Michael Kitces on the State of Financial Planning - WCI Podcast #380

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. This is White Coat Investor podcast 380. This episode is brought to you by SoFi. Helping medical professionals like US bank borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com SoFi loans originated by SoFi Bank NA NMLS 696891 advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC, member of FINRA SIPC investing comes with risk, including risk of loss. Additional terms and conditions may apply. All right, welcome back to the podcast. Hope you had a good week. I missed you. I'm glad you're here. Thank you so much for listening to this podcast. It wouldn't be much without you. You know, a podcast I suppose could be just somebody talking into a microphone, but if nobody's actually listened to it on the other end, it's not much of a podcast. Our quote of the day today comes from Benjamin Franklin who said, wealth is not his that hasn't, but his that enjoys it. That makes me feel better. You know, given that what I talked about last week about renting a McLaren for a couple of days, it doesn't do any good to just sit there in those accounts. Once you have become wealthy, once you've taken care of your financial ducks, it's okay to spend some of your money. Just make sure it's an amount you can afford and it won't keep you from reaching your financial goals. The goal here is not to be the richest doctor in the graveyard. The goal is to have your money under control. So it's doing what you tell it to rather than you having to do what it's telling you to do. All right, don't forget about our podcast sale. This is just for you. Just for podcast listeners. It goes through the 19th. I think this podcast drops on the 15th, so you got four more days. 20% off everything. WCI courses in the WCI store. Just use code podcast20 and. And this. You know, we got a new student course out. You might not have heard about this. The FYFA fire your financial advisor student version with this, 20% off is just $79. That's the least we've ever sold the course for. We cannot make an online course any cheaper than that. I'm sorry if that's too much. Go buy the book. It's cheaper. But this is the Fire your financial version for students. And don't forget, you get credit when you upgrade to the resident course and the Attending course. Later, you can use your CME money. You can enroll in Financial, Wellness and Burnout Prevention for Medical Professionals where you'll have access to the entire Fire Financial Advisor course content and additional wellness and burnout prevention modules. Great time to buy that given that we are having that 20% off sale. All right, we've got a guest on today, I mentioned it last week, who listen to the podcast. We've got Michael Kitces here today and we're excited about this. This is an interview I'd wanted to do for a long time. Michael is an expert in financial planning, but we're not going to talk about financial planning today. We're going to talk about another thing that he's an expert in, which is financial planners, and really get a good overview the current state of the financial advisory industry. So let's get them on the line here. And I hope you enjoy this interview listening to it as much as I enjoyed doing it. And we'll see you after the interview. My guest today on the White Coat Investor podcast is Michael Kitces. Michael, welcome to the podcast.

Thank you, Jim. Good to be here. I'm looking forward to the discussion today.

For those of you who don't know Michael, you just need to go to Kitces.com where he hosts the Nerd's Eye View blog. But this is a website with traffic similar to White Coat Investor. It is a big deal in the financial advisory industry. You know, I spent some time on his bio page in preparation for this. And you know, he's got a lot of letters after his name. A couple of master's degrees, one in Financial services, Master of Science and Financial Services, one in Taxation. He's got a cfp, a clu, a chfc, you know, write lots of letters after his name. You know, there's three other designations there I'm not sure are going to mean much to my audience. But it's impressive how much you love learning about this stuff. But what's more impressive is what a great job you've done teaching this to your industry. He is a blogger, a financial blogger for financial professionals. Is that fair to say?

Yeah. Yeah. Although I still kind of straddle the divide, as it were. I am still a registered advisor. I don't take clients directly at this point. Folks that want to work with us, work with the firm collectively, but I'm still registered. I still, as I put it, sit in the chair from time to time across from clients that we work with. And did that for many, many years. And so it was for me a bit of an evolution from, okay, I'm doing this for our clients, but I'm one of those reach impact people, like make a dent in the world before you move on kinds of folks. And so for me, it just wasn't enough to only do it for the clients of the firm that we were serving. And so that drew me many years ago to say, okay, we're doing all these cool things for our clients. I'm like coming up with cool ideas. I think other advisors would be interested in this as well. Maybe I could share this with other advisors. And that turned into some speaking, which turned into some writing, which turned into a blog, which turned to a media company, which turned into a speaking business, which turned into a. A whole bunch of other businesses that we built over the years back out to the advisor community and just kind of going further down that trail.

Yeah, as I told Michael before we, before we started recording, I was totally impressed that at one point he was doing over 50 speaking gigs a year. You know, when I got up to about 15, I was like, that's it, I'm not going to travel anymore. This is way too many. And the fact that you did that many for so many years, I was just totally impressed.

I was, I was a road warrior for the better part of a decade. I think my high was 73. In a year I did almost 200,000 miles on United all domestic. Usually people that do high miles, they go back and forth to other continents on a regular basis. And I was just ping ponging around the country for a number of years.

Well, Michael, I want to first take an opportunity to thank you for the blog. This is an incredible resource, not just for advisors, but lots of kind of hardcore diyers get on this.

We have a number from the Vogelhets community that come visit us.

Yeah. And it's been a place people can get authoritative information at a deep level. Right. At a level appropriate for a professional in the financial industry for many years. So thank you for putting that together. You are making a big difference in the world. And by just making sure advisors are more educated out there, it means all of us are getting better financial advice. So thank you for doing that.

Absolutely. Thank you. I appreciate it.

Now, let's ask you some of the hard questions.

All right, Bring it.

There's a certain subset of what I call rapidly aggressive DIY investors who basically feel that nobody ever needs a financial advisor and that the entire financial services industry exists primarily to move money from the pockets of clients to the pockets of the advisor. And that might be best exemplified by the classic Bernstein quote, right, where he says, act as if every broker, insurance salesman, mutual fund salesperson and financial advisor you encounter is a hardened criminal and stick to low cost index funds and you'll do just fine. What's your response to these kind of rapidly aggressive DIY investors about the value of seeking professional advice and service?

So, so look, so I'd answer this in two ways. The, the first and most direct is that you have to separate the financial salespeople from the folks who are actually in the business of financial advice. You know, the Bernstein quote to me, kind of castigates the salespeople and then sort of lumps and groups the advisors in the middle of that as well. And the problem is just fundamentally, to me, like salespeople and advisors are separate professions. Now, the challenge in our industry, and frankly, one of the things that we advocate for from our platform is that our own industry has done a horrible job of appropriating the advisor title from the advisors and assigning it to the salespeople. And they did that 20 or 30 years ago when everyone stopped calling themselves stockbroker, insurance agent, started calling themselves financial advisor, financial consultant. And like the, the product industry claims the titles before the actual people who are doing it realized that they probably needed to defend the titles. So in the context of your industry, your audience, it would be like the pharma company, drug reps, all claiming that their pharmaceutical reps are doctors because doctor is not a regulated title. And then they sell drugs to consumers directly through their proprietary doctors who not surprisingly, only write scripts from their own company because they're actually drug pharma reps from the company posing as doctors and wearing white lab coats, but having no actual medical degree, license, training or education. That's basically where our profession is right now. So we're, you know, we're where medicine was. I don't know where it's like 100 years ago, 150 years ago, or like the, you know, you had the bonafide doctors and the people who literally sold snake oil as medical salve, both posing and claiming that they're doctors and a horribly confused consumer public that had trouble figuring out the doctors from the snake oil salesman. And so eventually regulation came in and helped to sort that out. And while I'm, I'm not a, you know, as, as a, a person who's founded multiple businesses, I'm not the highest on regulation. Sort of in general. Regulation tends to stop us from doing, doing things as, as business owners sometimes. But to me, this is actually an area where I think regulation has largely failed in our industry. You know, the phenomenon of regulatory capture has very much happened in our world where the product companies have a lot of the representation in Washington and in many of the regulatory organizations, and they continue to write and rewrite the rules in a way that makes it very hard for actual advisors to distinguish themselves from the salespeople. So, you know, know. Yes, to the extent of Bernstein's quote, like, I don't know if I would quite go as far as hardened criminal, but like, you know, act as if every broker and insurance salesman is acting in their own interest. Because they are. That's what salesmen do. Right. Like, when I go into the Gap and they say the jeans look good on me, I'm. I'm clear on the nature of this relationship and how likely it is the jeans really look good on me or the fact that they work on commission. They want to sell a pair of jeans today. But, you know, when I'm going out for advice, I have a fundamentally different expectation of the relationship. And we do have a segment of that in the industry. Right? Technical labels, registered investment advisor, different regulatory standards. That would actually be what you would expect for an advice provider. But our industry, unfortunately, has worked very hard to muddy that line because the product industry, frankly, has figured out it's very beneficial to keep that line muddy, and so they continue to do so. The.

