Brooke Southall: The Past, Present and Future of Wealth Management

Welcome to the new retirement podcast. Today we're going to be talking with Brooke Southall, the founder and principal reporter of RIABiz.com, an online publication covering the financial services business about the past, present, and future of wealth management and investing. Brooke and I both work in Mill Valley, California, and we're actually meeting live during COVID with masks on and a well ventilated space. So with that, Brooke, welcome to our show. It's great to have you join us.

Thank you very much. And I really like your studio with bicycles and windows flying open. And your setup here, very high tech.

Thanks. Yeah, I think you're probably the third guest we've done live. We've been doing so many of these things via Zoom, but it's actually great to do it live and I think the quality is a little bit better. So I just wanted to know if you could give us a couple minutes on kind of your career and how you came to start RAA Biz. What got you interested in the whole investment space and covering it?

Well, going back to college, I was an English major whose friends were all economics majors. And I finally decided I didn't want to be alone. So I went to their economics classes and became an economics major. And. But then I needed to figure out a way long term to meld sort of a literary bent with the fact that I actually did enjoy studying economics. And so I went through a whole progression as a rowing coach. I sold small businesses for several years where I learned most of what I know, I think. And then I actually got chronic fatigue syndrome is I was a rower who was rowing too much. And I ended up taking a year off to try to recover and started to write articles for local newspapers to kill time and do something productive. And I basically have just kept doing that to where I am now. But I ended up in San Francisco as part of investment news. I covered the West Coast. They basically put me in a little office in the Hearst Building across from the Schwab headquarters and said, keep an eye on these guys because they're at the middle of the RIA business. And I did that till I departed and didn't immediately know what I was going to do, but spent about a year figuring it out and decided that I could, in fact, just do it on my own.

Yeah.

And I've never been doing that for going on 12 years.

Wow. Yeah. And it seems like you've built a kind of a great franchise. I mean, I've definitely seen it grow. And I also. You're. You probably timed it Right. In terms of there's been a massive migration towards people creating rias wealth, independent wealth management shops, people spinning out of brokerage shops, kind of the, the JP Morgans and kind of going on their own. Has that been a huge lift for you as you've grown the business?

Yes, it has. And I mean, I would say that even in 2000, when I first started, all the sort of hype we talk about now was already in full swing. Now it's just much more so and so. Yeah, by the time that I thought about starting my own thing, it was right in the financial crisis. And I like the idea that if, if I screwed up, I could blame it on the crisis.

Yeah. Get some air cover. Right.

And you know, it was also a time in the. When the print publications were all dying.

Right.

So it was a, it was a convergence of things going on in the RA business, wealth management, but also in, in my. In the publishing world.

Yeah. What do you think? Well, I wanted to kind of. We're here to talk about kind of the past, present and future of wealth management. So a little bit, I guess leading into your transition of starting your own company, you probably saw a lot writing for investment news. What, what do you think? What were some of the big changes that you were seeing leading into that? I guess around 2000, the crash that probably caused some of the. These people to go spin out and start their own businesses.

You mean leaning up to 2000 or.

Leading up to 2000?

Oh, leading up to 2000, I just think was. That was probably when it was the worst to work for a wirehouse. And so there was, but it was really hard to break away. You were bound to get sued. There was nobody there to sort of help you. There weren't. There weren't, you know, all the consultants and services that there are now to make it a smooth transition. So I actually, the URL I tried to get when I started was breakaway broker.com. because every single time it was just this amazing story.

Yeah, right.

It was like somebody escaping through the steel curtain. Those stories never are uninteresting. Yeah, those stories are actually pretty uninteresting now. We have stopped writing about them because they're just kind of bureaucracy and moving paper around and so on. But it's not as bad probably to work for a wirehouse today as it was then. You can be more or less fee based and things are a little more transparent and so on. But anyway, back then it was kind of the worst FINRA nightmare, I. E. Every single move you made was watched and you really were ripping people off who likely were your friends and relatives. So I think those people who got out, got out with a zeal. And a lot of them are still leaders in the business now. It's just a little bit more systematized.

Do you think that a lot of the bad practices that existed in terms of kind of churning accounts and putting people into kind of high fee investments gone, gotten cleaned up in the overall space, or do you think that still exists in certain pockets?

I think it definitely exists. I mean, if you talk to big RAs who have accounts come over to them from JP Morgan or something, not to throw them under the bus, but I'm just using them as a metaphor. They will say, holy cow, you know, you just cannot even believe what's in some of these old portfolios. There's a lot of them just were built long ago and they were never, you know.

So.

So yes and no.

That'd be interesting. Has anyone done any analysis of looking into legacy accounts? Because I can hear, I mean, there's a lot of wealth that's been built up. A lot of folks, there's a lot of inertia where they, they get in a relationship with someone in terms of a wealth advisor or a broker, they create a portfolio, then they don't, they kind of like let it go. And it could be for 30 years. So you could have these accounts rolling around with. I could, I could hear that. I see that. You know, with bad stuff. And has anyone kind of looked and said how much is out there?

