WCI #58: Interview with Sarah Catherine Gutierrez from Aptus Financial

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. Here's your host, Dr. Jim Dahli. Welcome to episode number 58 of the White Coat Investor Podcast, an interview with Sarah Catherine Gutierrez.

I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help.

You know, it's interesting, I find there's a lot of people out there listening to the podcast or reading the blog or interacting with us in some other way who are not signed up for the free monthly newsletter. I have a free monthly newsletter I've been doing since almost the beginning of the White Coat Investor that goes out to over 17,000 people. We include an update on what we've been doing here at the White Coat Investor, including any special deals or any courses or conferences or books we're working on. Well as a market report that tells you what's happened in the last month in the markets. We also update you on what's going on on the White Coat Investor blog as well as our partner blogs, the Passive Income MD and the Position on Fire. And we update you on some of the cool stuff that's been going on both on the podcast and the forum. Also a section on any new videos we put up on the YouTube channel. And then at the end it's like a whole fancy private blog post that nobody else gets. It's not published publicly. It only goes out to the newsletter listeners. So be sure you're signed up for that. You don't have to sign up to get all the blog post in your email. So you're getting something five days a week. If you're signed up for that, you can just get the monthly newsletter that comes out once a month. Yes, if I come up with something new, if I write a new book, I'm going to send you an email about it. But for the most part all, all you're getting is that one Email a month with all that great information. It's really a wonderful value. It's totally free to you. Yes, there's an ad in it like there is in everything else we do, but it's totally free to use. So make sure you sign up for that at the website whitecoatinvestor.com our quote of the day today comes from Gloria Steinem. You can tell your values by looking at your checkbook stubs, and that is certainly the truth, because what you value is what you spend your money on. All right, today we've got a special guest on the podcast. We have Sarah Catherine Gutierrez, CFP of Aptis Financial. Sarah Catherine was actually a very popular speaker at the White Coat Investor Conference in Park City this spring, and it got excellent ratings. Lots and lots of people enjoyed her talk and loved her enthusiasm. I was particularly impressed by her enthusiasm, giving the travel snafus she ran into the night before her talk. I think we were emailing close to midnight, and she was still all the way across the country and scheduled to speak at like 10 in the morning. So she got in, I think she got two or three hours of sleep and then got up in front of 300 people and just nailed her talk. It was really great. And so I've asked her to come on the podcast today. Sarah Catherine, welcome to the podcast.

Thank you so much, Dr. Dali. It's a pleasure to be here.

Let's start with just letting our listeners learn a little bit more about you. Can you tell us about yourself and your upbringing and your education?

Sure. So I'm from Little Rock, Arkansas. I still live in Little Rock, Arkansas, and, you know, just grew up kind of a normal, normal, little slow, you know, slow upbringing here in our cozy little town and went to a high, a local Catholic high school here and then decided to kind of expand my horizons and got into a women's college in North Carolina called Salem College. And, you know, from there, just getting out of Little Rock, I really feel like that was kind of a moment where I saw, you know, I wanted to have a more kind of mission oriented life than I ever would have imagined for myself. And so, interestingly, I did study business in my undergrad in my college there. But my senior year, I had gotten this amazing job at this investment bank back in Little Rock, Arkansas. And I thought, you know, I think there's something bigger out there for me. And much to the unfortunate surprise of my entire family, I put off that, that job offer and joined the Jesuit Volunteer Corps, which is a Catholic organization that sends people all around the country to do service for a year. And I became a job developer for the homeless. And I did that for a year and really thought I could make a bigger difference. And so I ended up doing it for two more years and was able to kind of be part of this group making some really interesting policy around homelessness and getting people long term more sustainable jobs, sustainable housing, and got accepted to the Harvard Kennedy School. And so I went up there thinking, I'm going here to extend this work around homelessness. And what I really found was that the way my brain works is in policy issues. So at the Kennedy School, we were taught to look at widespread problems, widespread areas of market failures, and then think, how can we plug that failure? You know, how can we make this better? And so interestingly, I graduated from there, decided, you know, I'm going to go back and make a difference in my hometown, took that investment bank offer, came back, worked in that for four years. And it was interesting because all of this kind of led to me being at this, you know, in the Capital Markets in 0809. So I'd started my job there in 07, and we all know what happened in 0809. And at that point I made a startling discovery in my mind, and that was that all these people basically bought homes they couldn't afford because they were getting bad advice. And so realizing that there's got to be a real problem here if a whole bunch of people are buying houses they can't afford. And so it led me looking at, well, where do people get advice? And so if you look at the market, if you don't have a lot of money, you're getting advice by someone who's trying to sell you something. The people that, the companies that you see advertising on television saying, let us build you a financial plan. We want to cover everything. We're fee only financial advisors. That's a great industry for a lot of credentialing. A lot of expertise is there, but you look at the average age of people that are able to go to those firms and they're in their mid-50s, and you realize they've got these asset minimums. So you've got to have $500,000 stuffed under your mattress to even go in and talk to them. And that's kind of bizarre, right? So bring us your first 500,000, we'll help you get your second. And so to me, that was a really stunning kind of discovery, was we have a massive amount of people that can't even get access to good non Conflicted advice. When I realized this, I literally quit my job and said to my. I was about to get married and said to my now husband, like, I think I'm going to start a business where I just give this everyone else access to financial advice. So that's kind of the. You know, it's kind of a funny way we kind of bounce around in life. But I really believe that everything I was doing led me to that moment where I happened to be in the markets at the time that the housing crisis, you know, brought down our markets over 40%.

