,960
Speaker 1: market share next year as the Wall Street firms, the

1114
01:07:37,160 --> 01:07:40,160
Speaker 1: wirehouse firms are in terms of what as much market

1115
01:07:40,920 --> 01:07:45,240
Speaker 1: assets on the management So you're talking about trillions, trillions

1116
01:07:45,280 --> 01:07:48,680
Speaker 1: of dollars right now. Now you hit the Department of

1117
01:07:48,800 --> 01:07:52,760
Speaker 1: Labor roll right, what's that going to do? One is

1118
01:07:52,760 --> 01:07:55,240
Speaker 1: a lot of the old brokers are going to say,

1119
01:07:55,240 --> 01:07:57,120
Speaker 1: I don't want to deal with this. I'm out of here,

1120
01:07:57,320 --> 01:07:58,880
Speaker 1: I'm retired. I don't want to give up. Oh you

1121
01:07:58,920 --> 01:08:01,200
Speaker 1: mean they're just done, They're going away. You know, I

1122
01:08:01,280 --> 01:08:03,280
Speaker 1: got all these clients with IRA accounts. I don't want

1123
01:08:03,280 --> 01:08:05,440
Speaker 1: to practice on the fiduciary environment. I was going to

1124
01:08:05,520 --> 01:08:08,880
Speaker 1: retire into I'm gonna I'm leaving. Let let me let,

1125
01:08:09,080 --> 01:08:10,560
Speaker 1: Let me let a cat out of the bag, let

1126
01:08:10,600 --> 01:08:13,160
Speaker 1: me let a secret out. It's not that hard to

1127
01:08:13,280 --> 01:08:16,920
Speaker 1: be a fiduciary if and if anything, it's easier because

1128
01:08:17,320 --> 01:08:19,960
Speaker 1: every time there's an issue, you just say to yourself, well,

1129
01:08:20,040 --> 01:08:23,200
Speaker 1: what's in the client's best interest. I'll do that. The

1130
01:08:23,400 --> 01:08:26,000
Speaker 1: rules on suitability are so much more complicated than just

1131
01:08:26,080 --> 01:08:28,960
Speaker 1: saying what's in the client's best interest. So why do

1132
01:08:29,080 --> 01:08:31,360
Speaker 1: these guys want to exit? They're just not used to

1133
01:08:31,520 --> 01:08:35,759
Speaker 1: that world, or to me, I'm I'm astonished by that comment.

1134
01:08:36,080 --> 01:08:42,840
Speaker 1: I've actually seen, Uh, the only affirms higher brokers, exceptional people,

1135
01:08:42,920 --> 01:08:46,320
Speaker 1: smart people bringing them into the fionly fiduciary side, and

1136
01:08:46,400 --> 01:08:50,680
Speaker 1: they never adopt to the fiduciary mindset. They never understand

1137
01:08:50,760 --> 01:08:53,720
Speaker 1: what it means to really put the client's interest first.

1138
01:08:54,360 --> 01:08:56,960
Speaker 1: They think that best interest means as long as I

1139
01:08:57,080 --> 01:09:00,880
Speaker 1: recommend a decent product. I'm okay, But it is a

1140
01:09:01,040 --> 01:09:04,519
Speaker 1: big transition from a sales culture to fiduciary culture, and

1141
01:09:04,680 --> 01:09:07,519
Speaker 1: some people just simply can't make that transition. Huh. That

1142
01:09:07,760 --> 01:09:11,000
Speaker 1: that that's quite astonishing to me. So I know I

1143
01:09:11,080 --> 01:09:13,880
Speaker 1: only have you for a certain amount of time. Let

1144
01:09:13,920 --> 01:09:17,559
Speaker 1: me get to some of my favorite, um my favorite

1145
01:09:17,600 --> 01:09:20,919
Speaker 1: questions that I asked all my guests. So we discussed

1146
01:09:20,960 --> 01:09:24,880
Speaker 1: your background. You worked as an attorney doing estates and

1147
01:09:25,160 --> 01:09:28,679
Speaker 1: and trusts early in your career. UM, and you told

1148
01:09:28,760 --> 01:09:33,520
Speaker 1: us how you moved into the to the financial services industry.

1149
01:09:34,040 --> 01:09:36,920
Speaker 1: I'm still amused by the thought of you in a

1150
01:09:38,840 --> 01:09:44,160
Speaker 1: blue bear costume in Disney walking around with a random

1151
01:09:44,240 --> 01:09:47,519
Speaker 1: walk down Wall Street book under under your arm. What

1152
01:09:47,920 --> 01:09:50,080
Speaker 1: was it really like that you were you were were

1153
01:09:50,160 --> 01:09:53,120
Speaker 1: in the costume reading about stocks and bonds or or

1154
01:09:53,240 --> 01:09:55,360
Speaker 1: is that an exaggeration? No, I had it tucked away.

1155
01:09:55,920 --> 01:09:58,040
Speaker 1: You know, you have so much padding in those bear costumes.

1156
01:09:58,080 --> 01:10:00,439
Speaker 1: It's easy to carry a book. You usually going from

1157
01:10:00,479 --> 01:10:02,439
Speaker 1: one part of the park to or the other. When

1158
01:10:02,479 --> 01:10:05,120
Speaker 1: you're in a costume, you get all stage. You remove

1159
01:10:05,200 --> 01:10:07,360
Speaker 1: your costume where most of it And that's when I

1160
01:10:07,400 --> 01:10:10,520
Speaker 1: pick up the book. And while i'm you know, rehydrating

1161
01:10:10,600 --> 01:10:14,280
Speaker 1: myself and catching my breath for the next thirty minutes set,

1162
01:10:14,360 --> 01:10:15,960
Speaker 1: that's when you you pull out the book and read it.

1163
01:10:16,120 --> 01:10:18,640
Speaker 1: I'm trying to visualize you in a bear costume with

1164
01:10:18,760 --> 01:10:21,400
Speaker 1: the head on a table, with like a cup of

1165
01:10:21,439 --> 01:10:26,280
Speaker 1: coffee and a cigarette reading a book. That's a great visual. Well,

1166
01:10:26,520 --> 01:10:33,280
Speaker 1: it was more like twelve glasses of water and the

1167
01:10:33,400 --> 01:10:37,280
Speaker 1: book is wrapped up in a plastic bag. Why because

1168
01:10:37,360 --> 01:10:40,000
Speaker 1: you you sweat so much. You're in a giant for

1169
01:10:40,680 --> 01:10:44,680
Speaker 1: costume in Orlando and it's ninety degrees in July, and

1170
01:10:45,000 --> 01:10:48,640
Speaker 1: and you're rehydrating and you're having so much fun. I

1171
01:10:48,720 --> 01:10:51,840
Speaker 1: can imagine. I can imagine that. Um, so we know

1172
01:10:51,960 --> 01:10:55,040
Speaker 1: what you did before you worked on Wall Street. Other

1173
01:10:55,120 --> 01:10:58,400
Speaker 1: than Walt Disney, who are some of your early mentors?