Which explains recent, recent actions being voted down requiring, you know, know, fiduciary relationships.

Correct. And so this is why, you know, there's been lobbying for fiduciary uniform fiduciary standards for advisors. The SEC chose not to do this with what they called regulation best interest, which ironically does not fully require a best interest standard. That was literally the industry, like, figuring out how to appropriate the fiduciary language of best interest standard into something that's not actually a fiduciary best interest standard. One of my organizations actually tried to sue the SEC to block that rule, unfortunately, unsuccessfully. Did not get a good look of the draw on judges. You know, it's why the Department of Labor is now working on their version of fiduciary Rule the some regulators more than others are recognizing we have this problem now where consumers can't tell the difference between the salespeople and the advisors and are trying to figure out what to do with that. But the industry has had so much financial success since selling products under the guise of advice, they're making it very, very difficult to take that title back for the advisor side of the industry. And so I have an immense amount of sympathy for the average consumer. I mean, I look at these articles that many good folks put out of like the 17 questions that you should ask to figure out if your advisor is a good advisor. I'm like, what a crappy process that we make. You ask 17 questions of multiple people just to figure out who's actually worth trusting in the first place. I think it's an awful state of affairs. It's part of why I get active in some of the regulatory advocacy side of our industry. But to me, just the big takeaway for your listeners, I think, is understanding there is a difference between advisors and salespeople. There's a legal difference, there's a standards difference, there's a training and education difference. But our industry is not actually discriminating in how those titles work. So unfortunately, a lot of the due diligence for an advisor is just figuring out whether you're actually talking to an advisor or whether you're talking to a salesperson.

Yeah. And it is a real problem. There was an article last week, and this will be several weeks ago by the time people hear this podcast. But Jason Zweig in the Wall Street Journal wrote an article about this couple that won the Powerball lottery. Did you see this article?

No, I hadn't seen this. I'm a big fan of Jason.

Yeah. So they win the powerball, they get $60 million, they decide to give almost half of it to charity, they start this foundation for this rare disease, and they go to the local financial advisor. And my fingers are in quotes for those of you not watching this on YouTube who happened to be a rep for a well known insurance company and invested 93% of this foundation's money into variable annuities. Right. Wow. Organization already totally tax free, puts it all in high expense, crappy investment, variable annuities. And you know, and it just gets worse from there. There are no winners in this story. Everybody loses by the time the story's over. But it's a real problem because you know Joe Bob, American, he's like, well, this guy says he's a financial advisor and he walks in the door and he gets advice like that that Jason, Jason estimated 15 to 25 million was what was lost from this bad advice. I mean, just a terrible, terrible outcome. And, and there's a whole bunch of kids with a terrible disease that aren't going to get the benefit they could have had if this foundation had earned fair returns that they deserved.

And so look, I understand then a lot of the folks that are diy, I think, as you put it, like rabidly aggressively diy. I mean, I won't deny, like our industry has created a terrible state of affairs around this. And it's because for every honest advisor who managed to work their backside off to generate a couple hundred dollars of fees for providing advice, there's some dude that makes $20 million off of a God awful annuity sale. And guess who has more money to market their stuff to consumers. It's the one that just made $20 million in commissions on bad sales. So that, that even structurally is part of what's unfortunately perpetuated the state of affairs longer than many of us on the advice side of the divide. Wish it had continued. At the same time though, there is a segment of, look, there is a segment of folks that just, they like to spend the time they have the knowledge, like they have the inclination to go and do this for themselves. But the caution I always give, even including for the folks that are on the DIY side is not everyone has the knowledge or wants to take the time to get it and read nerdy Kitsa style articles until the early of the wee hours of the morning, try to learn all this stuff for themselves. Like there are other people that would rather pay for expertise, rather just delegate it. I could also figure out how to fix my toilets, but I have absolutely no idea how to do it. So I hire people for basically everything in my house. Like you asked me, tax code, I can do internal Revenue code sections. You ask me anything about my house, I'm hopeless. I have no idea how it works. I'd like to think I'm a reasonably smart dude. Like I could figure out how to do these things. And it's not where I choose to spend my time and energy. And so I spend money on that and I do other nerdy financial stuff and some people want to do the reverse and every mix in between. And so my, like, my challenge around it is, look, if you're happy doing it, like, do it more power to you. I'm not in the camp of every human being should have a financial advisor and they're wrong if they're doing it themselves. Like if you got the time and the knowledge, the inclination and you're having fun and it's working for you, like do your thing and be awesome for you. But I don't think we have to make people feel guilty if they don't want to spend the time doing that. They don't have the inclination to pursue it. They don't want to accumulate all the knowledge. Yes, I do think there's some level of financial literacy that is good, if only so you can pick a good advisor and understand who's taking care of your interest properly. But to me it goes so much beyond that. If you want to do it, do it. But we don't have to make people feel guilty who don't want to do it and would rather work with a professional. People do that across a lot of domains and we choose the domains that we want to do it in. And some people want to do that with their finances and let someone else be the, be the expert that worries about this stuff for them.

You know, I've thrown out this number in the past of people that I think, you know, percentage of educated professionals that want or need a good financial advisor, I throw out 80%. I think about 80% want a good advisor and should be using a good advisor. Would you agree with that? Would you say it's higher or lower?

I think that's the neighborhood. So there's a consumer research company out there called Forrester Research that I think has had really good work in this space. They do a lot of like consumer psychographics work around who engages with the financial services industry and how. And so they, they basically put people into three, three broad groups. I'm over generalizing some very sophisticated research of theirs. They kind of put people in three groups. So on the one end are the pure do it yourselfers, which they estimate, yeah, it's like somewhere around maybe 25, 30% of the market of varying degrees of do it yourself ness. There's a segment that the other ends that are the like the pure delegators. I just don't want to deal with the money stuff. Like just someone else please do the things for me. I want to do other things with my life. That's like another 20 to 25%. It's actually not a huge group, although it's where a lot of is there a lot. And then there's a group in the middle that Forrester calls the validators. And so quintessentially validators don't necessarily want to fully delegate. Like I Don't need you to do all the things for me. I'd like you to validate, like start coming to the advisor. I'd like you to validate them on the right track. Like maybe I bring my stuff in and you look over myself. I don't need you to do all of it for me, but I'd love to buy a couple hours of your time to look at all my stuff and what I'm doing and let me know whether I'm on the right track and give me some feedback and guidance. And they actually find that that group is the largest and larger than either the pure DIYs or the pure delegators. Now the challenge in our industry is we're really, we're really good at delegators. Most of our business models are built around people that just want to delegate and let us do it for them. Very scalable from our end. Obviously we don't work a lot with the DIYs by, by definition. And our industry is not very good at the validator segments because historically we've been so built around delegators that we didn't know what to do with people didn't want to delegate. So you get these awkward conversations like hey, I'd love to hire you for financial advice. Like sure, we'd love to work with you. $300,000 asset minimum. It's like, well I, I didn't really want to give you a portfolio. In fact, I mean I have one. I, I just wanted like buy a few hours of your time and they're like, yeah, $300,000 minimum. We'll give you unlimited financial planning. Not really what I was looking for. So some segments are now, some models are starting to grow in that direction. We see more hourly planners, we see advisors building subscription style models. We see advisors doing more project planning. Just come in and I'll do some planning work for you so that like we're slowly building more models and solutions for the, for the validators out there. But to me, like the other challenge we fundamentally have is our industry is sort of over tuned to one particular segment of consumers. That's like the furthest possible on the spectrum from the, from the DIYs and we're not doing a great job for the mass of folks in the middle where we're, we're trying to get there. You know, I've been involved in creating some organizations now that are trying to build that direction and helping advisors build business models and start firms to serve people in that, in that middle group where there's not assets or they don't want asset management. Like they just literally want financial advice. But sadly that, that's still a minority of financial advisors by, by headcount. And part of that is just there, there literally aren't enough of us for all the consumers that want to be served.