Very cool. That is so impressive. You know, it reminds me of being on the medical school admissions committee, my fourth year of medical school, and sitting reading these essays from people applying to get into the school and being so impressed with them that I wanted to give them my spot and wondered how I ever got into that school, you know, with all these impressive people out there. I did not know that you spent that time working on homelessness. That's really very cool. And a cause that's near and dear to my heart. So.

Okay.

That's very, very cool. Yeah. I volunteered in the homeless clinic, both as a medical student, and then ended up being one of the student managers there for a while. And we continue to donate to just about every organization that helps the homeless in our city every year. Now. It's really something, particularly in emergency medicine. You know, you're always interacting with the homeless because that's the safety net in our medical system. And so something that's near and dear to my heart, for sure. And I thank you for that.

Well, and likewise, you know, it is. There are so many complicated issues around it, as, you know, and if you miss one of them, you know, it just doesn't work. Then the network you have to build to actually move people out of chronic homelessness to functioning is really challenging. And health care is one of the biggest components. So I'm so grateful for the local physicians here that have a clinic for the homeless. It's really phenomenal.

You know, it's interesting is in Salt Lake, they've kind of taken an approach that's received a lot of recognition nationwide of housing first.

Yeah.

They literally. They just put people in houses and they're amazed how many other problems go away.

Yeah. And so that's. So when I said I was part of that group of policymakers, so I was part of the housing first movement in Phoenix.

Cool.

And so that's exactly right. You get them in housing first, and then you wrap services around them. So we were part of that and we wrapped the employment around them. So we were the ones that were engaging the eligible employer, you know, finding employers who would work with them. So we were part of a large network just wrapping around these people who had permanent supportive housing.

Very cool. Now, I've been in Sarah Catherine's house a couple of times when I've been out there speaking at University of Arkansas School for Medical Sciences. A couple of times I've come over to her house and spoken to some of her clients. And so I've been in her house and met her family. And it's a wonderful family, have some incredible kids and husband. And I thank you for your hospitality when I've been out there.

Well, thank you for coming here. I joke that the white coat investor came to my house before he was really the white coat investor. So it was just stunning to be able to be able to have local physicians. As you remember, we did these fireside chats, just get to sit in the living room with you and just in a very kind of cozy, just setting, just be able to fire off any questions that they've had. And I still am so grateful that we had that time with you. I know that would be impossible now, but it was incredible at the time.

Well, it's actually my favorite format to meet readers and listeners is to just small group, sit there and talk to people. It's great. Now, I'm not gonna lie, traveling to Little Rock from Salt Lake is not a fun experience, but you know, it's, it's wonderful once you get there.

That's, that's right.

Now, when I first came in contact with you, I don't know if it was an email or what it was, but when I first met you, you were doing financial planning for $75 an hour. That's 15 to 50% of the price of most people out there doing hourly rate financial planning for doctors. What were you thinking to do it so cheaply?

I'm thinking that, that I'm really proud of it, actually. So, you know, if you kind of think back to where my story left off, you know, I, I wasn't trying to work with physicians like I, I figured physicians were covered. Right. Like I, I mean, that never even dawned on me that physicians would come to my practice. I mean, I was envisioning a world where, you know, I would be working with people who would actually, even if they say 20% of their income, would never get to that 500,000 in assets because they made the median income of $60,000 a year. And so if you Think like they couldn't. I mean, $75 an hour would be a lot of money for a lot of people to get financial planning. And so, you know, I did have this great little business and you know, and I didn't do any investment advice. And I knew to steer clear of that. First of all, the people I was working with, that was kind of the last thing on the list. We were more working on, you know, getting out of credit card debt, student loan debt, and you know, they had their company retirement plans that they'd be, you know, it'd be years before they could even max that out. So, so investing was kind of covered. And so I was able to kind of have this just advice only business and really give anyone access to financial advice. And so then, you know, you know, I did. So I had a physician come in to my practice and he said, you know, you're telling me a lot of advice that I've read in this book. You need to go read this book. And so I, he, you know, I think he dropped it by my house and it was called the White Coat Investor. And you know, of course the first thing I did was roll my eyes because you know, up until that point all the books I had read were so self serving, right? Like they, they were pitching, you know, some kind of business or some kind of investment product or something. And so I start reading this book and I'm, you know, just, you know, my husband's right there and I'm like, you know, saying, oh my God, you know, this is what I believe. And so I finished reading the book and saw your blog and reached out to you and you know, I think that it was kind of a mutual feeling. I think you could see, you know, probably the passion for this business and giving people access to this non conflicted advice, giving people a fair fee that was affordable. And you know, it really sparked this kind of avalanche of new business from people who had a lot more sophisticated needs than I'd been working with prior. I mean, I had the credentialing to deal with it, but I just, it was going unused. And then as much as I resisted it, I had to start giving my clients formal investment advice. These physicians coming into my practice wanted me to say, this is where you need to invest your money. But to do that opens up a can of worms. And you know, we have a lot of people to thank for this unbelievable compliance that investment advisors have to have. But there's been a lot of badness in the universe. And so it's a highly Regulated business. And so $75 an hour was never going to work to give investment advice to cover that, that overhead. And so I started raising the price and I didn't raise it all that much. I went to $100 an hour. That clearly did not work. And then I got to $150 an hour pretty quickly and it just wasn't quite enough. And then once we got to $200 several years ago, you know, I realized it would work. And remember when I started my practice, you know, I was working out of my home and it was just a, it was a very kind of, you know, I was constantly trying to figure out, you know, how do I, you know, how do I build this slowly and intentionally from the ground up? Because I never just envisioned this practice to be a Sarah Catherine Gutierrez. Cause remember, I'm a public person. I wanted a practice that could meet needs across the country, not just locally. And so when I was coming up with a fee, it was not just how much is, what is Sarah Catherine Gutierrez and her credentialing and her experience, what is she willing to work for? I'm just realizing I'm talking about myself in the third person quite a bit here. But it's really, how do I build a practice that can attract and retain highly credentialed, highly experienced people? So that's what I have always had a mind for. And once I hit $200 an hour, it was kind of a magical number. And we've been able to make that a very sustainable fee. So yes, $75 an hour was ridiculous if you think of it in the context of what we do now. But I still think they're, you know, you know, maybe one day there, there will be a place for, for that, you know, a $75 fee that doesn't have investments, but it's just a very tough road.