1174
01:10:59,360 --> 01:11:02,640
Speaker 1: Oh my, uh, you know, I think I think we

1175
01:11:02,760 --> 01:11:04,920
Speaker 1: take a little bit, if we're smart, we take a

1176
01:11:04,960 --> 01:11:09,080
Speaker 1: little bit of all the good things from almost every

1177
01:11:09,120 --> 01:11:14,439
Speaker 1: person that we have a significant relationship with. People that

1178
01:11:14,640 --> 01:11:19,080
Speaker 1: probably influenced me the most. I'd say one was Harold Levinski.

1179
01:11:19,280 --> 01:11:23,080
Speaker 1: You know, okay, who is he? So? Harold has a

1180
01:11:23,160 --> 01:11:26,240
Speaker 1: firm of Vinsky and Cats down in Coral Gables. I

1181
01:11:26,360 --> 01:11:28,719
Speaker 1: like to call him the Whites or the y Sage

1182
01:11:28,760 --> 01:11:31,840
Speaker 1: of the profession. He was chaired the CFB board probably

1183
01:11:31,880 --> 01:11:35,720
Speaker 1: fifteen years ago. Uh. He's a professor of Texas Tech

1184
01:11:35,800 --> 01:11:39,599
Speaker 1: and the masters program there, Masters of Financial Planning. Uh.

1185
01:11:40,000 --> 01:11:43,799
Speaker 1: He's just full of insights. He's written several books. Fifteen

1186
01:11:43,880 --> 01:11:46,120
Speaker 1: years ago, I'm sitting at an A I c P

1187
01:11:46,280 --> 01:11:51,479
Speaker 1: A conference on financial planning, thinking about getting into the industry.

1188
01:11:51,520 --> 01:11:55,360
Speaker 1: And he said, something I'll never forget is if you're

1189
01:11:55,400 --> 01:11:59,000
Speaker 1: going to become a financial advisor, commit to it fully

1190
01:11:59,800 --> 01:12:03,200
Speaker 1: the do this part time. And and I meaning that

1191
01:12:03,360 --> 01:12:06,120
Speaker 1: the life insurance salesman and accounts and others who are

1192
01:12:06,200 --> 01:12:09,400
Speaker 1: kind of dabbling in it really shouldn't be right. And

1193
01:12:09,640 --> 01:12:12,920
Speaker 1: I think that's completely true. This is a very time

1194
01:12:12,960 --> 01:12:16,760
Speaker 1: consuming profession to stay abreast of what's of what all

1195
01:12:16,840 --> 01:12:19,519
Speaker 1: the changes that happen. It's it's it's a nice challenge actually,

1196
01:12:20,160 --> 01:12:23,799
Speaker 1: And and this this need to make a full commitment

1197
01:12:23,880 --> 01:12:28,880
Speaker 1: to being an excellent financial planner. Uh, those words, those

1198
01:12:28,920 --> 01:12:32,639
Speaker 1: words meant a lot. And I think some other people

1199
01:12:32,720 --> 01:12:36,960
Speaker 1: that probably influenced me, probably a couple of the professors

1200
01:12:37,000 --> 01:12:39,320
Speaker 1: that I worked with now, one is Andrew had his

1201
01:12:39,520 --> 01:12:43,519
Speaker 1: Young Professor really the reason I joined Western Kentucky University.

1202
01:12:43,720 --> 01:12:48,160
Speaker 1: H he has this way of captivating the students in

1203
01:12:48,240 --> 01:12:51,679
Speaker 1: his classes. I've seen him do this and also connecting

1204
01:12:51,720 --> 01:12:54,519
Speaker 1: with students on a one on one basis that I'm

1205
01:12:54,600 --> 01:12:58,000
Speaker 1: just absorbing his lessons on that, on that. And then

1206
01:12:58,040 --> 01:13:02,840
Speaker 1: there's a Dr India Chaci, who you know, probably the

1207
01:13:03,000 --> 01:13:07,600
Speaker 1: toughest finance professor in the world, um in terms of

1208
01:13:07,840 --> 01:13:11,040
Speaker 1: the assignments that the case study methodology he uses, the

1209
01:13:11,400 --> 01:13:15,519
Speaker 1: amount of workload, and yet the students, when they have

1210
01:13:15,720 --> 01:13:18,640
Speaker 1: this enormous respect for him, they want to please him.

1211
01:13:19,800 --> 01:13:23,400
Speaker 1: They come out of his class learning so much and

1212
01:13:23,600 --> 01:13:25,920
Speaker 1: and just to be around these two individuals and and

1213
01:13:26,040 --> 01:13:30,760
Speaker 1: the other finance faculty at Western Kentucky University, it's it's really,

1214
01:13:32,240 --> 01:13:35,519
Speaker 1: it's been already just one semester there has been this

1215
01:13:35,840 --> 01:13:39,960
Speaker 1: tremendous experience and I'm looking forward to more interesting. Um.

1216
01:13:40,080 --> 01:13:42,720
Speaker 1: So let's talk about investors who might have influenced you,

1217
01:13:42,880 --> 01:13:48,639
Speaker 1: What investors have changed your thought process either about being

1218
01:13:48,680 --> 01:13:51,839
Speaker 1: a fiduciary about putting money at work in the market.

1219
01:13:52,240 --> 01:13:56,599
Speaker 1: Who who has influenced your thinking on the fiduciary front,

1220
01:13:56,840 --> 01:14:01,240
Speaker 1: without a doubt, the single most influences Professor Tomorrow Frankel,

1221
01:14:01,400 --> 01:14:05,519
Speaker 1: Boston University College of Law. And and she's been writing

1222
01:14:05,520 --> 01:14:09,800
Speaker 1: about fiduciary law. She's in her eighties now still teaching. UH.

1223
01:14:10,080 --> 01:14:13,800
Speaker 1: And she's just a wonderful writer and fiducier all things fiduciary.

1224
01:14:13,960 --> 01:14:17,920
Speaker 1: Who gave you the two thousand eleven Tomorrow Frankel Fiduciary

1225
01:14:17,960 --> 01:14:22,120
Speaker 1: Standard Award was that the Committee for the Fiduciary Standard. UH.

1226
01:14:22,280 --> 01:14:25,160
Speaker 1: That award is now given by another organization called the

1227
01:14:25,200 --> 01:14:28,280
Speaker 1: Institute for the Fiduciary Standard. I involved with both of them,

1228
01:14:28,439 --> 01:14:32,640
Speaker 1: both grade groups UH and UH. So it was the

1229
01:14:32,720 --> 01:14:36,320
Speaker 1: first time they gave that award. I had done some

1230
01:14:36,760 --> 01:14:41,439
Speaker 1: assistance with some of their projects and relating to lobbying

1231
01:14:41,640 --> 01:14:44,920
Speaker 1: the SEC or working educating the SEC. I should say,

1232
01:14:45,840 --> 01:14:47,839
Speaker 1: so it was a nice it was a nice surprise

1233
01:14:47,920 --> 01:14:53,000
Speaker 1: to get that year. UH. But you know, come back

1234
01:14:53,160 --> 01:14:56,560
Speaker 1: to the to some the questions you know, other influencers

1235
01:14:56,600 --> 01:15:01,720
Speaker 1: on the on the finance side, uh Gene Fama. Without

1236
01:15:01,760 --> 01:15:07,280
Speaker 1: a question, I admire David Boothford for taking this academic

1237
01:15:07,360 --> 01:15:10,320
Speaker 1: approach to investing and building this huge firm out of it.