Yeah, for sure. And, and when you get an audience like that that congregates around a financial website like the White Coat Investor, you know, a much higher segment of those are validators, you know.

Absolutely.

Because if they were a total delegator, they wouldn't be reading a financial blog know.

No, no. I mean some, some advisors in our space joke like why are you sending reports to your clients like they're delegators and don't want to read them? Like that's a big debate in our industry right now. I'm all for financial information to clients, but most advisors have the experience. Like we send all this information to our clients and they literally don't open the emails or read them because they're delegators.

Yeah. So let's get back just for a minute to the industry. Right. You know, it's trying to professionalize, you know, trying to make this distinction between real planners and, and product salesmen. Are you winning? Are, is there going to be a time when the industry of financial advisors is fully professionalized and advisors are viewed with respect like you know, doctors, lawyers, accountants, et cetera.

So the, the good, I appreciate the question. I, the good news. We are winning. We're winning really slowly though. We're winning. We're not. So what's happening functionally is we're not winning with regulators or at least we're winning like a very incremental. Like we're moving the, we're moving the ball a couple inches down the field, but it's still on our half of the field. So playing a game of inches is that hard is not very constructive. So we're making slow but very slow progress with regulators in part because candidly the, the from a pure advocacy regulatory end, the, the, the lobbying dollars on the other side are, are like 10x the dollars for lobbying that the advisor side has. So we just literally get outspent in a lot of the lobbying efforts that happen. But we are essentially we are winning in the court of public opinion. Right. The media at least figured out a long time ago and has helped to train the, the, the public. You should be looking for a financial advisor who's a fiduciary. That word is out there now. You should be looking for Someone who, who's obligated to act in your best interests. And consumers are voting with their feet. So what we see in the internal industry end is basically so the, our side of the industry kind of gets broken into a couple of channels. There are the, the salespeople, folks that work under brokerage firms. They're the salespeople, folks that work under banks. There are some salespeople, folks that work under asset managers. So there's like a couple of different segments there. The brokerage firms have big national firms and then independent brokerage platforms. And then there's the ria, the registered investment channel, which is the legal licensing registration for being a fiduciary. And if you look internal, the industry, every single channel is a net negative decline except the RIA channel, which is collectively winning at the expense of every single other channel. So consumers increasingly are moving towards fiduciaries. Advisors, including the good ones who maybe started at sales firms but really actually want to be advisors are eventually saying it's really difficult giving advice in a sales organization. I think I'm going to go hang my own shingle and make an actual advice firm. And so they're leaving one channel and moving into the RIA channel. And so that is happening live and real time in our industry. But it happens literally at a pace of like small single digit percentage of advisors in any particular year. You know, we move like 2 or 3% of advisors that go from one channel to another. So when you look back over 10, 15 years, there's been a huge sea change in what's happening in our industry already. But it's taken like 10 to 15 years and we're still, you know, if you just look at aggregate numbers, there's roughly 300,000 financial advisors were up to up to 100,000 that have CFP certification, which I view at least as like a reasonable benchmark of training and education to actually be an advisor that has some knowledge to give as a, as a professional advisor. So at best we're up to one in three. And of the one in three, some portion of those actually got CFP marks, but they still work for product companies and have not fully made that shift yet. So we're a growing minority. CFP professionals was fewer than 1 in 10, 20 years ago. And so moving from 1 in 10 to 1 in 3 is real progress. And I think that's coming because at the end of the day it is just literally consumers get served better and they're voting with their feet. And so the industry is responding and moving. But it's really slow now. When I look at that from an industry end, I do know how this plays out, which is in, in some period of time, which unfortunately maybe another 10 or 15 years, unless we can do some things to accelerate it, as some platforms like ours try to do, at some point, another 10 or 15 years, the folks that give advice and work in the fiduciary channels will actually be the majority, not the minority trying to change the industry. They'll be the majority of the industry. And at the point that they're the majority of the industry, new coalitions start to form. New organizations that previously were antagonistic now start working together because they're all on the same side of this new divide. And then eventually a new, a new coalition will come together to say, hey, those sales, those like rogue salespeople are a minority of the total industry. And now they're dragging us down. Now that we've transformed ourselves, we should go reform the regulations and stamp out those salespeople. But what's happening for even a lot of the large product organizations is they're well aware of where the puck is going as well. They're trying to transform themselves in certainly very slowly and very painfully, but they are. And so at some point, a lot of our large brokerage firms in the industry are going to rehabilitate themselves into giant RIA fiduciary platforms, spin off their old legacy broker dealers, say we're RIA fiduciaries now and really will be, and then they'll lobby forward for fiduciary regulation. But until they get there, they try to slow that pace of change so that they can do it on their terms rather than having regulation do it to them or do it for them. So I really do think we get to this point of industry change simply because at the end of the day, consumers are already voting with their feet like it is happening. But it's happening slowly and painfully. One really messy transition at a time. And I think it takes many more years, unfortunately, until that really gets enshrined in regulation, that just makes it law. And then you get the official dividing line, as basically as this is any profession. I mean, medicine, law, accounting, all have a clear standard that at some point the title is regulated, the ability to hold out as that professional is regulated. You have to have the license in order to do that. You have to have certain training, education, experience in order to get the license in order to hold out. The model's there. We know how it works. It's been time tested in many other professions. We just need a little more time to get there. But we are.

Okay, let's say we've got some delegator that's mistakenly listening to this podcast. Somebody sent it to them and made them listen. They got lost. They're here. They don't know squat about the financial advice industry, about financial services in general. They're a financial novice they've been listening to and they're like, oh yeah, I want a real financial advisor. How can they recognize a real financial advisor?

