The Biggest Reason Dentists Get Bad Financial Advice – Episode 81

Do you know how your advisor gets paid? If not, there’s a good chance your best interest is taking a back seat to handsome commission checks and all-expenses-paid vacations. In this episode of Dentist Money™, Reese and Ryan describe a hypothetical DSO where production incentives are out of whack and patients are getting the raw end of the deal. Then they draw a comparison to the way many financial firms compensate their advisors.

Show notes:

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Podcast Transcript:

Speaker: Consultant an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is financed by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Reese Harper.

Reese Harper: Welcome to The Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Good day to you.

Reese Harper: I don’t think I’ve seen you in a week almost.

Ryan Isaac: It feels like that. We don’t ever cross paths until we come to the studio.

Reese Harper: For those of you who haven’t been in the studio, it is an amazing spot-

Ryan Isaac: Yes.

Reese Harper: … where we get together each week to record and finally realize we haven’t seen each other in six days since we’ve been-

Ryan Isaac: I hear from you daily.

Reese Harper: You hear me yelling at people.

Ryan Isaac: Yeah.

Reese Harper: And I hear you yelling at people-

Ryan Isaac: Yeah.

Reese Harper: … on your phone.

Ryan Isaac: Yeah.

Reese Harper: Well, you’re talking nicely depending on the conversation.

Ryan Isaac: We have good conversations. Yelling is sarcastic.

Reese Harper: It’s rare but it’ll happen occasionally if people cross you.

Ryan Isaac: Yes. Don’t cross me.

Reese Harper: Start talking about things like investing in gold mines in West Africa.

Ryan Isaac: Yeah.

Reese Harper: That bothers you sometimes.

Ryan Isaac: One of the worst. Yeah. It’s one of the most angry-

Reese Harper: Oil trucks-

Ryan Isaac: … topics.

Reese Harper: … in the South Pacific.

Ryan Isaac: Yes.

Reese Harper: Okay.

Ryan Isaac: Yeah. With square wheels. We have a great show lined up today. Before we jump, you have a good story for us today, by the way. We’re going to get into that in just one second. But before we do, we’d like to just tell everyone listening that if you stick around for the end of the show, we’re going to tell you how to get a free portfolio review on your current investment account or portfolio that you have and want some feedback. We’ll give you some details at the end of the show as we get into that. But let’s get into your story here.

Reese Harper: What would you call the story? I guess.

Ryan Isaac: Well, we’ve…

Reese Harper: We need a title for this.

Ryan Isaac: We had a fair amount of discussion on titles. We would say that this story is probably going to be titled something along the lines of The Worst Dental Practice in the World.

Reese Harper: Yeah. This is a story about an associate that takes a job-

Ryan Isaac: The lone associate.

Reese Harper: … at the worst dental practice in the world. Now, I want to talk about this practice and just let you know this is a fictional practice. This isn’t an actual study that we’ve seen.

Ryan Isaac: Not real. Yeah. Names have not been removed.

Reese Harper: No.

Ryan Isaac: It’s not a real place.

Reese Harper: Let’s imagine you go to work at a dental practice and, in this practice, all the dentists and specialists for this practice get paid on a specific schedule of products with a very specific percentage of production. Your production split is based on the type of product you use and the type of procedure that you use.
For example, if you use an amalgam filling from- I won’t throw out company names but we’ll say Company ABC.

Ryan Isaac: Yeah. That’s general.

Reese Harper: You get paid 58% of production which is extraordinarily high. You’re like, “Dang. How did that happen?”

Ryan Isaac: Yeah.

Reese Harper: Just don’t worry about it. That’s just the numbers, folks.

Ryan Isaac: you get 58% of that.

Reese Harper: Yeah. 58% of-

Ryan Isaac: From Company ABC.

Reese Harper: Yeah.

Ryan Isaac: Okay.

Reese Harper: That’s after insurance adjustments. All right? It’s basically a collections.

Ryan Isaac: Yeah.

Reese Harper: All right? But if you take the amalgam filling from XYZ Company, you’re only going to get paid 48% of production. You have to choose which one you use when you’re-

Ryan Isaac: Which am I-

Reese Harper: … in your operatory.

Ryan Isaac: Which filling am I going to use?

Reese Harper: Yeah.

Ryan Isaac: Which one would you use?

Reese Harper: Now, you also have a choice. You could do composite instead of amalgam like most people will request.