1238
01:15:10,560 --> 01:15:14,040
Speaker 1: Dimensional Funds Advisors now a four billion dollars, right, that's

1239
01:15:14,080 --> 01:15:17,440
Speaker 1: a huge pile of money. And if you're an advisor

1240
01:15:17,600 --> 01:15:20,639
Speaker 1: and you're not working with Dimensional Funds Advisors, I'm like saying,

1241
01:15:20,880 --> 01:15:24,439
Speaker 1: why aren't you? You know, I look at the universe

1242
01:15:24,520 --> 01:15:29,439
Speaker 1: and say, we're Dimensionals at the top. Vanguard is number two.

1243
01:15:30,120 --> 01:15:32,560
Speaker 1: And then there's a huge follow off after that in

1244
01:15:32,760 --> 01:15:37,439
Speaker 1: terms of the way that the mutual funds, for example,

1245
01:15:37,560 --> 01:15:42,160
Speaker 1: or other investment products are designed engineer the whole run off, right,

1246
01:15:42,439 --> 01:15:45,720
Speaker 1: And and there are some specific products that are pretty good.

1247
01:15:45,760 --> 01:15:51,320
Speaker 1: But but in terms of the overall platform, and I know,

1248
01:15:51,520 --> 01:15:54,680
Speaker 1: I know it takes takes something to be able to

1249
01:15:54,880 --> 01:15:58,880
Speaker 1: access Dimensionals Funds, but you have to be an advisor.

1250
01:15:59,000 --> 01:16:00,960
Speaker 1: They make you go through a bunch of hoops to

1251
01:16:01,840 --> 01:16:07,240
Speaker 1: understand what dimensions mean, small cap value, etcetera. All the

1252
01:16:07,320 --> 01:16:13,200
Speaker 1: different factors. They really don't randomly take people and their crew.

1253
01:16:14,120 --> 01:16:17,360
Speaker 1: They're the advisors who work with Dimensional They are not

1254
01:16:17,640 --> 01:16:20,960
Speaker 1: active traders, meaning that even in the O eight oh

1255
01:16:21,040 --> 01:16:24,680
Speaker 1: nine collapse, these guys are sitting tight and saying, hey,

1256
01:16:24,760 --> 01:16:26,439
Speaker 1: we're never gonna be able to time this, so we're

1257
01:16:26,479 --> 01:16:29,360
Speaker 1: just gonna ride it out. And they had almost no

1258
01:16:30,000 --> 01:16:33,120
Speaker 1: they may even had to have had inflows during that period,

1259
01:16:33,720 --> 01:16:36,120
Speaker 1: So it's not for So would you say you don't

1260
01:16:36,200 --> 01:16:41,120
Speaker 1: understand why my office is a dimensional shop, But I

1261
01:16:41,240 --> 01:16:43,559
Speaker 1: could see why some people would look at his scans

1262
01:16:43,640 --> 01:16:47,000
Speaker 1: and say this isn't for me. Again, I've drank the

1263
01:16:47,040 --> 01:16:50,920
Speaker 1: kool aid, so I have no objectivity with this. But

1264
01:16:51,160 --> 01:16:54,120
Speaker 1: there are people who say, we want to pick stocks,

1265
01:16:54,240 --> 01:16:56,600
Speaker 1: or we want to try and time the market, or

1266
01:16:56,800 --> 01:17:00,280
Speaker 1: we want to have more flexibility, and if our clients

1267
01:17:00,320 --> 01:17:02,120
Speaker 1: want out, we're not going to tell them not to

1268
01:17:02,200 --> 01:17:05,880
Speaker 1: get out. I think one of the things I'm fond

1269
01:17:05,960 --> 01:17:09,080
Speaker 1: of saying is your clients don't know what they want,

1270
01:17:09,200 --> 01:17:11,840
Speaker 1: and it's your job to tell them what they need.

1271
01:17:12,040 --> 01:17:14,280
Speaker 1: They think they know what they want because they read

1272
01:17:14,320 --> 01:17:17,400
Speaker 1: a headline so many on TV said something, but that's

1273
01:17:17,479 --> 01:17:21,400
Speaker 1: just a momentary lapse of reason. What they need is

1274
01:17:21,479 --> 01:17:25,120
Speaker 1: to someone is for someone to say you may think

1275
01:17:25,200 --> 01:17:28,400
Speaker 1: you want this now, but let me explain what you needed,

1276
01:17:28,760 --> 01:17:32,000
Speaker 1: because what just happened in China last month has nothing

1277
01:17:32,080 --> 01:17:34,559
Speaker 1: to do with the thirty year plan you put together

1278
01:17:35,000 --> 01:17:38,120
Speaker 1: about your kids going to college and your retirement and

1279
01:17:38,240 --> 01:17:41,760
Speaker 1: a generational length transfer. This is a temporary thing, not

1280
01:17:42,000 --> 01:17:44,960
Speaker 1: part of your plan. They need someone to tell that,

1281
01:17:45,439 --> 01:17:48,960
Speaker 1: even though they want to hear whatever the craziness that

1282
01:17:49,080 --> 01:17:51,960
Speaker 1: happens to be on television that moment. You know, every

1283
01:17:52,040 --> 01:17:57,000
Speaker 1: investor needs to have this this plan investment policy that says,

1284
01:17:57,120 --> 01:17:59,240
Speaker 1: you know, we we don't know if the market is

1285
01:17:59,240 --> 01:18:01,760
Speaker 1: going to go up or down, but we know how

1286
01:18:01,840 --> 01:18:03,880
Speaker 1: we're going to react to it, and we know that

1287
01:18:04,800 --> 01:18:07,560
Speaker 1: we need to keep these four words in mind. And

1288
01:18:07,880 --> 01:18:10,800
Speaker 1: I used to hold client conferences. I was working in

1289
01:18:10,840 --> 01:18:13,439
Speaker 1: a firm, and you know, you do the luncheon, and

1290
01:18:13,520 --> 01:18:15,519
Speaker 1: you bring in thirty clients and you have a nice

1291
01:18:15,880 --> 01:18:18,879
Speaker 1: luncheon or dinner, and I would have all the clients

1292
01:18:18,960 --> 01:18:22,519
Speaker 1: stand up and repeat after me, very loudly. These four

1293
01:18:22,600 --> 01:18:27,160
Speaker 1: words become some solemonic wisdom, right, buy low, sell high.

1294
01:18:27,680 --> 01:18:30,439
Speaker 1: That's simple, okay. And they would be beating that to me.

1295
01:18:30,800 --> 01:18:34,559
Speaker 1: And and of course getting them to sell usually wasn't

1296
01:18:34,680 --> 01:18:37,640
Speaker 1: very difficult. Taking gains off the table. Of course, the

1297
01:18:37,720 --> 01:18:42,400
Speaker 1: downturn happens by low a little bit more difficult when

1298
01:18:42,600 --> 01:18:45,360
Speaker 1: they don't think the world is going to exist next week.

1299
01:18:45,439 --> 01:18:47,320
Speaker 1: To get them to buy when things are really low.

