4 Questions Your Advisor Should Be Able to Answer – Episode 83

What is the role of a good advisor? It depends who you ask, which is part of the problem with the financial industry—there’s no real consensus. In this episode of Dentist Money™, Reese & Ryan explore the spectrum of services offered within financial planning and how some advisors fall short of expectations. They also explain the difference between performance-based and advice-based planning.

Podcast Transcript:

Speaker: Consult 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 furnished 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 in studio, Sir Ryan Isaac.

Ryan Isaac:: In-studio.

Reese Harper: And-

Ryan Isaac:: And-

Reese Harper: …a special guest today that will become a fixture in the studio-

Ryan Isaac:: Permanent fixture-

Reese Harper: Justin Copier.

Justin Copier: How you doing, guys?

Ryan Isaac:: What’s up, Justin?

Reese Harper: Justin, it’s really nice to have you in studio.

Ryan Isaac:: It is.

Reese Harper: Now, yesterday, when we posted this video on Facebook of our new studio video test, you were referred to as the Q & A guy.

Ryan Isaac:: Yeah-

Reese Harper: …because of the shot that was taken of you standing behind a microphone.

Ryan Isaac:: You look like you’re a conference when they open it up to the audience, and the mike’s in the middle of the aisle, and you come up. You’re like, “Oh, hello, sir. It’s an honor to be here. Long-term fan. Quick question for the presenter on the right.”

Justin Copier: That’s fine. At this point, I’m just happy to be here-

Ryan Isaac:: Question for the bald guy-

Justin Copier: Just happy to be here.

Ryan Isaac:: The video production team that was helping us get this all set up called me the heel.

Reese Harper: The heel-

Ryan Isaac:: So, you’ve got that option, too. Just fair warning, nicknames stick, even unintentional nicknames, they stick with you for life. For life.

Reese Harper: Sir Ryan Isaac.

Justin Copier: I’m just not going to try to give myself my own nickname.

Ryan Isaac:: Don’t self-gloss.

Reese Harper: We’re going to see what comes up over the next few weeks in terms of nicknames for Justin. We’ve got a few things going in the studio.

Ryan Isaac:: We’ve got something in the works.

Reese Harper: Q, I like Q.

Ryan Isaac:: I like Q. That’s a hearken, it kind of goes back to the James Bond era.

Reese Harper: It’s Q in the studio.

Ryan Isaac:: Yeah, ooo.

Reese Harper: He came-

Ryan Isaac:: Q in the studio.

Reese Harper: …to the mike to ask his first questions. And, so-

Ryan Isaac:: It looks like it-

Reese Harper: You’re going to love Q because he is [crosstalk 00:01:50] going to break up this jargon occasionally between Ryan and I that might get complex.

Ryan Isaac:: Yeah.

Reese Harper: And when both of us get down into our subject matter expertise and may not explain things quite as well as we should.

Ryan Isaac:: Well, he is the one that will say, if you’re ever listening and you’re like, “What are they talking about?” That’s actually what he’ll vocalize

Justin Copier: I’m going to try the represent the voice of the audience-

Ryan Isaac:: I like it.

Reese Harper: Yeah-

Justin Copier: …how about that?

Reese Harper: Thank you for being here.

Ryan Isaac:: The voice of the audience.

Reese Harper: Q, the voice of the audience.

Ryan Isaac:: I’m still liking it.

Reese Harper: I like Q.

Ryan Isaac:: Q-bert.

Reese Harper: Okay. There’s really, today’s podcast is a really important one.

Ryan Isaac:: They always are.

Reese Harper: This one’s extremely important because we’ve spent like-

Ryan Isaac:: The other 83 are terrible, but this one-

Reese Harper: This one.

Ryan Isaac:: This one’s the important one.

Reese Harper: We’ve spent a good, solid 12 hours thinking about this and I think I’ll turn this over to Sir Ryan Isaac for how he wants to head into this subject-

Ryan Isaac:: Yeah. Well, the topic is that the term, financial planning, does not mean anything. There is no definition of financial planning. There’s no consensus on it. There’s no agreement on what that actually means-

Reese Harper: You couldn’t define it in a sentence.

Ryan Isaac:: You couldn’t define it. No, so for example-

Reese Harper: Well you could. You could say planning for someone’s finances.

Ryan Isaac:: Yes. That’s not vague. The example when we were talking about this yesterday, Q and I.