Ryan Isaac: Yeah.

Reese Harper: Okay.

Ryan Isaac: Yeah.

Reese Harper: But if you do that, there’s a different fee schedule for that and there’s several companies to pick from. Some pay 43%. Some pay 35%. Some pay 52%. Amalgam’s different from composite. Crowns are different from implants. Braces pay a certain percentage and certain brackets only pay a certain percentage. Bracket A versus Bracket B. You get different amounts of production split based on these products.

Ryan Isaac: Always changing. The company’s always bringing you to meetings and saying, “This month’s bracket.”

Reese Harper: Yeah. And lunch.

Ryan Isaac: The highest paying bracket this month is…

Reese Harper: Yes. You go to lunches with your equipment reps and your supply reps and they give you your new production split on their products.

Ryan Isaac: What a weird industry. I wonder if this really exists anywhere.

Reese Harper: Okay? The next thing is there’s one unusual detail about this practice that you are working with. Okay? The unusual detail about this model is that the practice that you work with, it’s a bigger practice and it’s got it’s own supply line.

Ryan Isaac: It’s own line of fillings and brackets.

Reese Harper: Yeah. It’s got its on own line of composite. It’s got its own line of implants. It’s got its own line of crowns. You can choose to use those too. Right? The practice you work for requires you to sell a certain amount of their own line.

Ryan Isaac: We don’t really care. You’re independent, Mr. Associate. Except for the fact-

Reese Harper: You can do whatever you want but if you don’t do at least $250,000 of production through our line each year, then you’re going to be terminated.

Ryan Isaac: Yeah.

Reese Harper: Okay. You’re going to be let go. But do whatever you want. As long as you’re doing-

Ryan Isaac: Do what’s in the best interest. Hey, you run your business how you want to run it. Take care of your patients however you want to take care of them. But you have to use at least X percentage of our products-

Reese Harper: Yeah.

Ryan Isaac: … we make.

Reese Harper: Okay, so, the cool part about working for these guys is if you sell a lot of their proprietary line, okay, then the practice is going to pay you with extra benefits and bonuses. Okay? Depending on how much of their own line you sell, you get a retirement plan that’s funded for you just from your production in those lines though.

Ryan Isaac: Okay. Yeah.

Reese Harper: It’s a pension. When you retire, you’re going to get a lifetime income stream.

Ryan Isaac: If you placed enough-

Reese Harper: If you placed enough production-

Ryan Isaac: … implants and crowns.

Reese Harper: … through their-

Ryan Isaac: Through their line of products.

Reese Harper: Uh-huh. You get cool bonuses every year too. You get sent to Hawaii.

Ryan Isaac: Nice.

Reese Harper: The Quays.

Ryan Isaac: Yes.

Reese Harper: You get to go to an Ireland golf trip. Okay? Some really cool stuff if you-

Ryan Isaac: Once in a lifetime opportunity.

Reese Harper: … hit certain production bonuses. All right? Now, these bonuses, they’re not based on your overall production, keep in mind, they’re only based on the proprietary line that comes from the practice that you work for.

Ryan Isaac: I wonder if anyone’s scratching their head right now. What is going on? What is this place? This doesn’t exist.

Reese Harper: Okay. Here’s the final straw. The final straw that this can literally break the endodontist tool.

Ryan Isaac: The most unusual part for sure.

Reese Harper: Okay. Here’s the most unusual part. If you do a comprehensive exam, all right? Or if you do a hygiene exam, you don’t get paid for it. Okay? That’s right. If someone wants a comprehensive exam, you have to do that for free.

Ryan Isaac: You got to do it.

Reese Harper: You don’t have to do it if you don’t want to. It’s not a requirement.

Ryan Isaac: If you’re trying to be a good clinician and take care of patients.

Reese Harper: Let’s say there’s no laws against it in this fictional word. Okay? I know that’s not necessarily the case in actual dentistry but in this practice, it’s the case. They doctor the charts up a bit. Okay? You don’t have to do a full set of x-rays or exams if you don’t want to. But you don’t get to charge for any of the hygiene and you don’t get to charge for any of your exams.

Ryan Isaac: Even though that’s where you know as a clinician, that’s where you need to begin.

Reese Harper: Yeah.

Ryan Isaac: To figure out what the guy even needs in his mouth.

Reese Harper: Yeah.

Ryan Isaac: Okay.