1300
01:18:49,000 --> 01:18:50,880
Speaker 1: If the world isn't gonna exist, so what so go

1301
01:18:51,000 --> 01:18:52,960
Speaker 1: buy stocks? What do you care if we're all gone

1302
01:18:53,000 --> 01:18:54,640
Speaker 1: in a week? What does it matter? So at the

1303
01:18:54,720 --> 01:18:58,200
Speaker 1: time the firm, I was with UH, and when I

1304
01:18:58,240 --> 01:19:00,680
Speaker 1: went to teaching, I sold my interest in the firm

1305
01:19:00,920 --> 01:19:04,599
Speaker 1: to my partners. UH. We had a hundred and thirty clients,

1306
01:19:04,720 --> 01:19:07,400
Speaker 1: a hundred and twenty seven of them. Did what we

1307
01:19:07,479 --> 01:19:10,920
Speaker 1: asked was the market was going down, we bought and

1308
01:19:10,960 --> 01:19:14,439
Speaker 1: went down further. We bought on March nine, just by

1309
01:19:14,640 --> 01:19:18,360
Speaker 1: fortunate luck, we bought again, you know, and and the

1310
01:19:18,520 --> 01:19:23,280
Speaker 1: clients reaped the benefits of that. UH and a lot

1311
01:19:23,400 --> 01:19:27,360
Speaker 1: of a lot of the financial behavior side of this,

1312
01:19:27,600 --> 01:19:29,600
Speaker 1: And it doesn't matter if you're a roaber advisor or

1313
01:19:29,680 --> 01:19:33,720
Speaker 1: if you're hands on have a deep relationship with a

1314
01:19:33,840 --> 01:19:38,479
Speaker 1: few clients. Is preparing clients for what's going to happen

1315
01:19:39,320 --> 01:19:42,880
Speaker 1: and in advance and getting them to remember that they

1316
01:19:43,040 --> 01:19:47,559
Speaker 1: committed to following this plan regardless of what happens. Look

1317
01:19:47,640 --> 01:19:51,120
Speaker 1: you said, markets go up, markets go down, well pretty

1318
01:19:51,200 --> 01:19:53,920
Speaker 1: much all the time. That's what's gonna happen. Markets will

1319
01:19:53,960 --> 01:19:57,400
Speaker 1: go up and down. Are you emotionally ready to ride that? Right?

1320
01:19:57,439 --> 01:20:00,280
Speaker 1: You know, we had clients who who were going to

1321
01:20:00,360 --> 01:20:04,240
Speaker 1: cancel their vacation trips. Uh, you know, seven years old,

1322
01:20:04,840 --> 01:20:07,400
Speaker 1: gonna go on a cruise down the river in Europe,

1323
01:20:07,960 --> 01:20:11,760
Speaker 1: and in our response to them is absolutely not okay, No,

1324
01:20:12,600 --> 01:20:14,920
Speaker 1: we We've looked at your portfolio. You can still do this,

1325
01:20:15,120 --> 01:20:18,799
Speaker 1: your retirement still secure. Go do this, Go enjoy yourself.

1326
01:20:19,160 --> 01:20:21,160
Speaker 1: The market will be here when you get back. And

1327
01:20:21,320 --> 01:20:24,400
Speaker 1: and that's delivering value to a client is when you

1328
01:20:24,439 --> 01:20:26,920
Speaker 1: can do that. You know. One of the questions I

1329
01:20:27,320 --> 01:20:29,800
Speaker 1: did not ask you earlier, but let's let's bring it

1330
01:20:29,920 --> 01:20:33,439
Speaker 1: up here. You mentioned a hundred and seven out of

1331
01:20:33,479 --> 01:20:39,080
Speaker 1: a hundred and how often should an advisor fire a client?

1332
01:20:39,400 --> 01:20:42,680
Speaker 1: Meaning how often is there a bad fit? Where I'm

1333
01:20:42,720 --> 01:20:45,240
Speaker 1: gonna I'm gonna phrase it differently, how often is it

1334
01:20:45,320 --> 01:20:48,599
Speaker 1: in everybody's interest to say, hey, listen, we do acts

1335
01:20:48,880 --> 01:20:51,680
Speaker 1: you want, why let's part as friends and go our

1336
01:20:51,760 --> 01:20:55,160
Speaker 1: separate ways. I think screening clients to make sure that

1337
01:20:55,280 --> 01:20:58,479
Speaker 1: they fit with you, fit with your firends philosophy, but

1338
01:20:58,560 --> 01:21:01,479
Speaker 1: also fit with your personality. There there are clients that

1339
01:21:01,560 --> 01:21:03,559
Speaker 1: came to our firm that I wasn't a very good

1340
01:21:03,600 --> 01:21:06,280
Speaker 1: fit with personality wise, but one of my partners was

1341
01:21:06,320 --> 01:21:09,200
Speaker 1: a good fit with them. And I think that the

1342
01:21:09,320 --> 01:21:12,040
Speaker 1: idea of having a firm that you have shared client

1343
01:21:12,120 --> 01:21:17,920
Speaker 1: relationships with is a tremendous opportunity to secure more clients.

1344
01:21:18,479 --> 01:21:22,680
Speaker 1: But there they are probably the people out there who

1345
01:21:23,320 --> 01:21:28,040
Speaker 1: who will never embrace the investment philosophy that you might

1346
01:21:28,080 --> 01:21:31,679
Speaker 1: be using or the manner in which you serve clients.

1347
01:21:31,760 --> 01:21:33,840
Speaker 1: And you have just got to be honest and say

1348
01:21:34,280 --> 01:21:36,960
Speaker 1: we think you might be served at elsewhere. And if

1349
01:21:37,040 --> 01:21:39,679
Speaker 1: you take on those clients, if you if you're screening process,

1350
01:21:40,160 --> 01:21:42,120
Speaker 1: you know, I like to say, clients, will any of

1351
01:21:42,160 --> 01:21:46,560
Speaker 1: you us? We interview them absolutely. And if if you

1352
01:21:46,640 --> 01:21:48,160
Speaker 1: take on those clients and it turns out to be

1353
01:21:48,240 --> 01:21:51,639
Speaker 1: a mistake, then fix that mistake right away. It's people

1354
01:21:51,680 --> 01:21:54,920
Speaker 1: don't realize to say, okay, we're not gonna be your

1355
01:21:54,920 --> 01:21:59,440
Speaker 1: adviser anymore. That's time consuming, it's a headache, it's a disruptive.

1356
01:22:00,040 --> 01:22:01,800
Speaker 1: You have to file a certain thing every time a

1357
01:22:01,880 --> 01:22:04,400
Speaker 1: client leaves you have to have a note in a file.

1358
01:22:05,080 --> 01:22:08,679
Speaker 1: Here's why this relationship terminated, here's where the money met went.

1359
01:22:09,240 --> 01:22:11,439
Speaker 1: So there's no money laundering issues, there's a whole bunch

1360
01:22:11,479 --> 01:22:15,920
Speaker 1: of regulations. You're you're much better off screening that issue

1361
01:22:16,040 --> 01:22:19,720
Speaker 1: out beforehands, rather than saying, well, we'll just bring them

1362
01:22:19,760 --> 01:22:21,559
Speaker 1: in and they'll fire us in two or three quarters.