I haven't seen a specific study on it in a long time. I remember Schwab did actually good study back, back when I was in investment news, Koski Research looked at these types of portfolios. And I remember there was some good research in there about what they were made up of. But I think the very fact that. Isn't the mutual fund industry still at like $20 trillion or something compared to ETFs, which are more like 4 or 5? And you don't even. Mutual funds almost don't even bother to advertise anymore because they can't attract new assets. So I think that tells those assets have to be sitting somewhere. My guess is look for the normal suspects of ubs, Merrill Lynch, Morgan Stanley and some of the independent broker dealers too.

Yeah, I know. I remember a friend of mine went over to, he was looking at one of those warehouses and kind of interviewing and tried it out. And essentially the process was, hey, we'll train you up, give you a little bit of a Draw some. But then you have to start kind of generating commissions. And it was really about kind of targeting your friends and family. Like start with your friends and family, go sell them and get them into different products. And I mean, I think they, to some degree that's. And then churn people out because like, oh, bring some people in and a lot of people can't go beyond their friends and family and then they bail out and. But then the assets, if they've been moved over, maybe they stick. You know, it's kind of seems like a crazy strategy, but I remember once, one time I heard that one of these warehouses, they got up and said, okay, your job this year is to kind of get two net new clients for the whole year. And it seemed like such a low bar, but it shows you how hard it was probably to do that kind of business.

Yeah, it's very hard. And I, I sort of had a front row seat on it back in my younger days. I've applied for that type of job, I've been told that type of thing as an applicant and I've been in sales. Right. And as a young person to go in and talk to somebody with $5 million, it's a tough sale. Unless that poor person feels like they're your uncle and they need to give the account to you.

Sure, yeah. Well, I know it's so funny that like the strategy used to be just people would look at the, this is going way back but go through the phone book cold call people or target dentists or doctors or something and try. And it seems like that's dying off. But honestly I still sometimes get phone calls that way. It's kind of crazy. You're like, really? This is the, this is the pitch. Got some special stock for me and like, let's go. But hopefully that's winding down. So let's talk a little bit about kind of what's happening today. Like what, what are some of the big trends you see now, like in the, these spin outs and with people building wealth management businesses? I mean there's so many, like we were talking in the preamble here or when we were before we started, about just how fast it's moving. There's so many things that are changing kind of across ecosystem. But we'd love to hear kind of like your take on where you see the, the biggest changes and the biggest trends.

Well, it is absolutely everything I can do to keep up with it. And I think that I'm in a position to keep up with it as well as anybody. And at the same time we have not seen a company, you would say this is the disruptor, right? We're still talking about the same companies 20 years, 30 years, 40 years later. And I sort of feel like we're at the point somewhat with electric cars or something where all the RIAs are sort of the Tesla in a way writ large. Because all the new money and all the investment into creating an engine to attract those assets is all focused in roughly what you'd call the RIA wealth management space. That is non sales based, that is somebody having to say they're putting your interest first. And brokers still don't have to technically put your broke interest first, they have to put Merrill lynch first. So yeah, so the assets are. We still all drive Toyotas and Audis and so on, right. And it's still kind of cool when a Tesla drives by. But if you look at gm, Ford, et cetera, the entire future, right is electric cars. So. So I'm not sure exactly where we are in relation to that, but that's how it feels to me. And so the, the bigger part of the future is in the future. And that said the cottage industry of RIAs and then the sub cottage industry that supports that cottage industry is now an industry. And there are, there's every flavor period, but every flavor of vanilla too. And in terms of the investor being involved, not involved or somewhere in between. And so it is very hard to encapsulate it except to say it still leans so heavily on the human, the, the human relationship because that's where the trust lies and that's why we are still doing business with the same names. Vanguard, Fidelity, Schwab, etc, they remain the leaders. There isn't really a new name in all that, you know, for RAs, DFA.

Or.

You know, any, any of the, the brands we've always heard about.

Right. It seems like they're the, these huge players that are out there and then there's a bunch of these smaller spin out startup RA shops that tended to be, have tended to be kind of like very localized mom and pop shops if you will, where it's like a hand couple RIAs or CFPs inside an inside of a registered investment advisor with 100 families or 200 families. I mean you're starting to see bigger roll ups. I know the guys over at All Worth, they got private equity money and I know they've gone through a couple transactions and they're trying to really scale the traditional model still though it's still kind of like the face to face they Just have more infrastructure. Any other players like that that you see emerging? I mean, do you think that's the future? That there's going to be some big, a handful of these big versions of the local raa, if you will.