Reese Harper: But your practice wants you to stay focused on the highest margin procedures. Right?

Ryan Isaac: Yeah.

Reese Harper: They want you to-

Ryan Isaac: Sell the products.

Reese Harper: … sell the product. So if you do comprehensive exams or hygiene visits, they’re just not that profitable so they don’t allow you to get paid to do them. You can’t charge for them. You can’t even charge for them. Okay?
You have to give hygiene exams and comprehensive exams for free.

Ryan Isaac: On your own time.

Reese Harper: During work hours.

Ryan Isaac: Yeah. You tell the practice, “I want to charge for this stuff. People are willing to pay me.” And they’re like, “We don’t know how to do that.”

Reese Harper: Can’t let you do that.

Ryan Isaac: Just do it or don’t do it but just sell these things.

Reese Harper: Yes. But just make sure you sell enough of this stuff to make the money. Anyway, the bottom line is that if you want to hire a hygienist in your practice to help do that stuff for free, it comes out of your own pocket.

Ryan Isaac: Yeah. You pay the hy- Yeah. Okay.

Reese Harper: They’re paying you enough on these-

Ryan Isaac: You pay for your own ops too.

Reese Harper: Yes.

Ryan Isaac: Okay.

Reese Harper: They’re giving you enough splits through your production, you can carry your hygiene payroll on your own if you want to hire your hygiene.

Ryan Isaac: Okay.

Reese Harper: But you’ll need to make sure you do enough treatments so that you can subsidize all the free exams that most patients are undoubtedly going to want. All right? Just stop for a minute to think about all the implications this would have on the overall culture of a practice. Okay? What are some of things you could do-

Ryan Isaac: Yeah. First of all, highly diagnostic. Is that the way to say it? I would just be a place where every that comes in the door knew they were going to get sold on something and probably without an exam.

Reese Harper: Yeah. It is a really uncomfortable place to-

Ryan Isaac: You need 10 fillings and three crowns. No, I didn’t do an x-ray.

Reese Harper: Yeah.

Ryan Isaac: It doesn’t matter.

Reese Harper: It’s a really uncomfortable place for patients to come to.

Ryan Isaac: Yeah. Yeah.

Reese Harper: In most cases, patients are likely going to get treatment they don’t need.

Ryan Isaac: Yeah.

Reese Harper: That’s another thing. They might get some treatment they need but they’re likely going to get treatment that they don’t need because dentists can’t get paid any other way.

Ryan Isaac: Yeah.

Reese Harper: Than through that. When it’s Christmas time and you don’t have any money, you got to put gifts on the table.

Ryan Isaac: Or tax time.

Reese Harper: Or it’s tax time. You go to pay those bills. When there’s pressure, you’re likely going-

Ryan Isaac: Step it up.

Reese Harper: … to have to diagnose.

Ryan Isaac: Yeah. Eventually, people are just- they’re going to know. They’re going to kind of know the model there. They’re not going to show up anymore. Every time I go, he just sells me more crowns that I don’t even know if I need and he doesn’t really know if I need.

Reese Harper: Yeah. He doesn’t really know. Because he’s a crown expert-

Ryan Isaac: Yeah.

Reese Harper: … but he’s not really doing a good job at evaluating my overall situation.

Ryan Isaac: Within two minutes, he tells me I need crowns and he didn’t even look.

Reese Harper: Yeah.

Ryan Isaac: He doesn’t even do an x-ray. I don’t even have teeth.

Reese Harper: Yeah. Bear with us people. This is a highly relevant story to your life.

Ryan Isaac: This does relate to something.

Reese Harper: Now, what about intellectual capital?

Ryan Isaac: Yeah.

Reese Harper: The knowledge of dental issues that dentists have, they’re not going to be- The stuff that’s not part of your approved production split, you’re not going to learn about.

Ryan Isaac: Mm-hmm (affirmative).

Reese Harper: Let’s take periodontal issues or consulting around total oral health which is a big deal right now. Or any hygiene issues. Those things are going to get kind of neglected because you’re going to be- You don’t get paid to diagnose-

Ryan Isaac: Yeah.

Reese Harper: … or treat any of that. There’s no fee structure that you can earn money from.

Ryan Isaac: Where’s the incentive for the provider to go learn-

Reese Harper: Yeah.

Ryan Isaac: … or innovate in those areas. Yeah.