1363
01:22:21,800 --> 01:22:24,200
Speaker 1: But in the meanwhile, we've collected the fees. It's not

1364
01:22:24,280 --> 01:22:26,800
Speaker 1: worth it to do that. It takes time to too.

1365
01:22:27,160 --> 01:22:30,519
Speaker 1: It takes a huge amount of paperwork, time and also

1366
01:22:30,720 --> 01:22:33,519
Speaker 1: educating the client and training the client in that first year.

1367
01:22:34,160 --> 01:22:37,040
Speaker 1: And you simply don't make that investment with a client

1368
01:22:37,560 --> 01:22:40,120
Speaker 1: unless you're really really confident that that's going to be

1369
01:22:40,200 --> 01:22:44,360
Speaker 1: good fit for you. I mentioned the email that wasn't

1370
01:22:44,640 --> 01:22:46,960
Speaker 1: made up, that was a real email. Hey, I have

1371
01:22:47,240 --> 01:22:49,800
Speaker 1: X number of millions of dollars. I want to spread

1372
01:22:49,880 --> 01:22:53,040
Speaker 1: this money around five people, and whoever does the best

1373
01:22:53,120 --> 01:22:55,479
Speaker 1: gets all the money. And I wrote this guy, Hey,

1374
01:22:55,920 --> 01:22:59,200
Speaker 1: you're clearly a bad fit for us, but I have

1375
01:22:59,360 --> 01:23:02,040
Speaker 1: to tell you what you're setting up is a disaster.

1376
01:23:02,160 --> 01:23:06,680
Speaker 1: And here's why. Think about how you've just incentivized not me,

1377
01:23:06,800 --> 01:23:10,040
Speaker 1: because I would never do that. How you've incentivized these

1378
01:23:10,200 --> 01:23:13,679
Speaker 1: five managers. First, the odds are five to one against

1379
01:23:13,720 --> 01:23:16,800
Speaker 1: any of them winning, So you've now created this huge

1380
01:23:16,840 --> 01:23:20,560
Speaker 1: incentive for them to be reckless with your money in

1381
01:23:20,760 --> 01:23:25,559
Speaker 1: hopes of winning the big account. You've created a lose

1382
01:23:25,680 --> 01:23:29,040
Speaker 1: lose situation for these guys aren't going to get the account,

1383
01:23:29,160 --> 01:23:31,960
Speaker 1: so they're gonna do god knows what. And the fifth,

1384
01:23:32,280 --> 01:23:34,360
Speaker 1: if he wins the account, it's gonna be because he

1385
01:23:34,479 --> 01:23:38,360
Speaker 1: got lucky doing really risky things to show you the

1386
01:23:38,439 --> 01:23:41,720
Speaker 1: best performance. Why would you do this? And it was

1387
01:23:42,040 --> 01:23:45,320
Speaker 1: to me, it's so obvious. That's a person said, well,

1388
01:23:45,360 --> 01:23:48,280
Speaker 1: you don't want to compete, so obviously, and we get

1389
01:23:48,400 --> 01:23:50,639
Speaker 1: I get emails all the time. What's your sharp ratio?

1390
01:23:51,200 --> 01:23:54,519
Speaker 1: My sharp ratio is see you later, that's my sharp ratio.

1391
01:23:55,120 --> 01:23:58,200
Speaker 1: You know, economic incentives matter, and they manner a huge

1392
01:23:58,200 --> 01:24:02,400
Speaker 1: amount in financial services. And if you're a fiduciary, you

1393
01:24:02,640 --> 01:24:06,559
Speaker 1: have got to set yourself up that you're not driven

1394
01:24:06,640 --> 01:24:09,880
Speaker 1: by these incentives to do something bad for a client.

1395
01:24:10,479 --> 01:24:14,160
Speaker 1: And that remans removing conflicts, because if you have a

1396
01:24:14,240 --> 01:24:19,879
Speaker 1: conflict of interest that is going to infect your judgment.

1397
01:24:20,560 --> 01:24:26,800
Speaker 1: Maybe unconsciously, you're going to somehow over time, self justify

1398
01:24:27,439 --> 01:24:29,960
Speaker 1: doing something bad to a client if you have an

1399
01:24:30,000 --> 01:24:33,040
Speaker 1: economic incentive to do it. And and that's the purpose

1400
01:24:33,120 --> 01:24:37,000
Speaker 1: of the fiduciary standard is to remove those economic incentives

1401
01:24:37,040 --> 01:24:40,960
Speaker 1: to still be paid as an expert, as a professional.

1402
01:24:41,640 --> 01:24:46,400
Speaker 1: You you deserve professional level compensation, no question about it, right,

1403
01:24:46,600 --> 01:24:51,439
Speaker 1: but to remove the economic incentives that really would cause

1404
01:24:51,520 --> 01:24:54,400
Speaker 1: you to do things that would harm the client and

1405
01:24:54,960 --> 01:24:56,880
Speaker 1: to put you on the same side of the table

1406
01:24:57,040 --> 01:25:00,720
Speaker 1: absolute client. Um, let's keep plowing through my last few

1407
01:25:00,840 --> 01:25:03,800
Speaker 1: questions while I while I have you, how about some books?

1408
01:25:03,840 --> 01:25:07,599
Speaker 1: What are your favorite books, either on investing or non

1409
01:25:07,720 --> 01:25:13,639
Speaker 1: fiction or anything else that you think is worth sharing. Uh? Well,

1410
01:25:13,680 --> 01:25:16,240
Speaker 1: I've always been a Tom Clancy fan on the side,

1411
01:25:16,320 --> 01:25:20,320
Speaker 1: you know, I'm what's your favorite Clancy some of all years?

1412
01:25:20,439 --> 01:25:24,080
Speaker 1: Is how I found him? Uh? I would say Cardinal

1413
01:25:24,160 --> 01:25:27,280
Speaker 1: to Kremlin probably the first one I read, so you

1414
01:25:27,360 --> 01:25:30,479
Speaker 1: know that remains one of my favorites. Uh. The Hunt

1415
01:25:30,520 --> 01:25:32,559
Speaker 1: for Red October was a good one, no doubt about

1416
01:25:32,560 --> 01:25:37,080
Speaker 1: that was great without a great On the nonfiction side, uh,

1417
01:25:37,160 --> 01:25:39,080
Speaker 1: the investment side of you know, I like authors like

1418
01:25:39,280 --> 01:25:43,479
Speaker 1: Peter Bernstein, of course, So let's back up, is that

1419
01:25:43,600 --> 01:25:47,800
Speaker 1: Peter Bernstein. When I was on vacation last month, I

1420
01:25:47,920 --> 01:25:52,519
Speaker 1: brought with me Against the Gods and sitting on my

1421
01:25:52,640 --> 01:25:55,800
Speaker 1: desk at home on top of Against the Gods as

1422
01:25:55,840 --> 01:25:59,840
Speaker 1: good as gold, amazing. Yeah, great books. You know, I

1423
01:26:00,000 --> 01:26:04,719
Speaker 1: go back and reread uh those books. Uh. And Larry

1424
01:26:04,720 --> 01:26:07,360
Speaker 1: swad Rows stuff. He sends to come out with about

1425
01:26:07,400 --> 01:26:10,120
Speaker 1: a book a year or so. Swedrow is another scorched

1426
01:26:11,040 --> 01:26:13,280
Speaker 1: just nothing gets him. And he was on the show.