Well, I think that the answer again is yes and no. Because as fast as better aggregators are aggregating with greater capability the atomization and decentralization and spinning off by individuals to start their own firms keeps pace with that. And then you have sort of these factories of creating independence too. Like somebody like Michael Kitchis, right, Who now has hundreds of RIAs and I think he's starting one a day or two a day or something like that last time I spoke to him. So you just can't aggregate fast enough to keep up with the number of startups there are and the people who break away, et cetera. And when we talk about something like All Worth or Focus Financial or some of the better known roll ups. Right. Joe Duran, Mercer. It's never that many firms, right. It's a, you know, we're talking about dozens at most.

Right.

In most cases. So and I don't know if you added up all the aggregated advisors and put all those assets into one number, it would be a fraction, right?

Yeah. It's interesting. It feels like the individual advisor is incented since it is such a people based business. If you build your practice as an individual or with your partner and you, you're part of a larger thing and you're kind of like, well I could spin off and do this myself and keep all the economics for myself. That's kind of what happens and that's why people end up leaving the warehouses and now they'll. It's hard to keep them together inside these roll ups, I think.

Absolutely. Because the reason they were available to be rolled up is because at one time they were so independent they had the guts to leave. And I don't think that DNA has left them. They may, after 20 years of being independent, thought the grass was greener back on the other side again being part of some bigger group where things are a little more. Somebody is organized but it's fairly inevitable those people get the itch again.

What do you see? What do you think about kind of the fintech movement? Movement and just the investment activity. So there's these individual people spinning out, but then there's also, we were talking about personal capital or betterment and wealth front. There are these robos that are getting launched. There's obviously Robinhood and groups like that. And just it feels like there's a ton of. I mean, we know there's a ton of investor activity, venture and private equity in the space. How do you see that affecting the ecosystem?

Well, I think that when you and I probably left college, we went and didn't start a company right off the bat. We learned on somebody else's dime. And I feel like every time that there's a new tech company or a venture or whatever coming from the outside, that's kind of what RAs are doing. Because in the end it always seems to accrue to their benefit. They end up using this technology, they end up having investors made out of savers that then someday graduate to an ria, et cetera. So I think there was a great debate between Dan Sievert and Mark Tibersian at a conference a couple years ago in Newport beach, and they argued whether private equity was a positive or a negative for our industry. And they came out the stronger argument was that it had actually been a net negative and they were talking about it largely in the context of roll ups and that sort of thing. But it was interesting because I had always assumed it was a net positive and I still do. I think if you look at all the particulars, it can look pretty negative. But after all that money washes through and energy washes through and so on, I think it kind of speeds up evolution.

Sure. Yeah, right. I think in most industries, the. Even if there ends up being a bubble in a particular industry, it creates more capacity, creates more experienced people. And there may be a doubt there's going to be a downside of the bubble in the short term. But then long term it's kind of lifted up the overall kind of look. It's a rising tide for the overall industry longer term. So I could see that. Interesting. So any thoughts on kind of like the big trends that you're seeing for retail investing or business models out there? Do you see that changing? I mean, it's been interesting to watch like free trading flow through this space. Any thoughts on other things that you've seen or that topic?

Well, I mean, that topic is a good object lesson and I think it's because there is a. Ironically. There is a. Well, not ironically, but there is a capacity issue in this industry. I just listened to the whole. Well, my reporter just listened to the whole Schwab conference call with Wall street, two and a half hours of them explaining why they don't have nearly enough capacity at a time when they're trying to do a merger. So they have a lot of the issues that Robinhood has, they also don't have enough capacity to keep up to their own standards with servicing RIAs. And you're sitting back saying, holy cow, here's the biggest, most organized company out there trying to, trying to find the capacity. But the smart people in this industry, namely Mark Diversion, as always said this was an industry with a huge capacity problem.

You mean capacity for, to deliver planning and advice?

Well, anything though we don't even have the capacity to do the trades. Never mind the planning and advice and the hand holding and the just being there for people or whatever, you know, whatever you might define as wealth management, educating, et cetera. Right. And of course the answer is, well, why don't we just automate a lot of this? And that is in fact what is going on. But people simply, you can lead them to water, right? And there's only so much they will, they'll do for themselves, no matter how much that makes sense. And so I think everybody's trying to move things along but then it, a lot of times it ends up being cutting corners. And I think when people feel like you're cutting a corner at their expense when it relates to money, it just doesn't go over. And I think that's why bizarrely, this RIA model, which is really actually like a 40 year old model at this stage, but in fact goes all the way back to the, whatever the Investment act of 1930, whatever it was, it's been around on some level for rich people at least forever. That's why it just weirdly keeps growing. The fees haven't even been compressed. It's an anachronism.