Okay, so all the advisors out there listening to this, I hope you heard that because I have been trying to clone Sarah Catherine all over the country because I think it's wonderful, I think it's wonderful what she's doing now. Are you guys full yet? Do you have expansion plans? I mean, what's, what, what's the practice look like from here going forward?

Yeah, I mean, we can still continuously take clients and you know, we have a guided DIY process. So we're not trying to necessarily accrue clients. We do a one time planning because we think for the most part, especially people who read White Coat Investor and other financial blogs, you know, a lot of people can take A plan and run with it. Maybe check in a few hours once a year. So that, that means that we can kind of continuously take on clients. And which is very.

Which is very unique among financial advisors. Most, they get their 50 clients, 60, 75 clients, and they close their practice, they're done. That's enough to keep them busy, and it's certainly enough to generate a solid income.

Right. So remember. So again, we go back to this is a public policy question. And so when I built this company, I didn't build it from what's the best thing for the advisor. And I built it from what is going to be the future demand of people who want financial advice. And I believe that the future is people are going to want to be able to not have their wealth annuitized in fees every year. Right. They're going to get greedy. They're going to say, look, I think I need a financial plan, and I want a financial plan early in my life. I don't want to have to wait for it. So I don't want to have to wait until I have $500,000 to do a full financial plan. And I want to do a financial plan and then go implement it and keep those fees out of my wealth. And so it is great when you're a financial advisor to think, I just have to get 50 people willing to pay me $10,000 a year. And there you go, I can retire in the sunset with that. I mean, obviously that would be fantastic. But I just think. I just think people are going to want something different. And, you know, we feel like we're skating to where the puck is going. And. And you know, I would be lying if I told you that it's all been great. There have been times where I thought, this is never going to work. You know, this is people. Because if you think about the challenges, it's not just that people are paying us $200 an hour, but imagine the comparable. So you either engage in a relationship where someone is taking your retirement money that for you is not real Money because you're 35 and you're not going to see that money until you're 65. So it's not real. And so you have someone taking money out. Sure. And you kind of know they're taking money out, but they're taking money out of future dollars. I am taking money out of your current dollars. Right. So you're writing me a check out of this year's income. And so you feel it in a way that when an advisor is kind of taking Money every quarter out of your account. You don't feel it. And plus, we've had this huge, like, unprecedented bull market. So people are just seeing their accounts go up and they're thinking, oh, you know, this is great. I have this advisory relationship. My money's going up. Well, yeah, your money's going up because the stock market's going up. Right? So. So the barriers to this practice are enormous, right. From a psychological basis, but we know that this is the right thing. And my husband had so much faith in me and the times where I thought, let's just throw in the towel. He said, look, we can make this work. So we lived on his income and. And gave it the time and the patience. And instead of going out there and trying to figure out, you know, marketing and sales gigs, you know, I just thought, no, I'm going to keep my head down, and I am going to become the best financial advisor in the country. Like, that's the best thing I can do at this point. And someday people are going to say, I'm going to pay. I want to pay out of pocket, because I don't want to have my retirement account annuitized every year, and I want to go to the best. And I don't need to have a local advisor that's, you know, really nice and a friend, and it's, you know, a parent on my kid's soccer team. Like, I want. I truly want the best advice at one point in my, you know, at one point in time in my life, and then I'm going to run with it and take it over. So I knew that it would just be a matter of time. And so my partner, Tim Quillen, I love how he describes us. He's like, you know, we're gonna have that hockey stick, and I can get to that. We're kind of in it now. And he said, it's gonna be a little like Revenge of the Nerds, where the nerds win, you know, where, you know, we are not advisors, you know, who have a sales and marketing background or accumulating assets really is a sales and marketing effort. If you kind of think about it, that's not us, and it's never going to be us. What we are going to do is continuously innovate, continuously sharpen our financial planning process, make it more efficient, make it more valuable, and make it more actionable for people and sustainable, and that if you build it, they will come. And I think that the hockey stick is here. So we have had the most significant demand these past two years, and I think it's largely from the blogosphere. Certainly, you have blogged a lot about fees. People are not blind to those anymore. And you've blogged a lot about firing your financial advisor. I think that has driven a lot of business for people who say, okay, I'm in, but I don't want to do this totally by myself. Right. And then the other thing that's happened is the Department of Labor's now failed fiduciary rule efforts raised enormous attention around fees. It wasn't even really about fees. It was about, you know, conflicts of interest and hidden fees. But it raised a lot of the issues on how much people are paying in fees and the magnitude of them. And I think a lot of people who didn't realize that they were paying, you know, anything because they thought that, you know, that this buddy was kind of investing them as a. As a, you know, as a favor, found out that, you know, oh, my gosh, I've had 10 to $20,000 taken out of my account every year, and I had no idea.