1427
01:26:13,840 --> 01:26:16,800
Speaker 1: He was great. You meet him. He looks like such

1428
01:26:16,840 --> 01:26:19,840
Speaker 1: a quiet guy and then he starts speaking and there

1429
01:26:19,920 --> 01:26:24,240
Speaker 1: are no lots of colladal damage, no survivors. He just

1430
01:26:24,439 --> 01:26:27,080
Speaker 1: mows everything down in front of him. What what book

1431
01:26:27,120 --> 01:26:30,519
Speaker 1: of his is on your recommended list? I guess for

1432
01:26:30,880 --> 01:26:35,080
Speaker 1: for beginning investor? Uh, I like what Wall Street doesn't

1433
01:26:35,080 --> 01:26:36,720
Speaker 1: want you to know. I think it's like his first

1434
01:26:36,800 --> 01:26:39,840
Speaker 1: or second book. You know, I actually have my had

1435
01:26:39,880 --> 01:26:44,719
Speaker 1: my students read uh The Incredible Shrinking Alpha. Last semester.

1436
01:26:45,000 --> 01:26:48,639
Speaker 1: He has been on a tear about hedge funds private equity.

1437
01:26:49,160 --> 01:26:52,920
Speaker 1: He just recently and I'll see if I find the

1438
01:26:53,000 --> 01:26:57,519
Speaker 1: link did something that basically says sixty performs private equity.

1439
01:26:57,960 --> 01:27:01,880
Speaker 1: Just he's just been achen but but if I had

1440
01:27:01,920 --> 01:27:04,880
Speaker 1: to say two books that are to be if you

1441
01:27:04,960 --> 01:27:08,360
Speaker 1: had only two books on your bookshelf, one of them

1442
01:27:08,400 --> 01:27:13,040
Speaker 1: are to be Roger Gibson's Ascid Allocation Roger Gibson's Asset Allocation,

1443
01:27:13,720 --> 01:27:16,439
Speaker 1: fifth Edition. Now that's a that's a pretty thick tone,

1444
01:27:16,520 --> 01:27:19,120
Speaker 1: isn't it pretty thick book? You know. It's that's on

1445
01:27:19,240 --> 01:27:21,400
Speaker 1: my that's right over my desk in the office, right,

1446
01:27:21,479 --> 01:27:25,320
Speaker 1: it's it's like Rick Ferry on stboards. Okay, it's uh

1447
01:27:26,439 --> 01:27:28,800
Speaker 1: so you take Rick Ferry's Acid Allocation Book, which is

1448
01:27:28,800 --> 01:27:32,400
Speaker 1: another very accessible and very readable. I use that on

1449
01:27:32,560 --> 01:27:35,919
Speaker 1: undergraduate you know, and Roger Gibson's more of a graduate

1450
01:27:36,080 --> 01:27:40,120
Speaker 1: level professional type view of that. But the other one

1451
01:27:40,200 --> 01:27:42,400
Speaker 1: is a book that's almost a hundred years old. Now

1452
01:27:42,600 --> 01:27:44,320
Speaker 1: it's you can find it on the web for free.

1453
01:27:44,360 --> 01:27:48,479
Speaker 1: It's a George Clayian's The Richest Man in Babylon. Oh sure,

1454
01:27:48,560 --> 01:27:50,160
Speaker 1: I read that a little time ago. You know you

1455
01:27:50,200 --> 01:27:52,560
Speaker 1: ought to reread it. Really, you ought to reread it

1456
01:27:52,800 --> 01:27:55,720
Speaker 1: about once every five years. I do that with Mark

1457
01:27:56,280 --> 01:27:59,080
Speaker 1: Market Wizards by Jack Schweger. I reread that every five

1458
01:27:59,200 --> 01:28:02,280
Speaker 1: or seven years. So the Richest Man in Babylon is

1459
01:28:02,360 --> 01:28:06,639
Speaker 1: a parable, Yes, a series of parables supposedly true from

1460
01:28:06,960 --> 01:28:11,439
Speaker 1: from the days of Mesopotamian what have you, and tell

1461
01:28:11,560 --> 01:28:13,080
Speaker 1: us that there are by the way, there are a

1462
01:28:13,200 --> 01:28:18,320
Speaker 1: few books like that, um, that are essentially parables. But

1463
01:28:18,840 --> 01:28:22,479
Speaker 1: tell us about the richest man in Babylon. Seven major themes,

1464
01:28:22,560 --> 01:28:24,760
Speaker 1: and I'll just go into two of them. One is

1465
01:28:24,840 --> 01:28:29,000
Speaker 1: investing yourself, but the but the other one is probably

1466
01:28:29,240 --> 01:28:32,120
Speaker 1: the best illustration of how to do this. The best

1467
01:28:32,200 --> 01:28:36,200
Speaker 1: explanation is live below your means that the parables that

1468
01:28:36,280 --> 01:28:38,519
Speaker 1: are surround that, and they're actually two or three on

1469
01:28:38,680 --> 01:28:42,880
Speaker 1: that theme, are are fantastic. And I will buy that

1470
01:28:43,040 --> 01:28:46,439
Speaker 1: book and give it to clients or the sons and

1471
01:28:46,560 --> 01:28:49,160
Speaker 1: daughters are clients, especially those who are getting ready to

1472
01:28:49,200 --> 01:28:52,920
Speaker 1: graduate from college, and and say you really need to

1473
01:28:52,960 --> 01:28:56,560
Speaker 1: read this, and hopefully they do and and some do

1474
01:28:56,840 --> 01:29:00,880
Speaker 1: and they gain knowledge from it. It's also pretty interesting

1475
01:29:00,920 --> 01:29:05,600
Speaker 1: wedding gift, by the way, that's fascinating. UM. So we

1476
01:29:05,760 --> 01:29:08,360
Speaker 1: talked about all the things that changed in the industry,

1477
01:29:09,280 --> 01:29:14,599
Speaker 1: UM since since you joined the join the industry. Anything

1478
01:29:14,680 --> 01:29:16,720
Speaker 1: else you want to reference as to what might be

1479
01:29:16,840 --> 01:29:20,160
Speaker 1: the next major shifts or recent changes of note, or

1480
01:29:20,280 --> 01:29:24,960
Speaker 1: have we beaten that horse. Well, you know, I think

1481
01:29:25,280 --> 01:29:30,599
Speaker 1: going forward, it's fairly predictable that as the fiduciary standard

1482
01:29:30,640 --> 01:29:33,360
Speaker 1: comes into play, high cost variable nuities are going into sphere.

1483
01:29:34,439 --> 01:29:38,920
Speaker 1: Equity index annuities, I love the concept of them as

1484
01:29:38,960 --> 01:29:43,120
Speaker 1: a fixed income alternative. I think they're marketing incorrectly. The

1485
01:29:43,240 --> 01:29:47,120
Speaker 1: cost structure is not transparent at all. The the control

1486
01:29:47,160 --> 01:29:49,719
Speaker 1: of the insurance company has over it is not correct.