Right, right. Yeah. You know, on the fee topic, it's interesting. One of the things that's been surprising to me is that kind of wealth management fees aren't going down. Maybe they're, I mean they're, I think the average fee is 1.3% of if, if you do the assets under management model. And it's almost like the real estate space where when we bought our house and looking back with the Internet, it's kind of like, well, why are you paid 5 or 6% to sell a house? And I really thought like for instance, this, we could get away from that. And we ended up using a broker anyway, we negotiated it but. And it still hasn't changed, it's still under attack. I mean you have the Zillows and Redfins looking at and there's new companies where you can just buy remote that are definitely kind of pushing on that. But yeah, These fees are still persistent. And back to Kitsas as well. He was making a comment that really, it doesn't seem like fees are going down. It feels like services are going up. So people are having the advisors feel like they have to do more to justify the fees.

Right. I mean, I think that's. You could challenge that. I mean, because, you know, advisors are still in a very comfortable industry. Right. Where plenty of RAs work very hard, but they are not emergency room doctors, you know, and chasing down every issue in your life and so on and so forth. Right. They just kind of keep an eye.

On it and yeah. Make sure that you feel good. You get a trusted relationship, someone that hopefully knows what most of them do, but not everybody, you know, really knows what they're talking about and gets you in the right kinds of investments and make sure you don't do anything crazy, especially when things are in turmoil. That's when they really earn their money, is when there's a lot of turmoil. If they talk you off a cliff from like selling everything at the bottom, which is what most retail investors do. Yeah.

And I think, I think that sounds so. I don't know what the word is, but it doesn't sound like such a big deal. But it's just a monstrous big deal. It's that they are sort of this insurance policy on your own insanity around money. And even very sane people are very insane about finances.

Well, what's funny about the market is that you have to make some big decisions, get it right and not shoot yourself in the foot. So talk about if you miss the 10, whatever, best days in the market, you're going to miss half the upside or something like that. So it's really, you have to be in the market, you have to stay in the market. You have to not sell at the bottom. And so I do see that like, if, if an advisor, if you're not able to do it yourself and an advisor can get you to save regularly, invest, have a broad portfolio, stick it out and ride that out for 20 years, they're going to add a huge amount of value. Because if you weren't going to do that and you just saved your money, you know, you might, you're going to give up a huge amount of the gains and you, you've pretty much need to capture that compounding in order to have a, you know, secure, comfortable, high quality of life as they get older, when they can no longer work to, to make money. So I totally get.

Yeah, I mean, they, you could rename RAs like Consultants of assured Compounding.

Yeah, that's right. They're coaching you and kind of getting reinforcing those decisions. I would like to talk about kind of on this kind of business model. So there's definitely been an evolution right over the course of our careers where it used to be commission based selling of products. Very often these products had high fees and then there was churning. And some of the stuff is a lot of stuff has gotten cleaned up. But I remember even when I worked at Schwab, it was like daily average trades. It was all about, they made money on trades. And I think originally Schwab used to charge 70 bucks a trade and now it's then it was like 20, then it was 10, then it was now it's free. And now we've moved to the kind of the AUM model. And one comment on this, though I'd love to get your take on is just what's odd about this space. These folks are fiduciaries. But the fee structure is still not communicated clearly. I mean, it's only now getting enforced by the government that you have to publish what the fees are on these statements and translate it to income. But what's your view on that? Where do you see people? How do you see rias talking about that?

I think that is really putting your finger on something that is an ongoing mystery to me, which is. How the fees can remain so hidden by not just Wall Street. I don't think RIAs are very upfront about it either. I mean you try digging through an RIA's SEC documents, that is their ADV and good luck. First you go to the ADV, well, there's nothing really there. Then you go to the adv2 and okay, it says here that this and that, but they might do a different fee for a different person. And oh, by the way, we're going to put you in this investment thing which has its own fees. And yeah, and by the way, we're going to charge you for your plan. And that can be this amount of hours. But then it could be that the whole thing's a big mash. And then meanwhile there's never an all in fee. Like what do I pay when this is all said and done, when including the underlying ETFs, et cetera, et cetera. So when people have asked me, well, what would you do if you were to try to disrupt this industry? I've always said I would actually do as an RIA what RIAs say they do and be the first one ever to do that and be really aggressive.

About.

Telling people exactly what they're paying, because on top of the fact that nobody knows what the fees are in our business, you don't even have an invoice or anything else. So the money is just magically vanishing, which.

Yeah. You don't even know it's gone because you don't see it.

Yeah, right, Right. So there are damn good reasons why people. Why the companies do that. Right. And you can even make a really good argument they're doing it for the good of the consumer, because the consumer is insane about its money, and they'll immediately get fixated on those fees. Instead of the bigger picture, which you and I just spoke about, namely, it really comes down to not panicking at the wrong moments.

Yeah, so I hear that, But I think, why is that tied to this business model? I mean, I hire lawyers, CPAs, doctors, dentists. Like I was talking about Dennis yesterday, who has high costs, but they do a great job. But at least we had a transparent conversation about what it is and why it. Why it's that way. So why do you think? I mean, these. The. It's so not transparent. And, like, no one has come out with a. Just straight up. I mean, there are, like, Garrett Financial, there are some groups that are doing this, but it's by far the exception.