Justin Copier: I was there. On the whiteboard.

Ryan Isaac:: Q was on the whiteboard. We were talking about how, let’s say you just moved to to any city in the country, you could move anywhere. As soon as you move, you’ve got to find a dentist to go to. And you Google some good reviews and who’s near your house.

Justin Copier: What do I Google?

Ryan Isaac:: Dentists in your city. You move to Milwaukee, Milwaukee general dentist.

Justin Copier: I do the suggested search by Googling “dentist near me.”

Ryan Isaac:: You could do that.

Justin Copier: Okay.

Ryan Isaac:: You could do that. The point is that no matter where you go, even though there will be nuanced differences in clinical skills, in office presentation, in personality and management style and staff training, there are meaningful differences in the way the businesses are run. You still have a clear expectation of what it means to go to the dentist. It’s definable.

Justin Copier: Yeah.

Ryan Isaac:: I’m going to get some X-rays, I’m going to get my teeth cleaned, I’m going have a hygienist come clean my teeth, I’m going to get an exam. I’m going to get some advice.

Justin Copier: And I know I’m not going to get a used car.

Ryan Isaac:: I’m not going to get a used car. What?

Justin Copier: I know that I’m not going to get sold a used car.

Ryan Isaac:: Yes.

Justin Copier: I know what the dentist experience-

Ryan Isaac:: Yeah. You-

Justin Copier: …means.

Ryan Isaac:: You know what it means. You’re not going to leave there buying something you didn’t expect to buy when going to the dentist. Maybe a cool electric toothbrush.

Justin Copier: Yeah.

Ryan Isaac:: I bought that once at a dentist and I didn’t expect-

Justin Copier: I hope I[crosstalk 00:04:31].

Ryan Isaac:: …didn’t expect that. I was excited-

Justin Copier: I hope I get when I go.

Ryan Isaac:: Yeah. So Q, Justin Copier, we were talking about this, and it was interesting to think about that industry. Something that you can rely on. The service that you know what you’re getting. Now, if you said, “I need a financial planner.” You Google financial planner near me, what’s the range of people that you’re going to get, and the service models and the pricing models that you’re going to come up with? It’s vast.

Justin Copier: Yeah.

Ryan Isaac:: That’s the point of today’s topic, is there’s no consensus in that. And that’s what makes for sloppy finances.

Justin Copier: That’s why if you look in the Google keyword search tool, which I have done-

Ryan Isaac:: Okay.

Justin Copier: And-

Ryan Isaac:: You’ve been spending hours of SCO research in the middle of the night.

Justin Copier: If you look at-

Ryan Isaac:: It’s not fair.

Reese Harper: If you look at closely followed, searches that have been performed after a search has recently been done, so if you search for financial planners near me, the next highest searched word right after that is…UGH! It’s just-

Ryan Isaac:: UGH. It’s just like a groan.

Reese Harper: Yeah.

Ryan Isaac:: That was a joke. It could be serious though.

Reese Harper: Q, that was a joke.

Ryan Isaac:: We may or may not keep that in the podcast.

Reese Harper: It’s true, though. That’s the problem.

Ryan Isaac:: Okay, so anyway. You know what you’re going to get, but you don’t get that consensus in financial planning.

Reese Harper: Yeah. That’s the problem. Unlike going to the dentist, you really don’t know what to expect when you call an advisor. So there’s a few things to this that create the problem. No consensus; it’s not defined. Everyone gets paid in so many different way. Even, let’s take a broker, who’s earning a commission, right?

Ryan Isaac:: Yeah.

Reese Harper: How many shares, how many commission structures in share classes of a mutual fund are there that could pay somebody?

Ryan Isaac:: Yeah. Dozens.

Reese Harper: How do you even figure that out?

Ryan Isaac:: I just think the point, it’s hard to…We won’t go through this. We’ve gone through fee structure in-

Reese Harper: Yeah.

Ryan Isaac:: …detail in the past, but there’s-

Reese Harper: I digress.

Ryan Isaac:: 12 different ways that people get paid, so that’s one way.

Reese Harper: And then services, even you take two people who get paid the exact same way, you’re going to get different services.

Justin Copier: Yeah.

Reese Harper: And Justin and I were talking about this yesterday. There’s two kind of lowest common denominators to fall back into in the financial services industry. The old tried and true ways to make money in the industry. One is gathering assets and opening accounts for as many people as you can. The second is to sell products. Usually insurance or annuity products.
I think that’s another problem with it, too, is those are just the easy ones to fall back into.