So, so here's how I would break it down. So our industry uses like, I have lots of criteria and jargon. I'll try to keep it to a minimum how much it is. I would say number one that matters is that you work with someone that's actually accountable for giving you good advice. What that means functionally is that they're subject to a fiduciary standard, act in your best interest from a regulatory standard. What that means is you're looking for someone that works at a registered investment advisor and someone that only works at a registered investment advisor. Our industry has a label called dual registrant, which means you're with an registered investment advisor and some brokerage firm. Brokerage firms functionally are product sales, product distribution platforms. And there are many, many good advisors at brokerage firms that maybe someday will move to the fiduciary RA space. They just haven't yet. But when it's hard to figure out the good ones from the not good ones, the most straightforward way is you just pick someone that's only on the RA side of the, of the industry in the first place. And so this is relatively easy to figure out. If you go to whatever the advisory firm's website is that you're checking out, go their advisory firm hit, hit the end button on your browser, which will take you to the bottom of the page in the footers. If they are a registered investment advisor, it will have information about how to access their form adv, which is the regulatory document that they provide. And if they're a brokerage firm, it will say securities are offered by such and such broker dealer for which they are a registered representative. Because we all have these required disclaimer languages at the bottom of our websites. So it's pretty quick to figure out whether it's someone that's working for a brokerage firm or a registered investment advisor. So number one to me is like accountability matters, which means you're looking for someone that's at an rea. The second corollary to this is they're only working in an RIA and they're only getting paid in fees. You can figure this out a couple of ways or practically speaking you can ask them. Advisors don't lie. We're not always the most transparent in some parts, particularly the sales side of the industry. But we do get very sued when we don't tell the truth. So we do give accurate answers if you ask us directly, even if the marketing brochures are little fuzzy sometimes. So do you receive any compensation besides the feedback fees that I pay to you directly or through any related businesses? If they are a registered investment advisor, there is this document called form adv, Form Advisory. It's the regulatory document that we're all required to produce and there's a section in it that talks about other compensation we receive and conflicts of interest. So you can check the answers there. And every advisor's ADV is reviewed by their compliance and legal counsel and, and no lawyer will let anything through that does not accurately describe what's going on. So number one, are they rna? Number two is are they only getting fees and no other kind of sales related compensation? Number three, are they a CFP certificate? Our industry has lots of letters. I've got many of them on my business card as well. To me, like they all start at CFP certification. We've got some other designations that are pretty good. We've got a lot that are very spurious. We've got some that are pretty lightweight that you can get with like a weekend class and a mail away thing for a couple hundred bucks. CFP is a very high quality, credible designation. And to me just it's a good starting point. If they've got as a minimum, ideally they've got some things after CFP because you don't really add anything after CFP unless it's useful. You don't really add junkie designations when you got a good one. So CFP certification maybe ideally a little bit more after that. And if you don't know what the letters mean after that, you can ask them. The last two, to me that get really important, aside from RIA fee, only CFP is talking to them. And there's two things ultimately you're looking for when you talk to a financial advisor to get to know them and see if you want to work with them. Number one is do you work with clients like me? And tell me about the clients you work, who you work with to make sure that their clients like you. A lot of challenges crop up, you know, if you're, you know, a 40 something year old doctor. And this advisor mostly works with retirees. This is probably not the best fit. Right? Just, yes, we're trained financially. I was kind of like in the medical world, like, yes, I'm a trained doctor. I can help you with a lot of things. But if you actually have a brain problem, you really want to see a neurosurgeon, not like any doctor that learned about the brain in medical school. Right. There comes a point where, like, if my problems are complex enough, you really want a person who focuses and specializes in that. And that's what they do with people like you, with problems like what you have. And so asking the advisor around you, what kind of clients do you work with? What's their typical situation? Tell me about the kinds of problems that you solve with them to understand whether they're giving answers about people like you and problems like what you deal with. And the last part to me is just at the end of the day, do you feel comfortable talking to them? And if you're in a couple, do both of you feel comfortable talking to them? Does the advisor engage with both of you that you feel like this is someone that you can work with and talk to? Money for most of us is a really personal thing. At best, it's a taboo subject. At worst, there's. We've got all sorts of drama and trauma associated with money and money challenges that we've had through our lives. And so if you can't talk about the money stuff comfortably with the advisor you're talking, talking to, or at least semi comfortably, if that's a really challenging subject for you, it's not going to work very well. Right. It's like with almost any professional. If you hire the professional but you can't actually talk to them about the stuff, it's really hard for them to help you and do their best work as well. So make sure it's someone that you're comfortable communicating with. And you can find an advisor who is a wonderful advisor. And just their communication style is not your communication style. And it just doesn't work very well. So, you know, Ria Fee only CFP clients like me, and I'm comfortable talking to them. And if you can sort through that, most of the rest starts to sort itself out thereafter.

Yeah. You know, it's interesting. I talk to advisors and a lot of them tell me what they do more than anything else, especially with clients that are a couple, is marital therapy. Do you see a time when there'll be like a therapy requirement to be a financial advisor?

It's Starting to crop up in some ways. Financial psychology was added to our CFP curriculum body of knowledge four or five years ago as our profession starting to move that direction. There is a segment out there called the Financial Therapy association that has a number of people that come from marriage and family therapy backgrounds that bring a counseling background that are trying to figure out how to bring and translate some of those skills into the, into the financial advisor domain. It looks a little bit different. We are not trained counselors for anybody who has been through that training in professional education. I'm fully, fully cognizant that we are, we are not there, but there are marriage and family therapists that are starting to cross over. And so I've even seen a select subset of firms that have those people on staff or have external folks that they work with that they bring in to support clients and client relationships. But more generally, yes, like, for any, any of us kind of experience, the financial advisor end, this really does come up a lot. I mean, we, we see it as well, you know, the, the, the sort of joke on the financial advisor end is, you know, like, tell me about all your goals, and then I'll make a great financial plan for you to get them. If you can tell me exactly when you could die, it'll be a perfect plan. But we start this conversation like, tell me about your hopes, dreams, goals, and wishes. And then we ask a married couple in the room, and it's often the first time that they realize it's not the same. They're not lined up. And obviously, at some point, if you're going to pursue joint financial goals as a couple, we need to figure this out. But yes, it means a lot of us as financial advisors end up getting pulled down a little bit of a marriage and financial therapy route, because it just gets unearthed when we start asking questions about what's important about money to you and why does this matter? And if you got to the point that you were financially independent and you didn't really need your dollars anymore, what would you be doing with your time? And the two members of a couple start answering very differently about what they would do with their time and dollars. And sometimes you get down to really fundamental things or stuff that we grew up with. Money is my security. I need to accumulate more of it. Money is how I show love. So we need to give more of it to our kids. And so now all of a sudden, I've got marital strife because you want to give it to the kids because that makes you feel good. And I'm freaking out because you're making our balance go down and suddenly a couple has a bunch of strife there and like it's not that one is the right or wrong answer, but they've got very different money beliefs, money scripts in their heads of what money means and then the conflict starts showing up in couples. So we do see it a lot from the financial advisor end and psychology and maybe some lighter elements of therapy training is starting to show up in our space for that reason.

Yeah, it's good to hear actually. I'm glad to hear that more training is coming that way because I do hear about it a lot from advisors. Let's turn the page a little bit. My mantra when it comes to financial advisors is that you want to get good advice at a fair price. What do you view as a fair amount to pay for financial planning and for investment management? And how does somebody know when they're paying too much?