It is by far the exception. And I think, you know, to give a really, you know, Orwellian answer, it's a cultural thing.

Right.

But I do think that it's a little bit underrated that other professionals have. I mean, I think other professionals do have complicated fees, and maybe just a handful of times in your life as a consumer, you're dealing with big dollar amounts that you're negotiating directly with the professional who is providing that service.

Right.

So if I get sued and I have actually, all of a sudden, you're in this very intense situation where the fees. You feel kind of dumb bringing up the fees. If you're having a house built for $3 million, you're dealing with a contractor, there's plenty of room for all kinds of crazy things.

Right.

Et cetera, et cetera. And certainly I've had that with doctors, et cetera. So I do think it's not just advisors. That said, advisors can get you year in and year out, and it goes right to the heart of your lifeblood, namely your finances. And they've got it down to a system.

Well, I do think it's a big part of why the first move is, okay, let's win you as a client, but let's move all Your money into my custodian and then we'll take care within the ration, the, the communicated benefit is. Okay, it's in my custodian. I, I can help you manage it in here, give you ideas or if you give me authority, I can make trades on your behalf and rebalance your portfolio. Great. But the other big reason is I can take fees directly. I'll get paid by the custodian, right? Yeah, according to this contract we signed. But I will never send you an invoice for this. Like a simple thing would be just. Yeah, there's an annual invoice so you can see what your, your all in fees are all in load is and what, how much is for the funds, how much is for the advisor. I think that would transform the space. But I doubt we're going to see, we're not going to see it from inside the industry today. Right. There's no reason. I mean you can have a Advisor. I've got 100 families, I manage $100 million. They charge 1%. I make $1 million a year babysitting this money. I mean it's a great business. Wouldn't want to do that.

It's a great business, but. But then you have to ask yourself why is a great business that is designed for people to get rich doing comfortable work, have a lack of capacity?

Right. That's a great question. Right.

And I think there are good answers to that.

Right.

But you can't look at it financially. And I think historically going back to the money changers or whatever, people have not wanted to deal with money.

Right.

It is kind of like the white collar equivalent of being the, you know, the garbage hauler or something. Right. You're in the, if you're in the presence of garbage all day, then theoretically it's not a high quality of life.

Right.

Or if you're a plumber. But if you're in the presence of money all day and the agita of people in the presence of their own money, I think there's some battle pay maybe that you're getting even if you're playing enough golf and meeting people at a teak desk and never getting your hands dirty, whatever.

I presume that's why that exists. Yeah, it's a great question. It's true. And I think the average financial Advisors like over 50 at this point and they're looking forward. If there's a capacity problem now, it's going to get worse on the advice side because these folks are going to retire and if there aren't new People coming in to kind of take over. It's either going to get fully automated or it's not going to exist. Have you had any discussions with folks in the industry about how they want to tackle that problem?

Well, of course, because that is just an ongoing alarm, right. Red flags being risen on that topic. And I. Yeah, again, again, it kind of blows my mind, right, that for all the, you know, bright young people coming out of college, wanting to earn a good living and doing something, product, you know, useful for people and so on, why you can't hire advisors all day long, right? But apparently you can't, at least right now. So it is a strange thing, but I don't think it's something we can go out and do something about.

Right.

Other than to kind of have faith in the free enterprise system and be pushing on every front and presume that people will act in their best interest and take a good job. And I do think that everything that is happening is creating a higher quality of life for the financial advisor to the point where it will be. Will attract more good people and the problem will somehow solve itself. But yeah, for right now, a financial advisor is somebody who combines a whole series of qualities that are hard to find in one person. They're sufficiently nerdy to get down to the numbers. They're sufficiently affable that they can talk to somebody. They took at least one English course. They can speak, you know, explain things pretty well. They can work with technology. In the case of RAs, they're. They know enough to be an entrepreneur, how to hire other people, how to communicate to those people, how to provide a quality of service that they do. They know how to sell. Because even if you're not a broker, you got to sell if you're going to get somebody to pay you $20,000 a year for what seems like a very intangible service. So to go out and manufacture those people who also can kind of look over the entire financial landscape, something like the situation we're in right now, which nobody can seem to get their mind around, how we could be still deep in a plague and the market is roaring and the economy seems to be terrible and it seems to be good at the same time and to know, bottom line, what do I do for my clients and make them feel okay about it.

Yeah, right. Yeah. No, it's true. You're making a great case for the value here and the skills required. It's great to kind of hear it in your words. So what do you think? Looking forward to the future? Where do you See opportunities in this space. And how do you think some of this is going to play out over the Next, call it five, 10 years?