Ryan Isaac:: Yeah.

Reese Harper: You know? Anyone will ultimately do the minimum amount at the end of the day, I feel like.

Ryan Isaac:: Yeah.

Reese Harper: People fall back to doing the minimum amount of work required to make the client-

Ryan Isaac:: The results, yeah.

Reese Harper: …to be happy.

Ryan Isaac:: Yeah. Enough. To not leave.

Reese Harper: Yes. Not leave. Not happy, but maybe not just leave.

Ryan Isaac:: Yeah. And that’s not a good place to get to, but you have to realize that that’s the nature of how most businesses are going to work. They might be able to over-service you up-front, like you’ll get that financial advisor that takes you to lunch and spends a lot of time with you for those first four to six months before you buy your products from them.

Reese Harper: It’s a cording phase.

Ryan Isaac:: Yeah. But then after that, they’re somehow gone. Then you’re like, “Where did all the free lunches go?” Where…

Reese Harper: Isn’t that a song? Like where did all the free lunches go?

Ryan Isaac:: It’s a book.

Reese Harper: It’s a book.

Justin Copier: Well, Ryan, we even talked about that happening with really well-intentioned-

Ryan Isaac:: Yeah.

Justin Copier: …advisors that know what it means to do comprehensive planning that still kind of revert to that mode-

Ryan Isaac:: Totally.

Justin Copier: Talk about how that happens-

Ryan Isaac:: Yeah.

Justin Copier: …in most cases.

Ryan Isaac:: That’s really good point. I think there’s two people in that camp where…Some are just selling. They’re just pitching, like, “Yeah, I’ll do that. I’ll do all this stuff for you.” And they know they’re not going to; they know they can’t or they’re not going to, But then, I think there’s a fair amount of people who are capable, they are able to pull it off. They’re competent enough to pull off a lot of services in financial planning, and it might work in the beginning, when they’re not too busy.
But the reality is that, unless there is a system in place, with steps to follow, with staff that do certain jobs, with tools and technology, then after that person, no matter how well-intentioned or competent they are, they’ll just get busy to a point where they have to back out of services slowly over time.

Reese Harper: Yeah.

Ryan Isaac:: And then kind of go back, fall back, into the lowest common denominators of the industry. A dentist’s office could do the same thing. If you started up a new office by yourself with your first handful of patients, you could answer your own phones, you could do your own hygiene, you could schedule. But eventually, if you don’t hire the people and farm out those jobs and have processes for patient flow and experience in systems and technology, you can’t keep it up.

Reese Harper: Yeah.

Ryan Isaac:: And that happens a lot, too. I think we have clients that come from other firms or advisors who are respectable people. They’re trying to do a really good job, but the systems just aren’t there to ensure that they can maintain that quality of service perpetually. And, as they get busier-

Reese Harper: Yeah.

Ryan Isaac:: …it’s just tough.

Reese Harper: I remember an example, actually, of this that just happened recently, where I had a new client, couple, that was really successful come on board. They had a financial advisor and they had a CPA, and both of those advisors had good relationships with this client. It was interesting that the financial advisor, their perspective was, “We’re doing a really, really great job with their investments, and the investment accounts are performing well, and they’re getting market rates of return.” The advisor’s offering the returns the market has to offer, and-

Ryan Isaac:: They’re growing.

Reese Harper: They’re growing, and the client felt good about it. But they still felt like there was a big gap in not having answers to a lot-

Ryan Isaac:: The client did.

Reese Harper: …of questions. It’s interesting because this advisor can be getting paid the same as our firm or anyone else’s firm. They might all be getting paid a similar percentage on investment accounts to manage them, but one firm might be delivering three times the amount of services than another firm is. Or different services. Maybe not three times the amount, maybe it’s just totally-

Ryan Isaac:: Different, yeah.

Reese Harper: …different services. But since the compensation…Like we said at the beginning of the podcast, what financial planning is is not defined clearly. Sometimes…Most advisors will get to where they focus on investment accounts, even competent advisors, they focus on investment accounts instead of focusing on someone’s overall net worth growth.

Ryan Isaac:: Yeah.

Reese Harper: Their overall financial health. And that will eventually cause clients to get to a point where they don’t really know where they stand exactly in their own progress and decision making is cluttered.