So I look at this ultimately through a lens of the way I think about engaging almost any kind of services professional with expertise. So I compare this a lot to thinking about engaging lawyers, thinking about engaging accountants. If I'm going to engage a trained professional in one of those disciplines, I'm probably paying depending a little bit on where I am regionally and cost of living. I'm probably somewhere in a 2 to $400 an hour range for paying for professional services across those. And if I've got more specialized problems, the numbers start going up from there. Right. If I've got specialized problems, I might have legal or accounting complexities that's going to get me a $500 to $700 an hour person. And if I got some really complex stuff or particularly a lot of business and other issues going on, I can easily be in a room where I'm paying someone $750,000 or more and I'm basically trying to answer get my questions answered as expeditiously as possible because that's a lot of money for financial advisors roughly fall into a similar realm. So one of the things that we do as so from our kids.com platform one of the things that we do is a series of advisor research studies. We do actually one on their well being and how they're doing as advisors. We do one on advisor tech, we do one on advisor marketing and we do one on advisor productivity where we actually get into process advisors use where their time goes and what their pricing. And one of the things that we actually do in that research is we take all advisor business models across the board, we boil them down to at the end of the day, how much time you actually spend doing client things and how much revenue do you get for all the client things that you do. And we divide B into A and we actually figure out what advisors are getting paid on an hourly equivalent rate. And the answer when you look across the country of most advisors is we get paid somewhere in the neighborhood about 250, $300 an hour, which is not terribly dissimilar than the averages for lawyers and accountants. Now, there are a couple of interesting sort of asterisks and caveats to that. The first is advisory firms are not as good as a lot of other professions at making sure that all of their time is spent on client facing, client activities. So most other professions we've gotten really good at, like the professionals spend 80% of their time, 90% of their time on like client facing activities. And we build staff and teams around us to support. So, you know, doctors have a whole team that work around them. The legal profession has, has tiers with paralegals and other people who support. Accounting has a version of it as well. Advisors were not as good at it. So a lot of advisors, at the end of the day only actually manage to sort of have collective productive client time for maybe 55 to 65% of their hours. If they get 70%, that's pretty good. So some advisory firms effectively have to start pricing up the value of their time because they got to generate 100% of their salary on only 60 to 70% of their time, which means effectively hourly rates start going up a little bit. The second phenomenon as well. So starting point I would say is there. That's what you'll find for most advisors if you actually take the stuff that they do and divide by what you pay for it with some tiering. Similar to other professions, advisors who work with higher dollar amount clients, where there tends to be more complexity and frankly usually want more experience and expertise at that point, bill higher. And we'll see advisory firms that work with more affluent clientele whose numbers show up more in the 4, 5, $600 an hour range. And some firms that work with very, very affluent, high net worth folks think, you know, 10 million or tens of millions and up, where if we do the math and impute their time, they might be generating 750 to $1,000 an hour. So the numbers are not that different than what we see for a lot of other professions. The weird effect that we get in the advisor world is that we tend to sell it in very large chunks. So if you look in particular things like a traditional assets under management model, the average advisor that works with a assets under management client spends somewhere in somewhere around 30 to 40 hours working with their clients in the first year. When we add up all the time that they and their team spend doing all the stuff stuff, you see the stuff behind the scenes that we have to do to make it all happen and then on an ongoing basis typically end up spending somewhere around 20 to 25 hours per client per year. Because of that, a lot of us cap out on the number of clients that we can work with. So we can only handle so much industry world, we're commonly capping out at 60 to 80 clients per advisor. Above that number with 20 to 25 hours per client, we just run out of time in the year since we still got business overhead, managed professional development, the other things that we need to do, but we don't like selling in smaller chunks than that. So I know a lot of folks, particularly per the early discussion, the Validator segment, they're like, I'm, I'm looking for an advisor I can just hire for a couple hours to get some, some feedback on my financial situation, share some thoughts. And the advisor basically says, well, I won't work with you unless you do the like 20 to 30 hour a year aggregate AUM comprehensive holistic relationship model. And if you actually take what AUM charges down to the hourly rates, they're not that far off from what other professionals have. But it's very hard to find firms that don't essentially do that in large blocks. Part of that is because from the advisor end, it's really hard getting clients in a competitive environment, in part because the product firms do all the marketing and then we have to do all the stuff to explain why we're real advisors and they're not. And that's very, very time consuming. So in the advisor world, part of the research that we do, the average Advisor effectively spends 3 to $4,000 in marketing expenses to get one client. If we add up their marketing dollars, their business development time and everything that goes with it. So if it takes me $4,000 to get a client and they hire, going broke is the unfortunate reality for most advisory firms. So we have to, I'm now air quoting for those who are not watching on YouTube. We have to work with clients that engage us in fairly large chunks and blocks or it just becomes very, very problematic for us to run sustainable business models because clients don't, you know, ring the phone, knock on the door, show up on Demand. We generally have to go out and promote our services much more than most other professions. And it essentially raises the cost of advice indirectly. It's one of the reasons why we pound the table so hard around regulatory reform that engages in fairly large chunks and blocks or it just becomes very, very problematic for us to run sustainable business models because clients don't ring the phone, knock on the door, show up on demand. We generally have to go out and promote our services much more than most other professions. And it essentially raises the cost of advice indirectly. It's one of the reasons why we pound the table so hard around regul reform. You know, the industry likes to make the case if we raise the regulatory standards, consumers will lose access to advice because their salespeople won't be able to give advice under the guise of selling products. The problem we actually see is that the sales side of the industry is driving up the cost of advice for consumers because the actual honest fiduciary advisors have a lot of trouble marketing it in clients and differentiating themselves from the rest.

Amen. That, that, that is well said. That is a real problem, you know.

Yes.

I mean a good financial advisor shouldn't have to market, you know, a doc that's been out five or 10 years, they don't market. Right, right. The clients just come in the door. And that's the way it should be for good financial advisors.

And, and, and in our world, good financial advisors who are very experienced might get down to the point where they only are expected to spend 20 to 25% of their time on business development.

Right.

And you just imagine, right, from any professional services firm, I got to run my whole P and L on the fact that a quarter of my time is non billable hours. If you want to get technical, I got to run my whole P and L and my staff support and everything else on the fact that I have to spend a quarter of my time just trying to find the next clients to come in and keep the business growing. Because this is not a like oh woe is us speech or anything about how hard it is for advisors to get clients. But we struggle with this divide as much as many consumers struggle with trying to figure out how to find a good advisor. And it really does drive up the cost of advice for us. So what we get is hourly rates that at the end of the day don't look different than a lot of other professions, but very strange ways that we package it. Fairly high minimums that we tend to set larger bundled arrangements. Whether it's like I'LL do a plan. You got to buy like a whole plan for me, not by the hour advice or you got to have an old AUM relationship. Because from the advisor, I'm like, if I'm only going to get a half a dozen to a dozen new clients in a year, which is pretty good for a lot of advisors, if that's all I'm going to generate new growth for the year, I have to generate a certain amount of revenue per client or my business model just doesn't sustain. And that's why even for a lot of folks out there, I know they find an advisor who'll work with them for an hourly basis and then they go back a few years later and the advisor isn't doing hourly anymore. They're now doing other business models. Because for a lot of advisors, as we get to the point where we can get clients that will engage with us in deeper relationships that ultimately are more hours per client and allow us to generate more revenue per client, it's so much more sustainable for us in running a business that it's very hard to stay in. In hourly models, advisors just tend to get pulled out of them. Or conversely, eventually they get some clients who say, I will just pay you a lot of money to do all this stuff for me because they come across a delegator that wants them to do it. And as an advisor, when you get start getting some clients like that, eventually you start saying, why am I trying, why am I trying so hard to work with a huge number of clients in really small increments when I can work with fewer clients and get more dollars for it and frankly just get more, more deeper, more meaningful relationships with my clients. I mean, it's sort of an indirect version of what I know is, is happening in medicine now as well, where a lot of doctors are getting drawn towards concierge medicine style practices in the same manner. Like gee, it would be really nice to go from like a 1500 patient load or 2000 patient load down to a couple hundred and be able to work more reasonable hours and actually get to know my patients and spend more time with them, not feeling like I'm running along to the next one. And we get a similar draw in our industry, except the allure in our version is not from high volume practice to concierge. It's basically from hourly to aums or subscription or some model of that sort.

Speaking of all those models, do you have a favorite model for financial planning, A favorite model for investment management? I mean, do you think annual fees or Subscription or hourly or AUM fees. I think it's pretty clear you're not a fan of commissions being their primary way to get income. Do you have your favorite among the others?

I struggle to say favorite because to me, just I'm one of those people that looks at marketplaces and consumers to see, like, sees lots of different people that have different needs and different wants. There are a lot of people out there, like, if I could just have someone to bounce some stuff off of an hour or two a year, an hour or two every other year, that'd be great. And that's all I want, I'd be well served. And so if that works, great, like yay for the advisor, yay for the consumer who engages them, everybody wins. Likewise, there's a subset of people that really just want someone to handle all the portfolio stuff for them. And AUM to me, works great for that. I mean, if at the end of the day you're a delegator with a pool of money and you would like someone else to be responsible for said pool of money, the AUM model works pretty well. And for those who are listening, because this always comes up, you don't want to pay your advisor based on their performance results. You think you do. I'll pay you if it does well, and then I won't if it doesn't. Our industry did this a long time ago. And what ends up happening is once we figure out we're only paid for results, we take huge amounts of risk with client money because if it goes up, we get paid. And if it doesn't, you lose your money and we go find another client. And that happened about 100 years ago, writ large through the market run up and crash in the 1920s and 1930s. And so most financial advisors now are actually legally prohibited from using performance fee structures because consumers got so horribly destroyed the last time our industry allowed it that we basically banned it for the majority of the industry. So you won't be able to find an advisor most of the time that charge performance fees. There's a couple of exceptions for very high net worth clients because our industry's view is basically if you got that much money and you want to take the risk and get yourself screwed, that's up to you, that's your responsibility. But AUM models are actually like, for investment management services really are remarkably aligned. Like I can say that as someone that's been a partner in AUM firms over the years, we are more attuned than you would probably realize into how. Well all of our clients collected portfolios are doing because at the end of the day our entire revenue and profitability moves with how our client portfolios are doing. And so we are very incentivized to make sure that that is going well. Especially because when your portfolio goes down, your numbers go down. When my portfolio goes down, I still have to pay my staff. Which means every time a bear market comes through the financial advisor world, all of our profits go to zero for a year. Like hard zero. And that's if we're lucky. If we don't run our firms well, we actually have to put in money and make payroll. So on the investment management end to be like AUM models. Well and for folks that you know, want an ongoing relationship with an advisor and either, either they don't have assets, they don't want asset management, they just want financial planning and an advice relationship. To me that's where you're seeing growth in subscription style models. So monthly, quarterly, annual. Our industry is doing in a lot of different flavors these days. But it's another way to pay fees, have an ongoing relationship so that ultimately just you know, you get someone that knows you and understand your situation and what's going on so you don't have to re explain it every time and can help you with whatever it is that's going on. And then you get back to what's their expertise. Do they work with people like you? Because different advisors do that with, with different consumer segments. So to me like they all work. The asterisk from the industry end is it is pretty hard to do the hourly version sustainably, scalably for an extended period of time. So most advisors that start out hourly eventually get drawn towards subscriptions or, or AUM bottles or something similar because it lets them go deeper into fewer relationships that are more meaningful. And most of us at the end of the day the, the people who become advisors and not salespeople are wired for helping others in service to others like this. That's kind of the, that's who shows up in, in the pure advice realm. And so when you're wired for helping others in service to others, you tend to like models where you deep relationships with your clients or really get to know them over time. So we, we tend to get drawn that direction.