Well, I think there's just opportunity everywhere you look. So I would say if somebody were coming into this space either as an investor or as a person wanting a job or somebody doing a startup, I would say go ahead and do what you like. Because there are all different ways you can be helpful in this industry and it will probably work out. I don't know many people who have done a startup in this business who aren't still around if they put any effort into it and are earning a perfectly good living. I think sometimes it's deceptive that we don't have that Uber disruptor like an Uber or like a Google or like a Facebook. There just isn't that, you know, big force. But what is so energizing about this industry is that everybody does well, every RA does well, even every broker does well. So if you're willing to get in there and do it, chances are. Now why is that?

Right?

You know, again, it comes back to supply and demand, right? And there seems to be an infinite demand for anything that will give the consumer a better relationship to their money. I mean you see it with endless freaking credit card this, credit card that, loans this, loans that. But it's just certainly at an elevated level when you're talking about planning or planning a life, planning your life around your money, planning your relationship to your money. It, you know, money, money matters zero and it matters 100%.

Right?

We all think that way. And you know, it's advisor is sort of that agent between you and your money. So anyway, that's too philosophical but I think that I don't, I think I'd actually be misleading if I said, well.

You should go into particular part of it. Okay, so opportunities everywhere and just it's back to the capacity shortage. And yeah, I mean I buy that there's a huge opportunity to educate people, have them have a better relationship, understand and control their money better in a huge way. I also totally agree with you that it's what's interesting about the financial services space. And one of the, our COO Dave Robeson was like, you know, things in financial services take like 20 years to play out. And I think that's right you look at or longer. I mean Vanguard did change the industry through driving down fees first in funds. And that's rippling through, and that awareness is rippling through the whole, you know, ecosystem. And that has taken 30, 40 years. Right. I mean they created the index fund and everything else. So no, but it's also interesting to watch. There's so much investment and there's been recent changes with, there's Robinhood and free trading, which is absolutely blown up. There's crypto. There's the people on Reddit that are like out foxing the hedge fund guys and like trapping them in their own shorting strategies. It's incredible to watch some of this stuff and some of those things, I mean, it's kind of change comes gradually and then suddenly and it feels like, okay, maybe some of this stuff is actually, we're hitting critical mass and at least they're seeing, they're have, just because of the Internet and everything else, they have access to a huge amount of information and then they're bringing that to bear. So maybe we'll see some massive changes play out here over the next five, ten years.

Well, yeah, I mean, I don't even think anybody has a theory of what happens to the Reddit investor. Right. But is there just some brute force of Robinhood bringing somebody into investing that somehow will translate into a larger number of investors? I don't know what the number of people, percentage of people in America who even own a stock is, but when I've heard that number in the past, it's been fairly low. And, but I think once people do, they tend to keep owning them. And that's the, you know, there's still just a belief that you can lose all your money in the stock market. Right. And part of being an advisor is just to let people know, yes, the market is risky, but it's so much riskier not to be in it. And that's a really hard concept to communicate. And again, it gets back to why advisors are so valuable. I always wondered as a kid, Right. Because even as a kid I was aware that a stockbroker had a bit of a stigma, to put it nicely. Right. Because I just kind of hear my parents talk about it. But I always said, then why did they make so much money? Right. And it's because they at least get you into stocks.

Right.

So that's a huge value add. Just to get somebody from owning, you know, having cash and bicycles to having. To being in the market.

Yeah.

To being owning companies.

Right. You know, a couple, a couple thoughts on these topics. So one is when you look at somebody, there are two sources, big sources. Stores of wealth are their human capital. When you just come out, if you're not born wealthy, you know, you get educated and you're have this earning Capacity and you go out and you make money and you turn that into capital, your net worth and houses and investments and savings with your human capital Note, there's really no friction. I mean, you get a job, you get paid, government takes their taxes and I mean, there's benefits and stuff like that, but there's not like a. Essentially you want me to look at the advisor is if they're sitting between you and your total net worth and taking a 1% strip on it is like a tax that's out there. I mean, there is value like we talked about before. But, um, one of the. To answer the question about why they have so much money is because, yeah. They're sitting there riding herd on this giant, like half of your capital. Right. As, especially as you age, your, your capital shifts from your, your human capital to your, to your net worth. So that's one way to look at it. Yeah. And I think another thought I had when you were. We were talking about the whole Reddit investor is you. If you zoom back from us and what we just talked about, hey, people, people. Originally it was about trading like individual stocks. So we learned to trade and then we became investors. We like, okay, let's not just trade in and out of stocks and day trade and try and make flip this or that, but we're going to invest in index funds or industries and have a more strategic look at this. And I would definitely say there's a difference between being an investor, I mean, sorry, being a trader and an investor. And so one, one hopeful way of looking at what's happening with the Reddit folks and younger folks are getting to it is they're trading, but they're learning through trading. I mean, you learn a lot. Like, you start making money and you start losing a ton of it. You're learning fast. And then you might say, oh, what's the mathematical better way to make money? Well, it's to become a strategic investor, have low fees, broadly invest. I mean, it's a much more. You may not make as much, you won't lose as much, but your probability of success goes up by a ton. So if you start measuring yourself, well, I just want to have a higher chance of success, and I don't necessarily want to shoot to make 10 million or whatever the number is, then you can kind of shift from that trading mentality to the investing mentality, and maybe that'll happen quickly because everything happens more quickly these days. So. And maybe that'll be good for the investor base and the overall pool of people doing this Right.