Reese Harper: I think overall you could say that patient oral health would probably decline.

Ryan Isaac: Mm-hmm (affirmative).

Reese Harper: And clinical competency would also decline. Both competency would go down and oral health results would go down because all the outcomes are going to be really manipulated by how the practice decides to set their production splits.

Ryan Isaac: Yeah. Yeah.

Reese Harper: Ultimately, who’s deciding on the treatment? The practice is deciding treatment based on how they compensate.

Ryan Isaac: Based on the products they’re building and making their associates sell.

Reese Harper: Yeah.

Ryan Isaac: And how they’re incentivizing them to sell with.

Reese Harper: Yes.

Ryan Isaac: With higher splits.

Reese Harper: Mm-hmm (affirmative).

Ryan Isaac: We want to move more of our own product compared to the other crowns or fillings so higher split.

Reese Harper: Yeah. This is probably one of the best analogies that I can think of of how financial issues are dealt with in the public. We’ve got to go to break real quick because Justin’s pounding on the door and he wants us to make sure that we- When we get back we’re going to talk about the worst dental practice in the world and how it relates to the financial planning and investment industry and what dentists can do to protect themselves when hiring and advisor.

Ryan Isaac: Great. Sounds good.

Reese Harper: Hi, this is Reese Harper. I’m the host of The Dentist Money Show and CEO of dentistadvisors.com. I want to take just a minute and explain why dentistadvisors.com is different than your average team of financial advisors.
We help you plan, invest, and retire better using a unique set of tools you won’t find anywhere else. First, we use our proprietary methodology called Elements to assess your financial health. The Elements framework enables us to give you data driven objective advice based on a comprehensive picture of your personal and practice finances.
We maintain that picture in a custom dashboard that tracks all your assets, debts, and accounts so you know what you’re worth any time and anywhere. Because we work with dentists and specialists, we can leverage our industry expertise to weigh your progress against your peers.
We are the premier wealth management firm for dentists and specialists and we’re ready to put you on a more predictable path to financial independence. Start now by booking your free consultation today at dentistadvisors.com.
Thanks again for listening. Now, let’s get back to the show.

Ryan Isaac: Okay. Reese, we’re back.

Reese Harper: Back from break.

Ryan Isaac: Back from the break.

Reese Harper: I’d like to just get right started-

Ryan Isaac: Yeah.

Reese Harper: … with an old friend.

Ryan Isaac: Yeah. Is that a C?

Reese Harper: That’s the letter C, Ryan.

Ryan Isaac: Yeah. That’s a note.

Reese Harper: We’re about to head in. After break, the post-break C for chi. We’re heading into the discussion about how this story that we just told about the worst dental practice in the world to work for-

Ryan Isaac: It sounds awful. A lot of people work for it though. They employ a lot of people. The funny thing is, though, we said let’s tie that into how the financial industry works and why dentists can do to protect themselves when hiring an advisor or getting financial advice. That sounds like the most unrealistic, would never happen scenario in the dental industry. Anyone listening would be like, “No one would ever build a practice that way.” The funny thing is, that’s how our industry works for the most part. It’s kind of shocking.

Reese Harper: By our industry, you mean the financial service industry.

Ryan Isaac: Yes.

Reese Harper: Not necessarily the way our practice works.

Ryan Isaac: No. No. That’s the way the financial services industry has been run for a very long time. It’s changing. It’s changing with technology. It’s changing with more educated consumers and people who are building different business models. But that’s how it’s ran for a really long time which it seems crazy when you compare it to another industry.

Reese Harper: Well, when you say that let’s highlight that it’s not changing that quickly and probably-

Ryan Isaac: Yeah.

Reese Harper: … 95% of the people listening to this podcast are working. I don’t know if it’s quite that high. Probably north of 90. It’s hard to get the exact data because there’s a lot of people that have a license to sell certain financial products like insurance policies and annuities.

Ryan Isaac: Yeah.

Reese Harper: That don’t show up in the national statistics as financial advisors. But they call themselves financial advisors. They’ll say that they’re a financial planner on their business card.

Ryan Isaac: Right.

Reese Harper: They might only have an insurance license.

Ryan Isaac: But it’s not registered that way. You can’t-

Reese Harper: Yeah. Most people, if you take all of the people in the country that are calling themselves some kind of financial advisor, you’re going to be high, high hundreds of thousands.

Ryan Isaac: Yeah.