Let me read between the lines a little bit. I think I'm hearing here, in addition to the other messages you're giving, I'm hearing here that you cannot charge enough on an hourly basis to serve validators. You can't charge enough to that they won't pay what you'd have to charge to have a going business model that.

You can make a number that works, it's higher than what a lot of people would like. You start getting to a realm of it's really hard. I can scale an AUM model for an advisor that generates 250, $300 an hour. It's really hard to scale an hourly permit at that rate. I end up needing to spend more like charge more like 4 to $500 an hour so that I can cover staff overhead. The fact that I can't bill every hour all year long, I've still got to do marketing that I don't get paid for on a billable basis. It gets really hard. It effectively drives up the, drives up the cost. And I'm sure there's some subset of people that are so eager for an hourly advisor, they'll still pay that rate. But the challenge that starts to crop up is like, okay, if you're gonna have to start spending 350, 455, 50 per hour to get an advisor who's going to sustain in that model over the long term, as you start accumulating wealth, you're going to get to a point where the, if you've got any level of complexity and ongoing needs, the AUM and subscription advisors are going to actually start looking price competitive after, after all. Now, maybe not if you need an hour or two every year or two, but, and there's certainly a good place for that. But because we have a shortage of advisors kind of large across the industry, the subset of people who have more financial wherewithal and more willingness to pay for ongoing advice relationships essentially are cornering the market on the, on the advisors. You know, there are, there are only 100,000 CFP professionals. Not all of them are even really full fully in advice mode. But even if they all were, and a lot of us top out at 60 to 80 client relationships before, before we're really at, at relationship capacity, maybe we get to 100 with some, with some team support and cool tech efficiencies and the like. You know, 100,000 advisors serving 100 clients each is about 10 million households that get served. There are 130 million households in the US so there are only enough of us to maybe serve 10 or 20% of consumers right now. And so indirectly, the part of the challenge that comes up is the folks that are willing to pay for ongoing relationship models are slowly drawing the financial advisors into relationship models, which we kind of want to go to anyways because we're help service to other mentalities that like having deep relationships with the people that we're serving.

You know, the biggest criticism for AUM fees is it feels like you're paying a fair fee when you've got $600,000. And it feels like you're being ripped off when you got 6 million. Why do AUM fees in practice scale down so slowly? Right? They're like, okay, well after you got 2 million, we'll go from 1% to 0.9%.

So here's how I would think about this. The because like I've seen this from the, from the industry end because I work with many of these firms in practice management consulting and the like. Firms whose average clients are $6 million have a different set of services and capabilities than firms whose average clients are $600,000. And I mean, we see this very clearly in, in industry studies and metrics as well. The, the firms that have $6 million clients on average have way fewer clients per advisor, have way more hours per client, typically have significantly more experience, usually have more credentials. And often the firm has often, but not always, the firm has additional services or capabilities bundled in whether they're doing additional private investments and alternative investment strategies. Maybe they're doing tax preparation and deeper tax planning. You know, the 600,000 DOL firm will tell you to get a will. The 6 million dollar firm, we'll call the attorney, put them in our office and sit there with you through however many, many meetings it takes until you've got the documents and you understand every word the lawyer said. Because we help translate lawyer into, into client. So the, the, the scope of services, the hours provided, the experience and expertise looks different. Which in part is why firms that have clients with $6 million averages are not more profitable than firms that have clients with $600,000 averages. Because from the staffing end, we have to hire significantly more experienced advisors with significantly more credentials and knowledge and capability who charge a lot more money. And we usually need larger staff infrastructures because of ancillary services that crop up. So part of the reason the tiering does not fall off as much or as much as some folks might expect is because at the end of the day, the firm really just needs to get to a certain number of revenue per client to justify and manage the scope of services that they're providing. And they try to come up with some version of a fee schedule that is reasonable to the marketplace and ultimately and ultimately gets them there. The mismatches that you get is when you're a $6 million client with a firm that averages $600,000 clients because the firm is usually not really staffed and built to have the depth of service that $6 million clients typically expect. When you've only got an average client of $600,000. Right. Just you need to spend more hours for your top clients. At that point you're not necessarily staffed to do it. They want additional services. You can't really do. It's a big client. So most of us don't want to lose big clients like that. So we try to service and accommodate them. Our industry has all sorts of practice management advice about how you segment and A clients from B clients and do special things for your A clients because they have 10x the dollars. 6 million clients. $600,000. Right. Just you need to spend more hours for your top, top clients. At that point you're not necessarily staffed to do it. They want additional services you can't really do. It's a big client. So most of us don't want to lose big clients like that. So we try to service and accommodate them. Our industry has all sorts of practice management advice about how you segment and a client 600,000. You don't want to lose them. And I'm actually fundamentally knowledge from B clients and do special things for your A clients because they have 10x the dollars. 6 million fan of that kind of practice management approach. I would rather say like if you're going to be good at $6 million clients, be good at all of them and do that. If you're going to be good at 600,000, our clients do that. But you know, no one wants to be the B in an A in an a B tier. It doesn't feel good for the clients. It frankly to 600,000 you don't want to lose them. And I'm actually fundamentally not feel good for the advisor but fan of that kind of practice management approach. I would rather say like if you're going to be good at $6 million clients, be good at all of them. It's where. It's where at least some practice management folks in our industry have migrated. So. So to me do that if you're going to be good at 600,000. Our clients do that. But you know, no one wants to be the B in an A in an a B tier. It doesn't feel good for the clients. It's frankly doesn't feel good for the advisor. But like the fundamental challenge is why? One of the core questions that I encourage asking and exploration is what what are your Typical clients look like right when you get back to those, those kind of five questions and domains earlier. Because firms that are really built to serve clients that at that level, whichever is where, it's where at least some practice management folks in our industry have migrated. So, so to me like the fundamental challenge is why one of the core questions that I encourage asking and exploration is level it is tend to really be staffed and systematized to do the right things for the clients at that. At that. What what are your typical clients look like right when we get back to those, those kind of five questions and domains earlier. Because firms that are really built to serve clients that at that level, whichever level it is, tend to really be staffed and systematized to do the right things for the clients at that, at that threshold. And the expectations are different as they should be. I would expect more as a 6 million. I can do the math of what you guys in the AUMV I would expect more as a $6 million client than a $600,000 client. And you threshold and the expectations are different as they should be. I would expect more as a 6 million. I can do the math of what you guys in AUMV I would expect more as a $6 million client than a $600,000 client and you should. Some of that's hours of service, some of that's additional ancillary capabilities. Some of that's just the sheer experience, research and due diligence. It's planning, analyses. The average advisor spends more than an hour of prep and follow up for every one hour of client meetings. Some of that is our compliance. We've got compliance regulations about what we need to document our version of doctor's notes. Some of that is just what you expect at the end of the day when you're working with a professional in an ongoing relationship. Again, if we're going to have ongoing relationship models, we have to actually show up in the meetings knowing what we're talking about and remembering who we're working with. So on the one hand that's easier because our client loads might be 50 to 100, not 1500 that I know some or more that some doctors have to work to. But we've got real prep that we've got to do for meetings. We got follow up that we should do as good professionals. We got compliance obligations along with it. There's a lot of shadow work that happens behind the scenes in, in supporting the business. In part this is why like the, you know, the AUM model doesn't result in a bunch of yacht owning financial advisors, which are pretty good. I mean financial advisor financial advisors have a, have a good income as, as a lot of professional services firms do. But you know, it is a professional service. It requires a lot of supporting work for clients that happens behind the scenes in addition to what happens. A client facing that you see directly. And that's part of why a lot of these models essentially kind of equalize out to roughly similar dollar per hour models at the end of the day. Because we are acutely aware at all times of how much work we need to be doing for our clients that we can try to hold onto them.