Ryan Isaac:: Yeah.

Reese Harper: I think that’s important.

Ryan Isaac:: Well, you mentioned it being a recent example, but that’s not an uncommon example.

Reese Harper: No.

Ryan Isaac:: We meet people all the time who have patients, family members, best friends, that are the current advisors, some of them doing a great job, being very transparent, working very hard for them, and even getting good returns in investment accounts. The problem is when you just put investment return numbers in front of someone without the context of how does this help my net worth or what does this do to my taxes or my savings rate, or my spending-

Reese Harper: When-

Ryan Isaac:: …or when can I retire?

Reese Harper: When is work going to be optional?

Ryan Isaac:: Yeah.

Reese Harper: I think it boils down to really simple questions, because some of those that you just said are technical-

Ryan Isaac:: Those-

Reese Harper: …that you like. Okay?

Ryan Isaac:: Q, those are too detailed.

Justin Copier: Yeah. I appreciate you calling me Q.

Ryan Isaac:: Q left the room. He’s not even here anymore. He’s like, “I don’t know…”

Reese Harper: Don’t you think that it has-

Ryan Isaac:: You’re right. How am I doing? Am I Okay.

Reese Harper: When will I be able to, when is work optional for me? When can I slow down?

Ryan Isaac:: Yeah.

Reese Harper: Or, am I putting my money in the right places?

Ryan Isaac:: Yeah. [crosstalk 00:12:35]

Reese Harper: And when someone has those questions and they’re unanswered, if you just say, “You’re getting a 12 percent return.”

Ryan Isaac:: Yeah.

Reese Harper: Is that good?

Ryan Isaac:: Yeah.

Reese Harper: Do I need it?

Ryan Isaac:: Yeah.

Reese Harper: Is it bad? Do I need more?

Ryan Isaac:: Yeah. Good financial planning is not reporting on your investment accounts and discussing investments alone.

Reese Harper: It’s a piece of it.

Ryan Isaac:: It’s a big piece of it.

Reese Harper: Yeah.

Ryan Isaac:: But without the context of your overall financial health, most people are left confused and wondering, am I really getting what I’m paying for?

Reese Harper: Yeah.

Ryan Isaac:: And some advisors just don’t have that value proposition nailed down.

Reese Harper: Mm-hmm (affirmative)-

Ryan Isaac:: And they’re not able to service clients in a way that…They don’t have the technology, they don’t have the infrastructure, the system-

Reese Harper: The staff.

Ryan Isaac:: …the knowledge of[crosstalk 00:13:19] who their customer is.

Reese Harper: Yeah, I was going to say I hear the feedback frequently. People get frustrated with not working with, not just a financial advisor, but other professional service providers in their lives. They don’t get hard opinions on something. I want to know, what do you think about this topic, so…

Ryan Isaac:: Yeah, and you don’t want to give people bad advice, so you just tend to go, “Well, you could, it’s really this…

Reese Harper: It’s up to you.

Ryan Isaac:: What do you think?

Reese Harper: You could do it either way. It’s really a personal call. I love that kind of advice. You know, Ryan, it really is a personal decision.

Ryan Isaac:: You can overpay taxes, or underpay. Your personal choice. What do you think?

Reese Harper: Your personal choice. So I think there’s also just this idea that just to hearken back to what we were saying earlier, I think it’s really substantive about this what is financial planning conversation? Which is, if you have a relationship that’s focused on getting accounts set up and getting your investments going, you’ll notice that the communication just kind of slowly dies off. And then it becomes more your responsibility to follow up with your guy.

Ryan Isaac:: Once a year, once every couple of years.

Reese Harper: You have to follow up with your advisor to get planning done. He’s not following up with you. There’s no proactive process where you’re just watching it happen.

Ryan Isaac:: Let’s pause there for a minute.

Reese Harper: Pause game.

Ryan Isaac:: I think we should pause the game. When we come back, here in studio with Reese Harper and Q, Justin.

Justin Copier: I’m here. I’m still here.

Ryan Isaac:: Justin Copier. Q.

Reese Harper: Q-bert?

Ryan Isaac:: We’ll come back and we’ll ask the question: What should your conversations be like with a financial advisor to know if you’re getting what you think you want to get out of financial planning.

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.
And 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.
And we’re back from break.

Ryan Isaac:: Here we are.

Reese Harper: I’m going to take a drink of water, and I want you to introduce this next segment.