So it's pretty amazing when you really. When you really start adding it up, isn't it? Now, you seem to be targeting kind of a unique niche among docs, those who want to become do it yourselfers or those who just need a little bit of help, rather than those that are looking for a money guy to take care of everything. What's your sense of that niche? Is it growing? How fast is it growing? What percentage of the market do you think it is now that's just looking for some help, becoming a do it yourselfer?

You know, I think it's still tiny, and we're just seeing the tip of the iceberg. So, you know, we're seeing that the people reading your blog and other blogs who are passionate DIYers, they come into our practice, and they know what a backdoor Roth is, right? So they. They know a lot of these things. They don't have to know it, but they do tend to know it. And they think they're probably doing it all right, but they want a second set of eyes. And I'm telling you, we find. We find glaring issues. And so I still think that even people who are diying it probably pays for most people to get this kind of diagnosis, right? This diagnostic, like, yeah, you're probably doing it all right, but, you know, you might not be. And it is funny how, you know, we'll catch things like, you know, someone's got a big IRA balance. So. Because they had worked with a previous advisor who you know, when they left their practice and moved to another one, instead of rolling their 403 into the next one, they rolled it over into an IRA that could be managed. And so now they can't do a backdoor Roth because of the pro rata taxation. Right. So we still see these, like, glaring issues that even people who are kind of taking things on themselves have to kind of sort out. We're still seeing a ton of young doctors buying cash value life insurance, right? So we've got a lot of smart people who are reading the blogs and saying, I want to do this, but just need a little bit of hand holding. And so I think as the blogosphere grows, which, I mean, I bet you could talk about this a lot more than I can talking about your readership, which has absolutely exploded. I think that we're going to probably see, you know, the same hockey stick continue, you know, in our own practice.

You know, it's interesting indeed, our readership and listenership on the podcast and all that has grown incredibly. But, you know, I started the blog in 2011. Even in 2012, 2013, it was basically still a lone voice in the wilderness.

Right?

Last month, five new physician financial blogs were started. There are now over 50 of them. What effect do you think that has had on the financial advice market for physicians?

I am so glad you asked this question, because I really think so. I'll tell you, I'll answer that specifically. So I think that physicians as a group are absolutely taking on their finances. If you kind of look at the blogosphere, the blogosphere is aiding them with very deep subject expertise. So you can find any answer to any financial question out there on how to do a backdoor Roth IRA, starting a solo 401k, refinancing your student loan debt so you can find an enormous amount of information at your fingertips. And that has been phenomenal. I think that there is a much larger thing happening that feels so basic to us that are all kind of in it. But physicians are starting to save enough money for retirement. And if you think about how interesting that is, physicians have had a bad rap, right, for under saving living beyond their means, you know, falling prey to all these like really crazy financial schemes. So I think that the blogosphere has fixed that. So, yeah, you have a lot of physicians nerding out on really kind of crazy, you know, ways of really polishing their financial plans. But I think you need to remember that what's happening is they're actually pulling along the other physicians that are probably never going to go to that length. But they're getting caught up in this movement of being responsible with their finances. And so first of all that's happening and I think that, that the pendulum swung so far with, you know, physicians kind of being the butt of every financial joke, right to they are going to lead every other industry in these. We're not only doctors, but we're business people. Right? Like I think that's what is happening. But you know, it is the physician financial blogs that I think are really driving a lot of just general wisdom. And if you think about the financial world, one of the largest consumers of financial advice is physicians. And so I think that one of the greatest long term repercussions of what you have started, and let's be honest, it's the white coat investor that started this all, is that we are going to see financial reform that doesn't have to come from the Consumer Financial Protection Bureau, it doesn't have to come from FINRA and sec. It is going to come from demand, from the grassroots, from the people consuming this to say, no, I'm sorry, I'm not going to work with you if you sell products, I'm sorry, I'm not going to pay an AUM fee the rest of my life. And so I think that you're going to see a transformation how financial products are sold and how financial advice is given as a result of it.