You know, when people think about an advisor and the reasons they might hire an advisor, what do you think see as the biggest value adds? What's the real value of hiring an advisor?

The real value of hiring advisors? So I, it, it varies by, by the client and, and what they're, and what they're doing. So let me give some context to that. So some clients that have hired us over the years, at the end of the day it's about delegation, saving time. I'm doing other stuff. I don't want to deal with this stuff. You deal with it. Maybe it's because I just don't want to spend the time because I'd rather have fun. Maybe that's because I'm enjoying retirement. I want to travel the world and you just do the money things. I'm going to travel. Sometimes we get that because we're working with people in professional services. We're working with a doctor, we're working with a business owner who just has so much going on in their business and their practice that they want us to deal with the money things so that they can spend time on other stuff. So some of us get hired for delegation, some of us get hired at the end of the day for, for the core service of investment management. You know, we financial advisors tend to be really negative on consumers managing their own money because we see the, we see the, the, the least successful of the least successful. I mean if. Right again, like if you're a DIYer and it's going well, you don't call us when you try a DIY and you blow your finances up. And then your spouse says you're not allowed to do this anymore, we're going to hire a financial adv. You're trashing our family's financial future. That's who comes into our office a lot of the time. So we see the people who blow themselves up the most on their investments and a lot of the times we get hired essentially comes down to we do this better than you. And that's not even necessarily that we're so great is that this might not have been your best thing to be self managing your portfolio and dealing with the emotional roller coaster that goes with it. So sometimes we got hired for delegation, sometimes we get hired for just manage the money and do the investment stuff and help me not getting stuck in the greed fear cycle where I sold and freaked out when the market was down and then I didn't buy it, it was coming back and now I feel bad about buying it because it's come back so much. So I'm waiting for it to pull back again so I can kind of buy it where I got out the darn thing keeps going up and now it's just getting away from me further. And now I've actually lost more money because of the run up than I lost in the decline. And like just those kinds of cycles happen. And so a lot of people hire financial advisors at the end of the day to say I just want you to worry about this stuff because when I do it I make mistakes and it doesn't go well. Sometimes we get hired for particular specialist expertise in an area. I'm dealing with a lot of student loans. I'm going to find a financial advisor who's really good at student loan strategies. I'm getting ready for retirement. I'm going to find an advisor who can figure out how to do the tax efficient drawdowns and coordinate the asset location and the withdrawals and the Medicare surcharge thresholds and the optimal Roth conversions and all the stuff that, that's my domain that I love nerding out on. But we hire advisors for particular areas of specialized expertise. I'm going through something right now and I need some help with someone who's got this. Often we get hired into particular complex life transitions. A lot of advisors specialize around certain life transitions. So getting divorced, widowhood, sale of a business. Just like things where there's a lot of change, a lot of complexity, a lot of newness to our financial situation. Whether I'm going from business owner to, you know, lots of business, no, no cash to no business, lots of cash or widowhood or divorce. I've never been the financially responsible one or like I'm not, I'm not the one that had to manage the investment stuff and the finances. My spouse did that and now we're separating and I figure how to do all this myself and I'm not sure what to do so. A lot of the times we show up in life transition kinds of moments as well. And so to me, each of those are different domains that speak to a certain segment of consumers who might need financial advice. They view it, again in the context of medicine. I'm like, what's the biggest value out of a doctor? Well, I'll give you one answer. If I've got cancer, I'll give you another answer. If I've got flu, I'll give you another answer. If I broke a bone, you know, you, you, you tell me what the presenting problem is and I'll tell you what the value of a doctor is. And we, we get a similar combination in our realm with, with just the asterisks. Some clients, at the end of the day, I find, tend to engage us because there's a specialized problem or a transition. Some just want to delegate, some just want to have someone deal with the investments. And some I find just ultimately want a, just a relationship where someone can ride along with them and just be that thinking partner and help me not make a bad financial decision. That might not come up very often, but can be really bad if it does. There's a fairly famous financial advisor in our industry named Dick Wagner who had a kind of famous saying in our world of look, financial planning basically boils down to save more, spend less. Don't do anything stupid. And if you're not sure about number three, call me first.

That's some good advice there. You know, medical school is now 50, 50 men to women, but that's not the same in every specialty. Orthopedics is probably still 80% guys, but compared to the financial services industry, orthopedics is totally egalitarian. I mean, I look at the pictures from a financial advisor conference and it's all guys in the audience. Why are there so few women working as financial advisors? And what's the industry doing to help with that?

So first, like, yes, it's painful right now and I need some help with someone who's got this. Often we get hired into particular complex life transitions. A lot of advisors specialize around certain life transitions. So getting divorced, widowhood, sale of a business. Just like things where there's a lot of change, a lot of complexity, a lot of newness to our financial situation. Whether I'm going from business owner to lots of business, no cash to no business, lots of cash, or widowhood or divorce, I've never been the financially responsible. Our industry metrics, 23% of CFP professionals are women. The industry has been Doing a lot to change this over the past 10 years in particular, which is awkward because 10 years ago it was 23% women and 10 years before that it was 23% women. It's actually kind of disturbing. Like it has not moved a percentage point in either direction in more than 20 years of industry efforts trying to change that in practice. I think it comes down to frankly a lot of different dynamics. Our industry has a certain stereotype about what a financial advisor looks like. It's a white dude in a suit with a tie. You've seen some of them in movies. And sadly I think that even still shows up with some hiring bias of just when people have to. When hiring managers have to decide who's going to be the successful financial advisor, there's a certain lots of one or like I'm not, I'm not the one that had to manage the investment stuff and the finances. My spouse did like extroverted male stereotype sales type stereotype that still shows up and seems to tend to get the hiring nod. Some firms are working really hard to change that, at least in hiring practices with varying levels of success. I think this the the sec. The secondary challenges to me get a little bit more nuanced from there. The majority of jobs into our industry are still into the sales firms, not the advice firms. Part of that is because again only one third of financial advisors have CFP certification. The other two thirds do not. So literally the majority of quote advisors in the industry are still working for sales firms. And because the sales firms have a very high churn rate because not everybody who comes in ends up being successful in sales. The sales firms have a. They might have. I know exact numbers. They might have 60% of the jobs, but they have like 92% of the of the job ads because they're constantly hiring new people because of all the ones that they burn out and churn out with with less than ideal sales practices. And you know, just again, I don't want to over stereotype like given a lot of traditional family roles for men versus women, it's difficult for a lot of women to come into positions where you're working mostly on commission. There's no salary, there's no stability, there's no set hours. It's really hard to do any kind of family caretaker duties if you've got either parents or children in the picture, right or wrong disproportionately tends to fall to women. Our industry's hours, an unstable salary and unstable career environments, especially in like the first five to ten years makes the. That's super difficult for women. And so I think we've got some as well as things like when you build your own advisory firm, there's no maternity leave. Like it's your firm. If you're going to be out for three months, your clients just don't get served. So there's no billable hours, there's no revenue getting generated. At best, maybe you're trying to hire and build a team around you so that there's some others that can support you. But that means great. If you want to actually have maternity leave, you have to hire staff and have permanent salaries and overhead, which actually just adds to the financial stress of the business. So there's a lot of challenges that come up on that end. The interesting that we thing that we find, because we do a lot of research around this in, in the industry as well, is when you get past the first 10 to 15 years, women tend to do incredibly well in our business. The more that we go towards advice and relationships. Now we're separating and I have to figure out how to do all this myself and I'm not sure what to do. So a lot of the times we show up in life transition kinds of moments as well. And so to me, each of those are different domains that speak to a certain segment of consumers who might need financial advice. I mean, I sort of view it again in the context of medicine. I'm like, well, what's the biggest value out of a doctor? Of like, well, I'll give you one answer. If I've got cancer. The better women seem to be doing in the business. We don't see any pay gaps for experienced women. We see some pay gaps because not as many women make it to the long term in the industry. But when we look at the segments who have actually made it 10 plus years, we don't see any pay gaps because it's a very entrepreneurial build a business the way that you bond it and serve clients the way that you want to. Relationship orientation in general is getting rewarded more now in the industry. Sales is starting to decline. Not as much because we still have a lot of sales. Give you another answer. If I've got the flu, I'll give you another answer. If I broke a bone, you tell me what the presenting problem is and I'll tell you what the value of a doctor is. And we get a similar combination in our realm with people for all the earlier discussion. But the industry is very slowly. I would really say the advice side of the industry is slowly and steadily Making this a much more just the asterisk. Some clients at the end of the day I find tend to engage us because there's a specialized problem or a transition environment for women. The advice jobs are becoming more rewarding for those that prioritize relationships over sales. Relationship models are more conducive to salary environments with financial stability and things like maternity leave. So you look at a lot of large reas, they all have maternity policies. They have stable teams and structures and the ability to support while people are out and reasonable parental leave policies. If you look at sales organizations, if you don't show up, you don't get paid how it works. So some of that is shifting which is why we see like we forget what the exact number is now. Like we got up to 23.2, 23.3%. If we go a little further over the next year. Some just want to delegate, some just want want to. It might round 24, which would be a record for. For the industry if someone deal with the investments. And some I find just ultimately want a just a relationship. Unfortunately, change happens slowly, but it is starting to shift. And I think a lot of that just comes again from this. This industry shift away from product sales and towards advice. And it attracts different people, it rewards different people, it creates different business structures that have different and I would say better support mechanisms for team members. And I think that is probably what will ultimately help move the needle on gender in our industry in a way that a lot of diversity initiatives have not. Because at the end of the day, when we recruit harder to bring in women into the same sales jobs with the same instability, it doesn't necessarily change.