Ryan Isaac:: Because over break, you don’t take water.

Reese Harper: I haven’t had a chance.

Ryan Isaac:: We take a break to talk about silly things. Then we come back, record live, while you drink water.

Reese Harper: Yes.

Ryan Isaac:: Drink it as close to the microphone as possible. That’s the best sound ever.

Reese Harper: AAAAHHHHHHHH. Okay moving on.

Ryan Isaac:: We mentioned this before we went to break. What should your conversations be like, sound like, feel like when you are engaging a financial planner who is doing financial planning the way you probably expect it to be done?
Here’s what I would say first. Here’s what I would say first. I’ll lead this off.

Reese Harper: That was not a question for me, then.

Ryan Isaac:: No, it was rhetorical. I’m taking to myself. Okay. I would describe it that your conversations should feel like an ongoing educational process. It should be more than just hearing about something that’s happening in an account or an insurance policy, but it should be somewhat educational. I realize some people don’t hire us to learn a lot about finances. Some people do it to get it off their plate so they never have to think about it. But at some level, you should feel like you’re being taught, definitely not sold, not talked down to. It should feel like that at some point.

Reese Harper: Yeah. I think Dave Ramsey said that the best financial advisors have the heart of a teacher.

Ryan Isaac:: A golden teacher. The golden heart of a diamond teacher.

Reese Harper: I don’t think he actually used any of those adjectives.

Ryan Isaac:: Nope. Did not.

Reese Harper: But he did say-

Ryan Isaac:: That’s why we can use the phrase now. We can use that phrase if we use those. I came up with the phrase I stole Dave Ramsey and added some flowery words on it like diamond and gold.

Reese Harper: Diamond and gold.

Ryan Isaac:: Those are actually the levels of the MLM I’m in. Okay, so, some people don’t want to be taught all the time, and we get that.

Reese Harper: Yeah. It isn’t that exciting for some people.

Ryan Isaac:: Yeah, there just like, just…I mean, we think it is.

Reese Harper: Just help me understand it.

Ryan Isaac:: Justin spends weekends on spreadsheets.

Reese Harper: Yeah he does.

Justin Copier: That’s what I do for fun.

Reese Harper: Mm-hmm (affirmative)-

Ryan Isaac:: But not everyone-

Reese Harper: And on the weekends[crosstalk 00:18:19]. I do think if you take all these segments together, though, what should the conversations be like. This is taking a long time to clearly articulate. I would say there are four general questions that drive any financial planning process.

Ryan Isaac:: And hundreds of subquestions.

Reese Harper: Hundreds of subquestions, but these four general ones are what you’re trying to get to. Number one, is this person..when will work be optional for this person?

Ryan Isaac:: Yeah.

Reese Harper: When’s the likely point in time when work will be optional?

Ryan Isaac:: Mm-hmm (affirmative)-

Reese Harper: You start by determining that by looking at someone’s net worth. And it order to get their net worth, you have to collect the value of the practice, you’ve got to understand how much debt they have in the practice, and personally, all their assets, all their debts, all their accounts, all their tax returns. That really lets you determine a really clear personal financial statement that answers question number one, which is when will work be optional for this person-

Ryan Isaac:: And that question, people are asking that constantly, but I think they ask it in an even more simple way. People are just always wondering, am I doing okay? And that’s what they’re wondering. Am I on track to making optional when I want it to be optional?

Reese Harper: Yeah, when you start out and all you have is a personal financial statement, all you’re really getting, though, is are you okay as of now, today?

Ryan Isaac:: Yeah.

Reese Harper: For a 39-year old, or for a 57-year-old, or for 71-year old, is it normal-

Ryan Isaac:: Am I where I should be?

Reese Harper: Yeah, are you, for your age and what you earned, is your net worth in a similar range to other people who have earned what you’ve earned-

Ryan Isaac:: Yeah

Reese Harper: …and who are your age.

Ryan Isaac:: Sub-question would be, is it moving at an appropriate rate?

Reese Harper: Yeah, and-

Ryan Isaac:: Is it where it should be?

Reese Harper: …you won’t know that unless you track it for a while-

Ryan Isaac:: Yeah

Reese Harper: …or you can measure where people have been historically. Which is really hard if people haven’t been organized.

Ryan Isaac:: Yep.