Speaking of giving financial advice and I'm totally flattered by your words by the way, I feel like just dropping the mic and walking out of the blogosphere here. But speaking of working with an advisor, most of your clients are not in Little Rock, so you're working with them via phone, email and Skype. And this is actually the case for just about all of my recommended advisors because my readership is nationwide and it's difficult for me to pin down, you know, a financial advisor for you that you can walk in and sit across from. So most of the people I recommend are working with most of the clients. I send them by phone or email or video conference. What is that like? Is that a big deal? Does it cause difficulties? Do people mind it? Is it a generational thing? What's your sense on working with people remotely as an advisor?

Just the same way we are having a conversation with no lag, with no problem. And you are out there in Utah and I am in Arkansas. It has never been a problem. So we use video conferencing very effectively. I feel like I'm in the room with all of my clients and you know, I just think that, that has, that has really almost democratized financial advice. Right? So now people can say, I don't just want to find a guy. I love how you said that because everybody calls their financial advisor my guy.

Right?

I don't want just to find my guy of who's the best in my town. I want to find the best in the country. That's who I want to work with. And so that's what people need to do. They need to find who is the best financial outlet financial advisor out there and go to them.

It's a little bit like people travel for, you know, elective medical procedures. That's exactly what they do. They try to find who's the best and they fly to Mayo or the Cleveland Clinic or, you know, whatever it might be for a particular problem or a particular specialty. So it's really not that different, especially when the price of the, you know, travel is minuscule compared to the price of the service once you get there. So.

Exactly. That's right.

So what issues are you seeing with the people coming in the door? What are the recurring themes? What mistakes are doctors making? I mean, what, what can you tell my listeners to fix if they can, Even without advice? What problems are you seeing?

Yeah, so, so I'll tell you. So the people coming in. So there are people that, that now come to us with absolutely zero financial knowledge. And that's because we'll have a reader who comes to us and then they go back to their practice and say, oh my goodness, you've got to go to Aptis Financial. And you know, their advisors, you know, they, they can build you a plan. This is where you need to go. So, so that's kind of the. So, so if you talk about like someone who comes in and they're like, apt is who? And I don't know, I've got these student loans, not entirely sure how much they, you know, how much I really have.

So you get a fair number of clients that just don't know anything and.

Are starting at the beginning.

You got to, you got to educate them first then.

Right. And so there's really not a lot to say about that. You know, you walk them through an entire financial planning process from A to B, and it is, I mean, I can tell you, and you know, like, that is a significant win for them. Right, because you just need to build a financial plan one time in your life. And if you can, you know, do that in your 30s, you know, or 20s, like you're, it's going to set you on a path. You need to be on. But I think the more relevant question, because your listeners don't fall into that category is, you know, what are their mistakes? And I'll tell you what their mistakes are, is that they do a lot of reading and they get hung up on a concept. So here's an example. So you have, I speak to the residency programs here at our local medical college and you know, inevitably there's a, there's always a white coat investor reader in there. And so they'll come up and say, you know, I'm ready to do my backdoor Roth ira. And you know, they're a resident and you get to explain, well, I mean, you can just contribute to one and you know, directly. And also, you know, why not just open up the retirement account here at the medical college? You know, the fees are really low and then you get to have money taken regularly out of your paycheck and you never miss the money. And it's just a really good kind of behavioral tool. What that's really kind of saying, and we see this across all different issues, is that people are reading these blogs and it's giving them the full assortment of all the things that they can think about, but what they have a hard time doing is prioritizing them. So at the White coat investor conference, I knew that was the biggest issue people had. And that's why I spent the majority of my talk on. All right, you all know what a backdoor Roth is, right? You know what an HSA is. But how do you prioritize one or the other? And so we've created that tax efficient waterfall and it's a blog on our website. It's available for anybody to kind of read. And it gives people the relative priorities of all of these tax efficient options that are available to them. Everything from, you know, refinancing their student loans, how fast to pay them off, you know, it all. There's a hierarchy of how to think about that. And so what we find mistakes people make is they get them out of order, right? So they're doing, they might be doing a backdoor Roth, but they're not maxing out their, you know, 403B and 457 plan, right? So we just see like little kind of mistakes or things that, you know, in the end, like it's not maybe going to be a huge, huge problem, but we're able to fix them early on so they can really maximize what's available to them. You know, we are still, and I said before now this is a problem because it's hard to fix. But we are still seeing so many annuities coming in the door, so many whole life policies, cash value policies, that it's just, we just can't believe people are buying these still. And so they're not blind spots of people coming in because people are coming in because they know they have this. They know they made a mistake buying it. And now they're doing a financial plan with us and part of the financial plan is fixing that. So I don't think anybody is reading the White Coat Investor and then after reading it, going out and buying a variable annuity. Right? They just, they were a resident. And you know, even our local medical college, every time I go and speak to a residency program, I ask have you received an email from someone trying to sell you an annuity or a life insurance policy onto your uams school issued email? And every single one says yes. So, you know, and they're offering the delicious steak dinners to these residents who think that that's not going to have any impact on them. And so I think that's what we're still seeing is that people are buying those policies right out of residency and the damage is done because they're really difficult to unwind without losing money.

Very interesting. Let's talk a little bit about the industry in general and let's talk about conflicts of interest with each of the various advisory compensation models from hourly to a set annual fee to an asset under management fee to commissions. Let's start with what are the conflicts of interest when you're paying for your advice on an hourly basis.