Reese Harper: Close to a million. You’re going to at least probably between seven and 800,000 people that are- There’s four of those for every dentist.

Ryan Isaac: Yeah. That’s a pretty good way to put it.

Reese Harper: For every dentist out there, there’s probably between- We’re being really conservative because the data is hard to get. We’d say there’s probably between four and maybe as many as six people out there who are calling themselves some kind of a financial advisor. Four to six of them for every one of you listening to this show. All right?
The odds are not in your favor. The odds are in your favor that most of those four to five to six people that you’ll run into, they work in a model exactly like this story.

Ryan Isaac: Yeah. That’s a good point you bring up. The conversation about this stuff is changing with technology and new ideas about business models and compensation but it hasn’t made a dent in the industry.

Reese Harper: Not yet.

Ryan Isaac: Yeah. Not yet. Give it time.

Reese Harper: Go ahead and try to rip out that 58% split on your composite fillings from the dentist who’s been doing it for 20 years.

Ryan Isaac: Yeah. Take that away from him.

Reese Harper: Then all of a sudden now he’s-

Ryan Isaac: Offer him a fee for service.

Reese Harper: Tell him he gets paid $150 bucks. He’s not going to like that anymore.

Ryan Isaac: Yeah.

Reese Harper: Okay? Tell him he’s going to get paid 30% of production.

Ryan Isaac: Yeah.

Reese Harper: He may not do it anymore.

Ryan Isaac: Yeah.

Reese Harper: Or he’d be hesitant to. I’ll tell you who else is really hesitant to. The practice that employs him is also very hesitant.

Ryan Isaac: Yeah. If you think the dentist is making good money.

Reese Harper: Yeah.

Ryan Isaac: The practice is making good money.

Reese Harper: Here’s the thing we’re trying to say. There’s two ways to get compensated in financial planning. There’s essentially just two ways you can get paid in a commission or a fee. A true fee is a payment that you’re going to make directly to an advisor and that’s going to come in the form of an hourly rate, a flat fee, or a percentage of assets under management. That is not tied to any of the products inside of your account. It’s just a percentage of assets that you’re getting charged on the entire balance of your account no matter what it’s invested in.
Commissions are a totally different payment structure. They get paid to an advisor when they sell a product to a customer. Whether that’s a mutual fund that they get a percentage of. Whether that’s a life insurance policy that they get a percentage of. Or an annuity that they get a percentage of. Or some kind of structured investment product that they get a percentage of.
Very similar to the worst practice in the world example.

Ryan Isaac: Yeah.

Reese Harper: Those are the two general ways people get paid. Some people are fee only where they only take fees and some people are commissions only where they only take commissions. Then some people are in the middle where they take-

Ryan Isaac: Yeah. They mix.

Reese Harper: … some of both.

Ryan Isaac: Mm-hmm (affirmative).

Reese Harper: I guess in a commission based model-

Ryan Isaac: That’d be the first one.

Reese Harper: We should talk about that. That one’s kind of the one that we related most to our story.

Ryan Isaac: Mm-hmm (affirmative). Which is still the bulk of the financial services industry.

Reese Harper: Yeah. The majority of the industry is still compensated that way. Even people who accept fees, the majority of people who accept fees are still in the commission based industry. They still sell products for commissions in addition to charging fees.

Ryan Isaac: Right.

Reese Harper: So, by law, a commission based model only makes your advisor have to follow what’s called a suitability standard where they have to recommend a product that’s suitable to your situation based on a series of questions they ask. But advisors earn different amounts of commission for selling different types of products just like our example. A lot of times, these commissions vary based on the type of product that they’re selling and the company-

Ryan Isaac: Yeah. Who makes it.

Reese Harper: Like we said. The XYZ amalgam, the ABC composite example earlier. We also talked about how sometimes the highest paying products are the ones that are on their proprietary line.

Ryan Isaac: Yeah.

Reese Harper: And the proprietary line pays more than anything else.

Ryan Isaac: And gives trips and bonuses and-

Reese Harper: Yeah.

Ryan Isaac: … pensions.

Reese Harper: You’ll find that a lot of the time. Most advisors do receive incentives that make them lean towards one product line or another. Especially the one where they’re kind of employed by or work with. You can kind of probably in your head imagine who those people are. If you know the name of the company that your financial advisor works for or works with, their may be a proprietary line there that you don’t know about.