Reese Harper: So you can’t really get to know that question unless you’ve worked with someone for a while. People will always tell me, yes, we save a lot of money, and we’ve made a lot of progress, and we’re really excited about where we’re at. And I’ll say, “Great!” Then I’m assuming in my head they might have had $50,000 of net worth growth per calendar quarter-

Ryan Isaac:: Yeah, calculated-

Reese Harper: …historically.

Ryan Isaac:: …documented.

Reese Harper: And then we work with them for a year or two, and we realize, Wow! The things they thought were happening aren’t really happening and every calendar quarter that passes, we can make an adjustment.

Ryan Isaac:: Because until it’s quantified with actual data and numbers, it’s just emotional. And the feedback you get back from your…You could just see your checking account grow in the business and think everything’s wonderful. Or you might have collected more than last year and feel like, we’re totally on the right track.

Reese Harper: Yeah.

Ryan Isaac:: But those might not be indicated that you are actually on the right track.

Reese Harper: Yeah, so that first question, when is work going to be optional for me, your advisor should be able to look at your situation right now and say, for a person that is your age who has earned what you have earned, you are either behind or ahead of where the average person might be.

Ryan Isaac:: Yeah.

Reese Harper: If they don’t have enough information to give you that context, it’s really hard to start with a solid foundation. When I get that first personal financial statement completed, I can look at it and go, okay, this person must have started working a little late. Maybe they’ve entered dentistry a little later-

Ryan Isaac:: Yeah

Reese Harper: …or maybe they started real early. Wow! They’re way ahead of where I would normally see this data. Let’s list the four questions right now. And then we’ll dive in.
The first question you want to ask is, when is work optional?

Ryan Isaac:: Yeah.

Reese Harper: The second one is-

Ryan Isaac:: Is my money in the right places?

Reese Harper: …is my money in the right places? The third one is, where does my income go. Yes, where does my income go.

Ryan Isaac:: Every time you tell a dentist what they made on paper, they’re like, “No, I didn’t.” Yes. “Where does it go then?” And then, am I taking too much, or too little, risk?

Reese Harper: Mm-hmm (affirmative)-

Ryan Isaac:: You know, what’s my risk level?

Reese Harper: Yeah.

Ryan Isaac:: So I think those four questions are super essential. We’ve kind of talked about the first one. The second one, is my money in the right place, or have I put my money in the right place-

Justin Copier: Yeah, maybe another way to say it is am I building the right mix of assets?

Reese Harper: Yeah.

Justin Copier: Am I building the right mix of assets?

Ryan Isaac:: Am I balanced? Am I imbalanced in any part of my life? Because that’s a really impactful…Getting to retirement on time is huge, right?

Reese Harper: Yeah

Ryan Isaac:: Or accomplishing that goal. But the way that you actually start living on all of the stuff you bought or saved along the way varies very widely.

Reese Harper: Yeah.

Ryan Isaac:: It’s incredible. If you’re heavy in one asset class or another, or have a lot of liquidity or not very much, or the bulk of your assets still have to be taxed eventually, or they’ve already been taxed. That changes the way you invest, the risks that you take, your time frame. It changes a lot of things.

Reese Harper: Yeah, I just emailed somebody this morning, actually. I said, “You’ve got four times the amount of real estate equity as people your age do. You’ve really, really gotten excited about acquiring property and paying off all your debt, but your liquidity has suffered as a consequence of that.” Right?

Ryan Isaac:: Yeah.

Reese Harper: And so when you talk about, like Q said, what’s the right mix of assets, right? Do I have the right mix of assets, then they only can, you can kind of have a mix in four categories: you’ve got real estate; you’ve got liquid assets; you have retirement plans, we call them qualified assets-

Ryan Isaac:: Hasn’t been taxed yet

Reese Harper: …and then we have business equity. Okay? Those four categories are what every entrepreneur/professional has in their asset mix, and those need to be, I guess you expect for those to be at certain proportions, unless people have had habits that have pushed them-

Ryan Isaac:: Yeah

Reese Harper: …kind of down one road or the other.