So the conflict of interest is that I want to work with you, right? So if you're an advisor and you, you know, and you price by the hour, your conflict is that you want someone to come to you. And I mean, and I guess so in our case, we fix our fees and most advisors that we see out there do that. You rarely see an advisor who just charges an hourly fee. Usually people say this is how much it's going to cost. And that fixes the hourly model conflict that law firms have gotten in trouble with, which is kind of over billing and, and just kind of these, these, these tricky billing arrangements. And I think that advisors going into hourly work solve that problem by telling here is the scope of our engagement and here's how much it's going to.

Cost, how many, how many hours it's going to take. Clarifying that up front, basically.

Exactly.

And so because otherwise you've got this incentive to, to drag it out, you know, drag it out. What could be done in five hours? Drag it out to 20 hours.

Exactly. And so I know a lot of advisors who are hourly have done the same thing. But what you do to make a very effective financial planning process work on an hourly basis is you refine the process and you get it so efficient that you can say to someone, this process takes this much time and this is how much it's going to cost you. And then, you know, if it goes over that time, you kind of take, you take the hit. And so, you know, in building an hourly practice, like you go through some pretty inefficient lean times to try to get that process refined. But I think a lot of advisors realize how important that is when you're an hourly model to, to be able to have a little skin in the game to say, you know, I'm confident we can get this process done in this many hours. But the, but the inherent conflict is that you want their business.

Yeah, let's talk about an annual retainer, a single flat fee for the year. What are the conflicts of interest that paying for your advice in that way bring on.

So you know, it's, it's the same, I would say it's the same conflict. You want their business. So the advisors that are charging a fee that people are writing a check for, you know, that kind of solves the conflict. I think that when you have this flat retainer that you then take, that you take out of assets. To me, there's a conf, a behavioral conflict there that we talked about before where, you know, it doesn't feel like real money because it's coming out of future dollars. And with hyperbolic discounting, people discount those dollars because, you know, they, they undervalue the future to the present. And so I think that there's a little bit of a behavioral conflict when you get to just take money out of an account and not have people, you know, pay for it.

Of course there is one benefit of taking it out of the account. I mean, at least then you get to pay for your advice with pre tax dollars. Right?

Well, I mean, I guess that's fair, but you're still taking money out of the account. And so the problem is that I think it's still a tougher go for advisors who charge a retainer that people have to pay for compared to advisors that get to take it out of the account. Right. And so I think that you can have these sustained relationships where you don't even necessarily have to prove your value every year because people kind of Forget. Right. They kind of forget they're paying you.

Right. That's definitely a huge concern of mine with paying for ongoing advice. I guess the other thing I worry about with an annual retainer is, you know, the advisor's been paid at the beginning of the year. Now his incentive is to go find a new client, you know, rather than to spend more time with me. He's already been paid by me. And now the way he makes more money isn't by spending more time with me, it's by spending less time with me and on my account and going and finding more clients. Do you think that's a significant conflict of interest with that model?

100%. I mean, if you know you're going to get paid no matter what, you have even less incentive to prove your value every year. So we charge by the hour for ongoing annual work. And, you know, what we tell our clients is that the biggest advantage to us is you can come to us one time, and then if you don't like us, you don't have to break up with us, you don't have to take your money. You get to just walk away. And so we attract our clients every year to come back and pay us by the hour. And I've had these annual engagements that are pretty short because there's really not a lot to do. And, you know, a typical, you know, engagement is probably three hours a year, four hours a year. So it's significantly less money than the first year. And what we do find is that people charge a pretty hefty ongoing fee. So it's not just an annual retainer that's a problem. It's a pretty hefty annual retainer where, you know, you're not actually doing that many hours of work for that retainer. And I think, again, when people are writing a specific check based on a specific amount of work, that's helpful. Now, I will say in defense of people who have these retainers, and, you know, we're certainly willing to do this if people ever want it, but there are clients that are so averse to feeling, you know, to the hourly model. Right. So they're so worried about, oh, should I budget this in? If you have an annual retainer, there's a behavioral hurdle you get over, which is, I've already paid for it, now I'm going to use it.

Right. It's like getting a season ski pass that way.

Yeah. So, I mean, I can see the benefit of it. So, you know, I don't really have a huge problem with it as long as the fee is in line with the effort.

All right, let's move on to the most common fee only method of paying advisors asset under management fees. Let's talk about the conflicts of interest there.

You know, I first want to say, because I know so many great planners who are fee only. And so I just want to say the fee only world has had such a tremendous benefit on the market because we went from commission sales to a much fairer way of getting financial advice. So I want to be very clear that those were pioneers in this industry. But I, but there are inherent conflicts of interest with that model. And so basically, if you think about it, financial advisor, they're putting their own kids through college. They got mortgage payments, right? So like, so they've got bills to pay. And the name of how they get paid is accruing assets. And you can almost accrue endless assets in a fee only model. Right. So it's really Whether you have $500,000 under someone or 50 million, there's not a whole lot of difference in effort that there is a huge difference in how much they get paid because they're getting a percentage of how much money you have with them. And so while I'm not sure that it's a conscious effort, you have to realize that they have financial incentives as well.

So let's talk about some of the specific ways in which AUM payment models can incentivize an advisor to give the wrong advice. What are some of the possible ways that that would cause that conflict?