Ryan Isaac: Yeah.

Reese Harper: The more present the brand of product is in your kind of relationship, the more likely there might be some kind of-

Ryan Isaac: You could check that.

Reese Harper: … concept.

Ryan Isaac: Like you said, if you know the name of the company which is most likely going to be a big bank.

Reese Harper: Yeah. Or a big insurance company.

Ryan Isaac: Insurance company. You can look in your portfolio at the funds you hold and it will probably have the name of that company in one of the funds that you hold.

Reese Harper: Yeah. Or you may have an insurance policy or an annuity product from that company as well. The fee only model would be advisors get paid a flat fee, an hourly fee, or a percentage, like we said, for different services. They can charge for financial planning. They can charge for consulting around financial issues. They can get paid to manage investments. They can charge fees to kind of help you develop a plan around insurance, estate, and taxation.

Ryan Isaac: Yeah.

Reese Harper: Talk to your CPA. Just coordinate things with your attorney. General consulting about budgeting and spending and personal financial issues. Struggles that you might be having in a spousal relationship or partnership.

Ryan Isaac: Yeah. It’s like personal budget mediation.

Reese Harper: Yeah.

Ryan Isaac: That’s in a marriage.

Reese Harper: Did that yesterday.

Ryan Isaac: Yeah.

Reese Harper: Advisors who only charge fees and don’t accept any commissions for product sales are called fee only advisors. It’s similar to a dental practice that would run independent of insurance. Just a fee for service practice that doesn’t really have any insurance mediation at all. They’re just charging fees.

Ryan Isaac: Yeah. Even with insurance, the fee only model is what a dental practice is most closely related to.

Reese Harper: Yeah.

Ryan Isaac: Because you’re going in and you’re paying someone a fee for a certain service and the more complicated the service, the more time it takes.

Reese Harper: Yeah.

Ryan Isaac: Sometimes it just costs more money.

Reese Harper: Mm-hmm (affirmative).

Ryan Isaac: It’s really similar.

Reese Harper: Yeah. I think you can kind of start to see the difference between those two kind of general models as we’ve kind of shared that story and kind of talked about these two frameworks.
The third one is when someone’s called duly registered or when they’re doing kind of both. Why don’t you talk a little bit about that one?

Ryan Isaac: Yeah. This is an advisor who’s, like you said, set up to do both things. They can build a portfolio where they’re not putting in front loaded with comm- Funds that are loaded with commissions. They call it front loaded. It can come on the back too but they’re just funds that have commissions. They can build portfolios without those. Low cost. They can be index fund providers and work just on a fee. But they also can sell investments in your portfolio that do carry a high commission. We’ve seen that with clients too.
This is probably the most confusing one to figure out because even the clients that we’ve had, had advisors like this. They’ll say, “I know my guys a fee only guy. I just pay him a percentage of the assets that I manage.” But if you look in the portfolio, you’ll see that’s true for 80% of the holdings and then they’ll be two or three private real estate holding positions or other-

Reese Harper: Limited partnerships.

Ryan Isaac: Yeah. Limited partnerships and things that were not paid with a fee but were paid with a pretty hefty commission because that’s just the nature of that product.

Reese Harper: That commission can range anywhere from- it could be 10% of the contribution that you made into that investment in an upfront-

Ryan Isaac: Yeah. In an upfront commission.

Reese Harper: … commission someone receives.

Ryan Isaac: Yeah.

Reese Harper: You thought that the whole time, your account was-

Ryan Isaac: Paying one percent.

Reese Harper: The real problem with that is like in the example we said earlier. If there’s different amounts of compensation that your dentist could receive from placing amalgam filling versus composite or, more importantly probably, Company ABC and Company XYZ if the compensation’s different between those two.

Ryan Isaac: Yeah.

Reese Harper: It’s just really hard to be objective. If your financial advisors, let’s say, is getting paid one percent on your account except for these certain investments that he brings to the table that give him a load of 10% when he has you include those in the account, it’s hard to be objective about whether those should really be in your account or not and if they’re suitable for your situation.

Ryan Isaac: That’s the problem.

Reese Harper: Yeah.

Ryan Isaac: That’s the problem. That’s where the confusion comes in. We found our clients that have had previous relationships with a duly registered advisor, there was a lot of confusion because they just assume, yeah, I pay my guy about one percent a year to manage my money. But I had no idea he got paid $50,000 last year when he put these positions in my portfolio. Didn’t know.