But I assume that, you know, in the spectrum of the, of human nature, one thing that will never evolve is people's need for quick thrill. Right. And I think people have always sought that through investing. And I think a lot of brokers got into it because they wanted to be in that atmosphere. And I think these, you know, if you're, if you're in a Covid atmosphere, everybody I know is a little bored and looking for a type of stimulation that they have lost by being cooped up. And oh my God, all of a sudden I can be a Wall street player here in my garage. Walt Bettinger, on the call two days ago, he was talking about how they have to up capacity to deal with this Robin Hood effect. But at the same time he said we do, as a strategic matter, see it as a, as temporary mania. He didn't use those words, but I think that's what he said. So we don't want to build too much capacity.

It's a great insight that. Yeah, I mean, especially when you're younger to you, you're, you have a much more, much higher capacity for risk. There's more thrill seeking and Yeah, I mean, I traded options. I've done that kind of stuff. You know, I've traded foreign exchange. I remember when I first learned that, oh yeah, you can get 101 leverage on your money. It's ridiculous. It's like totally gambling. And Robinhood is like, it's free. Free to make trades. It's gamified. And I think one, one thing people have to bear in mind is if something is free, you are the product. And I think that's been proven to be true where, hey, these guys are paid by somebody institutions for deal, you know, for order flow. Right. And visibility. Probably know what people are planning to trade. So what happens when everyone is trying to invest or trade Gamestop and the institutions are getting crushed? Well, suddenly they couldn't trade it, you know, and why did that happen? So I think, you know, people have to bear that in mind is like you're kind of building your wealth on a platform where you're not getting charged at all. Then there could be misalignment. So something to watch out for.

Well, it is ironic that these institutions are getting crushed as if somehow they weren't drawn into it in the first place.

Right.

By greed. I mean, it's just one greedy subset versus another and Robin Hood in the middle greedily facilitating it.

All right, well, it's interesting reading some of the analysis that is happening on these message boards. And it's no joke. I mean, these folks are looking into the float in these stocks, the short positions, analyzing and saying, hey, the reality is in this scenario, they've over shorted this thing and if we create enough purchasing momentum here, it's going to force their hand. And that's what happened. I mean, the fact that they sucked out what, four and a half billion dollars out of one hench fight, I mean, in a couple days, the scale of it is tremendous and the power of these folks. And then people are saying, oh, it's illegal. Well, they're working. They're not like backroom whispering, they're just talking about it openly and saying, hey, here's the analysis. I think this is going to happen. If we do this, it's math. And then they start doing it and then the math works out. Now getting everyone sucked into it. And people buying at the top, they, with the, they don't recognize is that it's going to come back. It's not like it's just going to go straight up. And then people are also getting crushed. I'm sure young adults are getting hammered or older adults are getting hammered on this stock as well because GameStop came straight back down, unsurprisingly.

Yeah, no, it's, it's a giant Ponzi scheme they've built against themselves, but they're just sort of hoping that somehow they're smart enough to get out at the right moment.

Yeah, well, it's. Hey, the greater fool lesson, right, is going to be learned by a lot of people. All right, anything else you want to touch on? I mean, in terms of like AI or big Data, Anything else that you see in terms of the future?

Yeah, I still think we're waiting to see on AI and Big Data. If AI is affecting my life in this industry, I'm not aware of it yet. And I guess I would say the same thing for Big Data. Certainly. It doesn't mean I don't think they're going to have a big influence at some point, but I don't know, I'm not feeling it and. Because how do you apply them? Right. Where exactly are the applications? I mean, I think, you know, we've recently written about Vice and I, and they in theory are going to solve the unsolvable problem of, you know, basically automating an RIA's practice without taking away their control. I don't know if that works. I can't tell. But they're putting their own money behind it, so all the power to them.

Right.

Big Data you know, we hear about Yodlee and what's the company that Visa just tried to buy Plaid and.

Supposedly.

They have a data advantage, but where has it played out? Exactly Right.