Yeah, so while the AUM model certainly fixed a lot of the problems from people selling products and making commissions on those sales and the conflicts of interest, it did bring its own conflicts of interest. So if you think about your goal is to aggregate assets because that's how you pay your own mortgage and that's how your kids go to college yourself as a financial advisor. And so you're making a percentage on how much you can grow those assets. And so if a client has any question on a financial topic that could impact whether that asset base fundamentally grows or doesn't, it's a financial conflict of interest. Now a lot of advisors say we act in the best interest of our clients, but I still think that having a financial conflict is still fundamentally a problem. So here are all the issues that can come up. So should I pay off my student loans aggressively or not? Right. If you decide to pay, if you decide to put every last dollar into paying your student loans off over a five year period of time and you're trying to Work with a fee only financial advisor. They're not going to make a dime for five years and then you're only starting to accrue assets. So it's probably going to be another five to 10 years before they're making any material money. So if they're part of that decision, it's really, you know, they're having to make to give you advice that's counter to their own financial interest.

So paying down student loans, that's one specific example. What are some of the other ones? I suppose paying down a mortgage.

Same issue, paying down a mortgage. So you know, we see a lot of people who are risk averse in the market and you know, paying down a mortgage needs to be an option. I mean that's a really, you know, that's a really nice place to find an implied rate of return on your money that's modest and fixed. So it needs to be up there. But you know, you rarely see the only financial advisors recommending this. I loved your conversation in your last podcast on Social Security. And if you think about that, you kind of scratch your head and wonder why are all these people who are allegedly covered by the financial advising fee only world still not waiting to take Social Security until 70? Well, part of the strategy for delaying Social Security is spending down the bond portfolio. If you're spending down a portfolio, you're bringing down your asset base, therefore bringing down the fees. Now a lot of the only financial advisors act with incredible integrity. You know, they are able to give advice against their own financial interests. But why even have that? Why even have that conflict is my question.

Yeah, I guess a couple other examples I could think of would be 401k rollovers. You know, maybe you're better off leaving the money in a 401k to allow you to do a backdoor Roth IRA. Because the 401k is particularly awesome, like the government tsp. But the advisor isn't getting paid on those assets. And so they advise you to roll them over to an IRA inappropriately.

Well, that's right. And a lot of fee only advisors kind of don't know what a backdoor Roth is, you know, and the reason they don't know what a backdoor Roth is is because a lot of advisors are going after those mid career IRA rollovers, right? So they can capture $300,000. You know, because you just left your practice after 10 years to go to a different one. Well, we, you know, we kind of in your blogosphere understand that the better decision is typically to take your old 403B or 401K and roll it over into the new practice plan which solves the pro rata taxation problems for the backdoor Roth ira. So yeah, that's a really good indicator of a conflict of interest that people might be able to kind of self diagnose as they're listening to this podcast.

Yeah, I think another one might be a hesitance to recommend any sort of investment that they don't manage, like real estate for example. Very few fee, only advisors paid on an AUM fee. Do any sort of recommendations to go invest in any, any kind of real estate, whether it's your practice building or whether it's some syndicated investment. And I've never really been too clear on how much of that was just a lack of expertise in that sort of investment, how much of it was a lack of belief that that's actually a good investment and how much is the conflict of interest. What do you think about that topic?

Yeah, and I think it's a really subtle kind of in between all of those that probably happen. So if you think about it, if you're a fee only financial advisor and you can only make money through investing assets and getting kind of this backdoor fee through that, then you're probably naturally going to only stay in that lane. So it's not that you're excluding real estate because you're like, well, real estate won't make me money. But it's just that your practice, the thrust of it just continues down that path. You know, it's the same thing with anybody who sells anything. You're just going to have an inclination to think that that's the best thing at all times. So I do think that it's somewhere in between all those because again, I do think that the be only world has progressed the industry so far. I'd like to give them a lot of credit for that. But you know, I think real estate is another example of where that conflict sits.

Yeah, let's move to the bottom of the barrel now. Let's talk about paying commissions as a method of paying for the advice you're getting. Talk about the conflicts there.

You know, it's, it's just, it's just to me so abundantly clear and I just still don't understand why people consider someone selling something to be an advisor. I just don't understand it. I mean, if I, you know, invite you to come in and do a financial plan with you and I sell insurance, you know, it is, it is going to be abundantly clear that my client should buy an insurance policy and the rest is going to be a little less clear, you know, because any other financial idea out there is going to fundamentally impact whether your client can pay an insurance premium. So it is, it is the most significant conflict. Now, do we need to not have insurance brokers? No, no, of course we got to have insurance brokers and we need them to sell insurance and we need our people walking into their offices buying insurance, not getting sold insurance. And the way they're getting sold insurance is they are going into these offices under the impression that they are going to meet with an advisor that can address all of their financial needs. And that is just crazy. You have to see the financial incentive for every person that you walk into their office. And that is the most significant of all of them.

I think there are a lot of good people in the commissioned world, but the problem is even a good person cannot resist those incentives completely and do it long term. The problem with a commission model is if you got someone creating these financial products, they want to get them sold. The crappier the financial product, the higher commission they have to pay to get it sold. And so you've always got this conflict to give people the worst possible products in order to make the most money, which is just a terrible place to be for your entire career if you're actually trying to do the right thing.