Reese Harper: Yeah. I think that, overall, I think the real point we’re trying to make is it just surprises me, in my mind, it’s surprising how common and confusing this arrangement is that financial advisors have with clients.
How have you seen, Ryan, this commission based arrangement or probably starting with that model. The commission based arrangement. How have you seen it have a- Is there a negative effect on client relationships? Has there been cases when it’s just been a neutral? It’s like there wasn’t really anything wrong with that.
Tell me about some things that just kind of come to mind. Maybe examples of clients where you’re like this was a bad situation and I was surprised how confused someone was about it and how long it took to unwind.

Ryan Isaac: Yeah.

Reese Harper: How much wealth really gets lost in this process.

Ryan Isaac: It does. The things that come to mind. The disappointment comes when people don’t really know it’s happening and then they finally learn it. When you meet someone and they’re kind of sharing with you what their portfolio looks like and they’re wondering. They have some questions. They don’t really know what they have or why they have it or what they’re paying for it.
When they start to realize that and they say things like, “Yeah, I don’t know what I pay my guy. I have no idea. I’ve never seen it on a statement.” And then when they realize that a lot of times it’s not in the statement and what it has actually cost them in upfront commissions. Especially in the case of more complex insurance and annuity situations-

Reese Harper: Yeah.

Ryan Isaac: … where people are having their retirement plans. This is a recent case where people having their retirement plans wrapped into annuity products.

Reese Harper: Explain that a little bit more. A client has-

Ryan Isaac: A client has a simple IRA at the practice. It’s a single location doctor and some employees. Just a really normal practice. The simple IRA which is usually a very, what sounds like a very simple thing to establish-

Reese Harper: Administer.

Ryan Isaac: … and administer in the practice, is somehow wrapped inside of an annuity that has- The simple IRA is deferring taxes to the future. That’s already happening so you put it inside of an annuity that defers taxes to the future. It’s redundant.
Now, there’s a second layer of fees, of costs, and you can’t move that plan. Maybe this person should move to a 401K or maybe the want to move the simple IRA to a different platform. In this case I’m thinking about, it’d be better to move the simple IRA to a different platform with better investment selection, lower cost options, lower fees. But they can’t move it because it’s sitting inside of an annuity. There’s penalties for moving the plan because the annuity hasn’t been around long enough.

Reese Harper: When I buy an annuity, I essentially pay a commission. Most times. You can buy annuities that-

Ryan Isaac: Yeah. There are some that are-

Reese Harper: … are fee only-

Ryan Isaac: Yeah.

Reese Harper: … annuities with no-

Ryan Isaac: No commission.

Reese Harper: Loans. Right? But that’s usually not what you see. You wouldn’t want to do that inside of a simple IRA.

Ryan Isaac: Not a lot of money in that business so they don’t get advertised very much.

Reese Harper: Yeah. So I have the simple IRA. I put my money into it and the reason it was sold to me is because the broker got paid a commission to use the annuity. Why didn’t he just use a simple IRA? Why did he put the annuity inside?

Ryan Isaac: It’s the worst dental practice in the world scenario.

Reese Harper: Okay.

Ryan Isaac: He got paid more money to put it inside of the annuity. If he sets up the simple IRA, he might make $1,000 that year.

Reese Harper: Yeah.

Ryan Isaac: But because he put it in the annuity, he made $10,000. 15 or 20.

Reese Harper: Yeah.

Ryan Isaac: Those are the cases that come to mind. It’s usually just disappointment when they figure out I thought I was paying maybe around X amount of money and it turns out it’s a lot more.

Reese Harper: Yeah.

Ryan Isaac: Or it turns out that it’s a lot more complex to make the changes that they should be making in the portfolio and they can’t. Their hands are tied because of fees and penalties and they didn’t know. That’s where relationships get really strained and frustration comes in. It’s tough to see that.

Reese Harper: The one thing that you’re kind of highlighting is an important principle. In any business and especially in financial services, the goal of the bank or the goal of the custodian, the goal of any provider, is to manage a lot of money. Right? They want to-

Ryan Isaac: Yeah.

Reese Harper: … have control of a lot of money because that allows them to generate the most revenue.

Ryan Isaac: Mm-hmm (affirmative).