Yeah, I think on the AI side it'll be interesting. I mean for what we're doing. We're looking at the behavior of hundreds of thousands of planners now and trying to essentially run lots of simulations behind the scenes. That's where we're headed so that we can hopefully make better predictions about what could work. And then yeah, we don't want to take control away from the consumer. It's really just present them with hey, it looks like if you did this series of Roth conversions, like that's something we just rolled out. But we're going to be doing this across the board. Like how do you. Here's things you could consider for Social Security or for your portfolio or your location, asset location or your taxation strategy. Maybe some of the things, same things that Vice is doing. But yeah, we'll see. I mean I think it's, I will be interesting because until it works it'll be just like kind of eh, kind of interesting. But if Tesla makes self driving cars work in a big way that's going to change the world because no one will have to spend time driving and they can fetch cars and that changes. And you don't need to keep cars because I could send one for one right now. AI and other places, same thing is it starts to kind of like automate a lot of small decisions or create a lot of optimizations. You could see efficiency gains in every industry. So.

Right. So yeah, I just haven't, I'm fairly opinionated, but I'm not opinionated about that because I haven't gotten my mind around it. But I am pretty sure AI cannot replace an advisor because people are too crazy for even computers to understand.

That's right. Human advisors aren't going anywhere. People like talking to other people they need. There's the emotional connection, the trust, the understanding of the whole situation. I do think that the transparency is going to go up. The cost structures are going to come under some pressure or at least, at least if there's transparency people will know that hey, I have $2 million. If I'm paying you 1%, that's 20,000 a year. As long as they're aware of that cost and they're like, and that's a good trade for me then great. If it's like well maybe this would be fair at 10,000, maybe you'll see some discussion on fees so for yourself, as you look forward, any big things that you're planning on in the next year, if 2021 comes, or the next couple of years?

Well, that's actually a hard question, but I would say that our, our thesis from the beginning is that we are focused on RIAs, which only we even know how to define and write to. And we know the value of story. And it is so hard to both get all the information people need and then put it in the form of a story so that it will. Will actually penetrate somebody's thinking. So we love the position we're in. I hope AI does come along so that I can hire some AI to write some of my articles. But I like the fact that the barriers to entry to what we do are just. Are pretty astronomical. And we, you know, I'm incredibly grateful at the end of this year that I know I didn't get sick. My business did not go out of business. In fact, it grew more than it ever has and that we still have a democracy.

Yeah, right. Exactly. Yeah. No, it's amazing that hopefully we're coming through 2020 and things look. Things look brighter. Yeah. No, and for your, For Ria Biz, I'm a reader and I will say I get a lot of insight. It's just pretty interesting hearing, hey, what on one hand, like, what is Schwab and Fidelity thinking about? What is the local, the smaller advisor thinking about? And what's happening with all the technology. You cover a lot of different things and also compliance. And it's kind of good to kind of see the ecosystem of the wealth space and how it's evolving. So I found it pretty useful. And the writing's great. Even though you're sitting across from me. I wouldn't say that unless I meant it. I was reading it today. Awesome. I appreciate it. Yeah. Any. For our, for our audience, retail investors, mostly. Any resources that you think that they, that you like, that you think they might find valuable in terms of online sites or writers or.

Well, it's funny because I just had an old friend call me because she was trying to. Trying to decide whether to fire her UBS broker, who everybody had advised was ripping her off. And he had just moved to Ameriprise and some of the things she liked about UBS they didn't have at Ameriprise, et cetera, which related to banking. And after our entire conversation about this thing, we concluded that she should stay with that advisor. And it just came down to the fact she had a certain rapport or she thought he said a lot of really stupid things, but that she knew when he was saying stupid things and when he wasn't.

So.

I do think as a consumer, you just need to have your eyes open no matter what. Advisors work for you, the tools work for you, the resources. But use the resources. Use Google. Go through the motions, do the old fashioned, ask for references. Right. And it's never going to be good if you don't put a little energy into it yourself. And if you love to invest, then be a self directed investor because maybe that thrill or that satisfaction or whatever it might be, know that about yourself.

Right.

Because we're all on the spectrum of needing thrills and not needing thrills.

And.

So I think that's. The silver bullet is elusive. And when I give advice to friends, I find I give a spectrum of advice based on their personality.

Yeah. So you have to know yourself. And it also is what caveat emptor. You have to be a buyer beware.

You have to be a buyer beware.

Yeah. Right in the space. All right, well, good. So, Brooke, thanks for being on our show. And Dotto Robison, thanks for being our sound engineer. Behind the scenes, everyone, thanks for listening. Hopefully you found this useful. Our goal at New Retirement is to help anyone plan and manage their retirement so they can make the most of their money and time. And if you made it this far, definitely check out brook's work at raabiz.com you can find us@newretirement.com and we have a private Facebook group which is actually getting really active now. It's like 2,500 people growing very fast. Lots of kind of discussion of these kinds of topics. In fact, we had a big discussion about advisors and fees that's going on right now. And that's it. And last thing is, we are trying to build the audience for this podcast. So any sharing or any reviews online at itunes or Stitch or anywhere are highly appreciated. And with that, thanks again and have a great day.

Okay, thank you, Steve.