1487
01:29:50,000 --> 01:29:52,559
Speaker 1: Isn't that true with all insurance products? The cost structure

1488
01:29:52,640 --> 01:29:55,560
Speaker 1: is not transparent, uh, to a large degree. You know,

1489
01:29:55,720 --> 01:30:01,440
Speaker 1: variable life variable nuities, the call structure is more transparent

1490
01:30:01,520 --> 01:30:05,320
Speaker 1: than whole life universal life equity index and duties. There's

1491
01:30:05,360 --> 01:30:09,880
Speaker 1: really no transparency. It's a great concept, that the implementation

1492
01:30:09,960 --> 01:30:12,320
Speaker 1: of it has been poor, and it makes it tough,

1493
01:30:12,640 --> 01:30:15,679
Speaker 1: really tough for a fiduciary to recommend an equity index

1494
01:30:15,720 --> 01:30:18,320
Speaker 1: and nuity Right now, I haven't found one that that

1495
01:30:18,400 --> 01:30:22,200
Speaker 1: I'm uncomfortable recommending. Immediate and nuties they are to be

1496
01:30:22,280 --> 01:30:24,679
Speaker 1: used a lot more often. What sort of a nuties?

1497
01:30:24,800 --> 01:30:30,040
Speaker 1: Immediate fixed income annuities? Okay, so retirees should probably take

1498
01:30:30,080 --> 01:30:33,120
Speaker 1: a portion of their wealth and annuities. It maybe not

1499
01:30:33,320 --> 01:30:36,880
Speaker 1: all in one chunk. Maybe over times early retirees with

1500
01:30:36,960 --> 01:30:40,080
Speaker 1: an inflation writer. Uh So, this way they know they

1501
01:30:40,120 --> 01:30:43,080
Speaker 1: have a guaranteed income no matter what happens in the market,

1502
01:30:43,720 --> 01:30:46,680
Speaker 1: and the real risk at that point becomes inflation, not

1503
01:30:47,120 --> 01:30:51,040
Speaker 1: running out of money exactly. We move that, you know.

1504
01:30:51,200 --> 01:30:54,680
Speaker 1: And I'm a little suspect about the whole concept of

1505
01:30:54,840 --> 01:30:58,919
Speaker 1: longevity and nuities. I think that it's a great concept.

1506
01:30:59,040 --> 01:31:02,840
Speaker 1: You can pick up them mortality credits and it does

1507
01:31:03,400 --> 01:31:06,479
Speaker 1: assuage the fear of that, But I think you're giving

1508
01:31:06,560 --> 01:31:10,160
Speaker 1: up a lot and and a lot more research I

1509
01:31:10,240 --> 01:31:12,320
Speaker 1: think is needed in that area as to whether or

1510
01:31:12,360 --> 01:31:16,200
Speaker 1: not that is really fits very well with the rest

1511
01:31:16,240 --> 01:31:18,720
Speaker 1: of her portfolio. Well, what we It's funny there was

1512
01:31:18,720 --> 01:31:22,720
Speaker 1: an article in Barrens about this. In our fixed income portfolio,

1513
01:31:23,400 --> 01:31:25,400
Speaker 1: we're in the midst of trend, so every year we

1514
01:31:25,439 --> 01:31:27,800
Speaker 1: do a big look see and say what do we

1515
01:31:27,920 --> 01:31:31,280
Speaker 1: wanna keep, what what's better, what's and usually we don't

1516
01:31:31,280 --> 01:31:33,920
Speaker 1: do a whole lot of anything. But over the past year,

1517
01:31:34,840 --> 01:31:39,200
Speaker 1: the bond dated ETFs have come out and there was

1518
01:31:39,280 --> 01:31:41,960
Speaker 1: just an article in Barrens. And we started doing looking

1519
01:31:42,000 --> 01:31:44,760
Speaker 1: at this a while ago, where you could create a

1520
01:31:45,040 --> 01:31:50,479
Speaker 1: laddered fixed income portfolio using low qust ETFs. So if

1521
01:31:50,560 --> 01:31:53,760
Speaker 1: someone's concerned about what one of them if rates rise, well,

1522
01:31:53,800 --> 01:31:57,400
Speaker 1: look when the O sixteen ends, you take that cash

1523
01:31:57,479 --> 01:31:59,799
Speaker 1: and you buy the O nineteen, and when the O seventeen.

1524
01:31:59,840 --> 01:32:02,720
Speaker 1: And that's the sort of technology, that's a sort of

1525
01:32:02,800 --> 01:32:05,560
Speaker 1: product which is a dirty word on Wall Street. You

1526
01:32:05,760 --> 01:32:10,679
Speaker 1: could not do that two years ago. It didn't really exist. Yeah,

1527
01:32:10,720 --> 01:32:13,280
Speaker 1: you could have, you know, target date funds in a

1528
01:32:13,400 --> 01:32:15,960
Speaker 1: four oh one K, but you couldn't say I want

1529
01:32:15,960 --> 01:32:19,840
Speaker 1: to take X amount of my fixed income portfolio and

1530
01:32:20,040 --> 01:32:24,200
Speaker 1: have it constantly be rolling. It's really a fascinating innovation

1531
01:32:24,280 --> 01:32:26,479
Speaker 1: that I think a lot of people don't understand. If

1532
01:32:26,520 --> 01:32:29,120
Speaker 1: you can remove interstate risk or at least manage it

1533
01:32:29,720 --> 01:32:33,639
Speaker 1: substantially in this type of environment, with this laddered approach

1534
01:32:33,680 --> 01:32:37,800
Speaker 1: that you're talking about, that is probably the best fixed

1535
01:32:37,840 --> 01:32:41,880
Speaker 1: income strategy for the next decade. It's quite fascinating. If

1536
01:32:41,960 --> 01:32:43,679
Speaker 1: it was. If you go a little longer, it would

1537
01:32:43,680 --> 01:32:45,600
Speaker 1: be great. But I think right now you could go

1538
01:32:45,680 --> 01:32:48,800
Speaker 1: out three or four years using ice shares. I don't

1539
01:32:48,800 --> 01:32:51,160
Speaker 1: know if you go out much further um, But it

1540
01:32:51,280 --> 01:32:55,960
Speaker 1: really another one of those issues that the technology just

1541
01:32:56,080 --> 01:32:59,840
Speaker 1: didn't the products didn't exist a few years ago. Um.

1542
01:33:00,040 --> 01:33:03,840
Speaker 1: Next question, So we talked about major shifts. Let's let's

1543
01:33:03,880 --> 01:33:06,960
Speaker 1: talk about my favorite two questions, my last two questions.