Reese Harper: A lot times, what you’ll see in these commission based models, especially when it comes to insurance products is the insurance company whether they’re using an annuity or a life insurance product or any kind of derivative of life insurance, they’ll find all kinds of complicated ways to make sure that that money never leaves.

Ryan Isaac: Yeah. It sticks around for a while.

Reese Harper: You’re just basically saying, “Crap. We’re kind of stuck because we put this money in this annuity and I can’t really do anything about it because if I take it out, I get penalized. If I leave it in, I’m being charged too much. What do I do?” And you just end up sitting there and doing nothing.

Ryan Isaac: Yeah. You do nothing. Another thing I’m thinking about. The nature of these relationships too. You said this earlier in the story. The incentive for that advisor and that type of a model to innovate or be more educated or learn more about how to provide different investment strategy or account set up strategy or something. It’s very little. There’s not much incentive. In fact, the only incentive in the model where commissions are driving everything is to have as many accounts as you possibly can and talk to those people as little as humanly possible.
You and I know people in our industry that that’s a bragging point to be like, “Man, I’ve got two $3,000 accounts and they never call me. I haven’t talked to most of them in three years and hardly anyone leaves.” Well, it’s because of what you just mentioned. No one leaves because it’s too complex and too messy and too expensive and they don’t have to talk to anybody. That’s a bragging point.

Reese Harper: So sad.

Ryan Isaac: Yeah. I find that’s really common when we meet new dentists too. Is they actually don’t-

Reese Harper: It doesn’t really go well in our employment interviews when we’re trying to interview a new potential financial advisor.

Ryan Isaac: Which has happened before.

Reese Harper: Yeah.

Ryan Isaac: We’ve met someone in the industry.

Reese Harper: Okay. You just don’t want to have that experience.

Ryan Isaac: Yeah.

Reese Harper: In an interview and you’re bragging to your future employer about how little work you do right now. How many people you’ve met and never have to talk to. It sounds great, I guess. I don’t know. It just sounds like a fleece job.

Ryan Isaac: Yeah.

Reese Harper: I think the point is anytime you have a commission based relationship, your financial advisor gets paid something in advance and he has less incentive to do anything once that commission is paid. You just don’t want to be in a relationship like that.
The point of our story today is most people listening to this are working with someone who they know that this applies to.

Ryan Isaac: Yeah.

Reese Harper: They know that they probably should make a change.

Ryan Isaac: Haven’t talked to them in two years.

Reese Harper: That person’s not servicing them properly.

Ryan Isaac: Yeah.

Reese Harper: They just don’t want to rock the boat because it’s either too hard to, uncomfortable to make a change, or they just don’t want to hurt a friend’s feelings or it’s a brother-in-law, it’s a family member.

Ryan Isaac: A patient.

Reese Harper: It’s a patient.

Ryan Isaac: That’s really common. Yeah.

Reese Harper: You’re hurting your own personal financial future by holding on to something that is not in your best interest. We just wanted to share that story today about the worst dental practice in the world.

Ryan Isaac: We hope it doesn’t exist anywhere.

Reese Harper: I hope it doesn’t exist.

Ryan Isaac: That’d be a really innovative, crazy model. Dental business model.

Reese Harper: But just realize that, for the most part, that’s how a lot of the industry is working right now. So keep your eye on it, look out for your friends, and kind of bring- Share this podcast with any dentist that you know who might be going through this.

Ryan Isaac: Save a dentist, share our podcast.

Reese Harper: Save a dentist and share our podcast.

Ryan Isaac: Yeah. Here’s what we’d say too. We want to mention that we’d like to offer a free portfolio review to anyone who would like feedback on your investments. If you’d like to know what kind of relationship you have with the advisor or the bank or the insurance company that you’re working with, what investments you hold, how it’s invested, how it’s allocated, what it’s costing you, we have a website set up where you can get in touch with us and send us the information we need to get back to you and give you some feedback.
All you have to do is go to dentistadvisors.com/review and we’ll put the link in the show notes here. It’s dentistadvisors.com/review. Just follow the instructions, upload your statement, and schedule a time with us to go through it. We’ll be happy to call you and give you some feedback and kind of just give you some advice around what your current situation looks like. We’d really love to hear from you. Again, that’s dentistadvisors.com/review.
As always, thanks everyone for listening. If you ever want to chat with us, you can go to our website dentistadvisors.com and click the link at the top of the page to book a free consultation. Love to hear from you anytime.

Reese Harper: Carry on.

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