That's right. That's right. And the fact is, is that, you know, in a more educated world, a more financially savvy world, you know, these people that are making a significant living on selling annuities and whole life policies and these commission based products, like they are not going to have customers because people wouldn't. You know, there are some exceptions. I try to make sure people understand there's some gradations here, but there are very specific exceptions of, you know, people with their finite money, you know, they're not going to go buy a whole life policy when they know what the opportunity cost of those premiums are.

Now there's a certain segment of die hard do it yourself investors out there that basically view all advisors as evil. What do you say to that person?

Well, you know, it's an, it's an interesting pendulum swing. I mean, maybe that's a healthy counterbalancing to people putting just complete blind trust in their advisors. Right. So I mean, you know, thankfully that has improved the conversation and the vetting of the financial industry. But I just think it's wrong. I mean, and the, the reason I think it's wrong is because we have yet to have a person walk in to do a financial plan that hasn't done something glaringly wrong. So I mean, there's just, you know, there's nothing hard about a financial plan. Like, you know, you read these blogs and it's not that any of them are rocket science or difficult to understand. The problem is that it's just there's so much to know. And so to me, part of being a CFP and a financial planner is I at least know what I don't know at this point. And so as you know, as Donald Rumsfeld so famously coined the phrase the unknown. Unknowns are what get people. So it's what you don't know, you don't know that can lead you to doing that IRA rollover or not choosing the optimal kind of student loan payoff strategy. And I think that's why there will always be need for at least a one time financial plan. And that's, you know, that's just what we've observed after doing hundreds of these. I mean, if I was getting people coming in who are readers of, you know, of these financial blogs who are just coming in and I could do a plan and say, you know, yeah, you know, you just pay me $200 an hour for me to just completely bless everything you've done, then I would have to probably start scratching my head about working with that readership. But that has just never been the case.

Of course, there could be a bit of selection bias. Those who realize they need some help are probably more likely to come to you.

That's exactly right. That's exactly right. So I think that there are different levels of DIY and so the people that are reading, you know, 10 books out there and really carefully writing out their plans like, you know, there's a good chance they're not missing something. But it's probably kind of a middle. The majority of the people probably reading the financial blogs are not putting in that level of effort.

Yeah. Well, I'm sure thankful for you to come out to Park City. What do you think about the Park City conference? What surprised you about it and what questions did you get from people there?

Well, I was surprised by just the mix of people there. So you had your, you know, your really enthusiastic readership that, I mean, they were. We had some very high end conversations and questions on some very specific topics. And you had people there that just thought, you know, this is a good chance for me to start a financial planning process. And I was surprised by that. So. And I thought that that mix made it Such an interesting conference. You know, I came away from that conference saying, I really, truly believe that everybody needs to do something like that. Because I think that what a conference does is it takes you out of your everyday. It takes you away from the laundry that needs to be folded and, you know, and the charts that need that are piling up on your desk. And you and your spouse. There are so many spouses I loved that, you know, get to spend a relaxing weekend in a beautiful location, you know, away from their daily stresses. And they got to think about their finances in a very structural way. So, you know, one of the things I talked to you about is reading blogs and books. You know, you can, you can forget how to prioritize things well when you have an entire lineup that is serving that purpose of saying, okay, here are all the things available to you, but here's what's really important in taxes and Social Security and your practice, and in my case, in your financial plan. People get to actually almost build their own financial plan right there in a conference setting. So I thought it was great. I think it jump started a lot of financial planning processes for those people there. For the first time, you know, we had people reaching out to us afterwards, you know, wanting to really formally build a financial plan. I think it was a. I think it was a great idea and hope that you continue to do that.

Well, certainly it's, you know, we've had a few months now to relax after finishing it, and we particularly feel good now that we've gotten the online version of it out. And so we feel like we're finally kind of done with that conference. And we're certainly thinking more positively now about holding another one than we were before. Not ready to make any announcements yet, but maybe the bad parts fade as memory goes on and you only remember the good parts. I don't know.

It's like childbirth.

Yeah, exactly. So we've got just a few minutes to wrap up. We've got another interview today for an upcoming podcast. But is there anything else you'd like our listeners to know?

Well, I just want them to know that they can do it themselves. I know that the world seems daunting, and even if you've just, you know, dallied in a few blogs and you're just kind of just getting into this world, it is not rocket science. It is a knowable quantity. We do believe that you can do this on your own and you don't have to read 20 books to do it. You can get a little bit of help at one time and then run with it. And it's and you know, the people that tend to do that tend to have higher savings rates. They feel comfortable. They know what the plan is. They know how the market works. They're educated on it. And I just think it is worth everyone doing. You don't have to feel like you have an affinity for finance to get to go down that path. Really and truly, anybody can and should do it. So thank you for the chance to be able to kind of walk through what that looks like.

Thank you very much for being on. Sarah. Catherine Gutierrez of Aptis Financial, appreciate your time today.

Thank you so much.

I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com you can do this and the white coat investor can help.

Now keep your head up, your shoulders back. You've got this. We're here to help you on the forum, on the blog, and on the podcast. We'll see you next time.