It's a good point.

Where someone can ride along with them and just be that. That kind of thinking partner and help me not make a bad financial decision. That might not come up very often, but could be really bad if it does. There's a fairly.

Well, you've been very generous with your time and I'd love to have you back sometime to actually talk about, you know, planning. Nerd stuff. I love nerd.

Yeah, I love nerd. You can do some optimal Roth conversions and asset location and all that fun stuff. Stuff too.

Yeah. Rather than just talk about the industry. But I wanted to give you a chance before we stop recording. If there's anything that we haven't talked about today that you feel like our audience ought to know, I want to give you a chance to. To mention that.

Oh, honestly, the, the biggest thing I would come back to is, is simply that our, our Again, I'm like speaking particularly to an audience I know has a high volume of doctors. You know, our profession is where yours was was a hundred years ago. We have not separated the professionals from the salespeople. We have an industry where the salespeople are trying very hard to prevent that happening because they figured out a long time ago that advice is really good guys to sell, to sell products. And we're trying to create that separation, figure it out. And so there is a segment of advisors that's fighting that battle very hard. I call them the advisors because I figure we're not going to get the financial advisor term back. So I made up a new word. So I call them financial advisors. Like the people who actually are in the business of giving advice and they are out there and they are winning slowly in the industry to change the industry. They want to work with you as much as you want to find them. Like one of the actual good advisors that are out there. They show up in different colors and flavors and business models. But at the end of the day like they're all focused on providing professional advice services, getting a reasonable hourly rate for what they do because that's what professional services firms come down to. And most of them are really at the end of the day just focused on service and relationships. That's who tends to show up on that side of the industry in our world. And they're good folks to work with. And I'm so sorry, it is really hard. Our industry has made it so hard to find them. So we made platforms like XY Planning Network was. Well the companies I was involved with in founding originally all for like subscription based advisors. Many of them I know are advertise and promote on White Coat investor. Like we've tried to create an environment and catalyze that change a little bit more. But just know that they are out there. They're good service professionals who work hard and want to serve you well. And I'm just so sorry that our industry has made it so hard to find them.

Well, speaking for all white coat investors, we appreciate that apology because it has been hard for a lot of us. And those who know the story of the origin of the white coat investor is partially about that journey of just trying to get a fair shake. All right. We've been talking with Michael Kitces. He's the founder of Nerd's Eye View. You can learn more about him and his work@kitsies.com that's K I T C E S and he's an expert on not only Financial advice, but on financial advisors. So thank you so much for coming on the White Coat Investor podcast today.

Absolutely, Jim. Appreciate the opportunity. Thank you.

All right. That was great, wasn't it? You know, you can tell Michael has spent a lot of time talking about this stuff, you know, in front of others and on podcasts, and he knows his stuff. And it's nice to hear somebody telling the truth about the financial services industry. You know, an insider saying, yeah, it is the way the White Coat Investor has been saying it was for the.

Last famous financial advisor in our industry named Dick Wagner, who had a kind of famous saying in our world of look, financial planning basically boils down to save more, spend less, don't do anything stupid, and if you're not sure about number three, call me first.

That's some good advice there. Medical school is now 50, 50 men to women, but that's not the same in every specialty. You know, orthopedics is probably still 80% guys, but compared to the financial services industry, orthopedics is totally egalitarian. I mean, I look at the pictures from a financial advisor.

Conference.

It's all guys in the audience. Why are there so few women working as financial? 12 years or whatever. 13 years we've been doing this. How long we've been doing this? Shoot, 20, 24. Over 13 years. It's been a long time. For those of you who've been with us from the very beginning, thank you so much. We really appreciate you telling all your friends about the podcast and so on and so forth. You know, five star reviews help us too. I tell you this every week. We got one from Doug. He said, great podcast. WCI should be required reading and listening to medical school and residency. I agree. I started listening around 2016. Shoot. You missed the first five years, Doug. And I've listened to every episode since and have learned so much. I'm now retired from medicine and still enjoy listening, reading, and learning from both the WCI podcast and blog. He's retired. Congratulations on that, Doug. Turns out this stuff does work. He finished his. Jim, thanks for the great work and helping us docs get our finances on track. Five stars. It's our pleasure, Doug. I wish I could take credit for what's going on around here. It is not just me anymore. It might have been 12 years ago, it is not. Now there's a whole team helping take care of all of you guys as much as we can. Advisors. And what's the industry doing to help with that?

So. So first, like, yes, it's painful.

All right. As I mentioned at the top of the podcast, SoFi is helping medical professionals like US bank borrow and invest to achieve financial wellness. Whether you're a resident or close to retirement, SOFI offers medical professionals exclusive rates and services to help you get your money right. Visit their dedicated page to see all that SoFi has to offer at. Whitecoatinvestor.com SoFi one more time. That's whitecoatinvestor.com Sofi loans originated by SoFi Bank NA NMLS 696891 Advisory Services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC member Finra Sipc. Vesting comes with risk, including risk of loss. Additional terms and conditions may apply. All right, don't forget about that podcast sale. The Code's podcast 20 it's good through Monday. Monday the 19th 20% off WCI courses and the WCI Store. You can use your CME money on some of those courses. Others don't qualify for cme, but we keep them those prices just as low as we can while still keeping doors open and making payroll. All right, it's been another great podcast. Hope you enjoyed it. Keep your head up, shoulders back. You've got this. We're here to help. We'll see you next week on the White Coin Investor Podcast. The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice.

You should consult the appro. You know our industry metrics 23% of CFP professionals are women. The industry has been doing a lot to change this over the past 10 years in particular, which is awkward because 10 years ago it was 23 appropriate.

Professional for specific advice relating to your situation.

3% women. And 10 years before that it was 23% women. It's actually kind of disturbing. Like it has not moved a percentage point in either direction in more than 20 years of.