1544
01:33:07,120 --> 01:33:09,000
Speaker 1: So you work with a lot of students, You work

1545
01:33:09,040 --> 01:33:11,720
Speaker 1: with a lot of millennials, and and I don't know

1546
01:33:11,800 --> 01:33:14,960
Speaker 1: what we're calling the generation after millennials, if if they've

1547
01:33:15,000 --> 01:33:18,719
Speaker 1: renamed them yet. What advice would you give to somebody

1548
01:33:18,840 --> 01:33:23,519
Speaker 1: graduating school this year who was interested in looking into

1549
01:33:23,600 --> 01:33:28,439
Speaker 1: a career in finance. Find a firm that's going to

1550
01:33:28,560 --> 01:33:33,040
Speaker 1: invest in you. Uh, you don't say I'm gonna go

1551
01:33:33,160 --> 01:33:36,879
Speaker 1: hit the ground running and be able to do everything

1552
01:33:37,040 --> 01:33:41,040
Speaker 1: that I have full blown financial advisor needs. Really think

1553
01:33:41,080 --> 01:33:44,720
Speaker 1: about the first year, the first perhaps the second year

1554
01:33:45,280 --> 01:33:49,360
Speaker 1: as a residency process. Work extremely hard, get your certified

1555
01:33:49,400 --> 01:33:54,080
Speaker 1: financial planner certification done in that first year. Uh, probably

1556
01:33:54,120 --> 01:33:55,600
Speaker 1: by the end of the first year, in addition to

1557
01:33:55,920 --> 01:34:00,960
Speaker 1: whatever licenses that you need. Uh. Work hard. To think

1558
01:34:01,000 --> 01:34:06,160
Speaker 1: about it as a medical residency, working not perhaps that hard,

1559
01:34:06,240 --> 01:34:10,040
Speaker 1: but but hard, and learn all that you can, absorb

1560
01:34:10,200 --> 01:34:14,240
Speaker 1: whatever you can. Once you have that couple of years

1561
01:34:14,280 --> 01:34:17,280
Speaker 1: of experience in this industry and you've invested in yourself,

1562
01:34:17,360 --> 01:34:20,439
Speaker 1: that way, you can write your own ticket and and

1563
01:34:20,520 --> 01:34:23,080
Speaker 1: hopefully you'll stay with the firm that you join and

1564
01:34:23,160 --> 01:34:27,160
Speaker 1: they will have a career path for you, and you

1565
01:34:27,320 --> 01:34:30,000
Speaker 1: see your future with that firm. You enjoy that firm.

1566
01:34:30,080 --> 01:34:33,080
Speaker 1: But if if that doesn't work out, and you have

1567
01:34:33,200 --> 01:34:35,600
Speaker 1: invested in yourself and the firm is invested in you,

1568
01:34:36,360 --> 01:34:39,439
Speaker 1: then you will You are a very marketable person right

1569
01:34:39,439 --> 01:34:43,000
Speaker 1: now in terms of the demand for experience financial planets

1570
01:34:43,080 --> 01:34:46,120
Speaker 1: right now. And my final question, what is it that

1571
01:34:46,240 --> 01:34:49,280
Speaker 1: you know about investing today that you wish you knew

1572
01:34:49,840 --> 01:34:56,240
Speaker 1: twenty years ago when you when you began. One thing uncertainty, Uh,

1573
01:34:56,400 --> 01:35:00,559
Speaker 1: it is prevalent. It is with us, it will always

1574
01:35:00,640 --> 01:35:05,799
Speaker 1: be with us. I'm amazed at how many financial planning

1575
01:35:05,880 --> 01:35:09,519
Speaker 1: programs are set up to say, or we design the

1576
01:35:09,600 --> 01:35:12,840
Speaker 1: portfolio so that you can retire by the time you're

1577
01:35:12,840 --> 01:35:17,880
Speaker 1: fifty eight. Right, Well, guess what you know. There's a

1578
01:35:18,000 --> 01:35:23,639
Speaker 1: lot of uncertainty about the future returns. I think innovation

1579
01:35:23,760 --> 01:35:25,599
Speaker 1: is going to be great in the United States as

1580
01:35:25,680 --> 01:35:28,160
Speaker 1: long as we fuel it with a lot of capital.

1581
01:35:28,800 --> 01:35:32,080
Speaker 1: We apply for diucry standard. We removed this this rent

1582
01:35:32,160 --> 01:35:36,080
Speaker 1: extraction that Wall Street does over time, that's going to

1583
01:35:36,240 --> 01:35:39,320
Speaker 1: lead to greater capital accumulation in the United States and

1584
01:35:39,400 --> 01:35:44,920
Speaker 1: help propel our economy forward. Uh So, I'm very optimistic

1585
01:35:45,280 --> 01:35:48,120
Speaker 1: about the U. S economy compared to I guess most

1586
01:35:48,160 --> 01:35:51,120
Speaker 1: of my fellow colleagues over the next decade, over the

1587
01:35:51,200 --> 01:35:57,960
Speaker 1: next two three decades. But this whole concept that there's

1588
01:35:57,960 --> 01:36:00,960
Speaker 1: a lot of uncertainty out there still, and we shouldn't

1589
01:36:01,000 --> 01:36:04,080
Speaker 1: be telling clients you're gonna retire. We ought to be

1590
01:36:04,160 --> 01:36:09,880
Speaker 1: telling clients, I can help you retire early. I don't

1591
01:36:10,000 --> 01:36:13,960
Speaker 1: know when that will be, but I know that if

1592
01:36:14,000 --> 01:36:18,360
Speaker 1: you followed my advice over the long term, if you

1593
01:36:18,479 --> 01:36:21,879
Speaker 1: stick with this discipline process that we're going to implement,

1594
01:36:22,640 --> 01:36:25,280
Speaker 1: did I know that you will be able to achieve

1595
01:36:25,960 --> 01:36:31,920
Speaker 1: whatever your lifetime goals are, faster and better. And and

1596
01:36:32,120 --> 01:36:33,760
Speaker 1: that's the type of promise that we ought to be

1597
01:36:34,000 --> 01:36:38,000
Speaker 1: telling our clients, not giving them such a hard line.

1598
01:36:38,520 --> 01:36:41,559
Speaker 1: This is when you're gonna accomplish something. Ron. This has

1599
01:36:41,640 --> 01:36:43,920
Speaker 1: been great. Thank you so much for being so generous

1600
01:36:43,960 --> 01:36:46,200
Speaker 1: with your time. If people want to find more of

1601
01:36:46,280 --> 01:36:49,879
Speaker 1: your writings, where would they go? Uh my blog scholar

1602
01:36:50,080 --> 01:36:53,720
Speaker 1: FP dot blog spot dot com and on Twitter. You

1603
01:36:53,880 --> 01:36:57,320
Speaker 1: are one four zero LTD. I don't know where you

1604
01:36:57,400 --> 01:37:02,280
Speaker 1: came up with that limited characters. I want to thank um,

1605
01:37:02,560 --> 01:37:05,519
Speaker 1: my head of research, Mike bat Nick, and my producer

1606
01:37:05,720 --> 01:37:08,680
Speaker 1: Charlie Volmer for help putting this together. Be sure and

1607
01:37:08,800 --> 01:37:11,240
Speaker 1: look Up an Inch or Down an Inch on iTunes

1608
01:37:11,360 --> 01:37:15,479
Speaker 1: to see the other seventy five or so podcast we've done.

1609
01:37:16,120 --> 01:37:19,000
Speaker 1: I'm Barry Ridhults. You've been listening to Masters in Business

1610
01:37:19,160 --> 01:37:20,200
Speaker 1: on Bloomberg Radio