Ryan Isaac:: Mm-hmm (affirmative)-

Reese Harper: So, you’ll be able to look at those norms and go, okay for a 42-year-old that has a $2.6 million net worth, that might smell a little normal to me. That might smell like, okay-

Ryan Isaac:: Yeah

Reese Harper: …that’s not wide, for a dentist who has maybe has earned $300,000 or between 250 and 350, that might be normal. But if I saw that net worth and said, it’s all in a primary residence-

Ryan Isaac:: Yeah, a quarter of it’s your primary residence

Reese Harper: …and a building that they own-

Ryan Isaac:: Yeah

Reese Harper: …and they’ve got only $300,000 of their net worth’s in liquid and qualified assets, I might go, UGH. Man they’ve missed out on a huge opportunity cost. Let’s see if we can make some adjustments to get them in a more diversified-

Ryan Isaac:: Yeah

Reese Harper: …net worth situation.

Ryan Isaac:: To your point, though, and what we’ve been saying this whole time is, if that’s not being addressed along the way and noticed and discussed and talked about-

Reese Harper: What are you going to do about it now?

Ryan Isaac:: …What do you do 20 years later-

Reese Harper: Yeah

Ryan Isaac:: …when that imbalance grew even bigger.

Reese Harper: So I think that’s the mix of assets idea. The third question, where does my money go? It can only go to four places.

Ryan Isaac:: Yeah.

Reese Harper: You can save it, you can spend it, you can pay down your debt, and you can pay taxes. You can do one of those four things, and the ratios on that are really critical.

Ryan Isaac:: Yeah

Reese Harper: If your advisor doesn’t have a good handle on that, that’s what we mean by “cash flow.” Everyone will say, “Yeah, we’ve got to know your cash flow.”

Ryan Isaac:: What do you mean by that?

Reese Harper: It’s not just taking the net income at the bottom of the P&L. [inaudible 00:25:40] understand your cash flow.

Ryan Isaac:: Yeah. We need to know-

Reese Harper: Personally, where does your income go every year?

Ryan Isaac:: How much do you put toward spending, savings, debt, and taxes, and what can we…? That’s what we’re going to be able to use, moving forward, to fix that imbalance in-

Reese Harper: Oh, yeah

Ryan Isaac:: …your asset mix that we’re going to try to work on. And so, if we don’t know exactly what that looks like…and how many times have you seen a financial advisor ask a client, how much do you think you could save? And the client just-

Reese Harper: Yeah

Ryan Isaac:: …gives them a number.

Reese Harper: And that turns out to be-

Ryan Isaac:: That’s how funding of retirement plans gets determined, generally, in the industry is, what do you want to do?

Reese Harper: Yeah.

Ryan Isaac:: Three grand a month? All right. Let’s do it.

Reese Harper: Yeah. Do you have 10, do you have 20, you have four?

Ryan Isaac:: What have you got?

Reese Harper: What do you want to do?

Ryan Isaac:: You just tell me.

Reese Harper: And, ultimately, the client doesn’t know enough about their cash flow to really make that decision. It’s a hard thing to measure for all of us.

Ryan Isaac:: It is, yeah.

Reese Harper: So that process of where[crosstalk 00:26:37]

Ryan Isaac:: And you need client feedback on that, to some degree.

Reese Harper: Yeah.

Ryan Isaac:: You could say, technically on paper, Mr. Klein, you should have 10 grand a month left over, and he’s like, “That doesn’t feel right”-

Reese Harper: That doesn’t feel right.

Ryan Isaac:: …”I’ve got six, and our spending’s probably higher than we think.”

Reese Harper: Yeah. Or if their debt to income ratio is 47%, if they’ve got a 55% total debt to income ratio, that’s not going to-

Ryan Isaac:: Yeah

Reese Harper: …that’s not going to allow for you to develop a normal lifestyle and have a vacation occasionally and just be less stressed out about money-

Ryan Isaac:: Right.

Reese Harper: … because you’re going way too aggressively at your debt, and you’re not allowing yourself to build any retirement assets, no liquidity, and so that mix of, is your money going to the right place? is really crucial.

Ryan Isaac:: Okay.

Reese Harper: The last one’s how much risk am I taking?

Ryan Isaac:: Yeah what kind of risk am I taking?

Reese Harper: You can really take risks in a lot of different areas, but if we’re to group them together, we’re talking about investment risks, is your portfolio too aggressive or to conservative? We’re talking about insurance risk, liability, malpractice, business, personal, life, disability, health care; all those risks need to be measured and quantified. And then we’re talking about how you’re running your practice. Your profit margin.

Ryan Isaac:: Mm-hmm (affirmative)-

Reese Harper: If your practice is always at the…Profitability is a measure of risk. And if, for some period of time, businesses choose to have really low profits, because they-

Ryan Isaac:: Yeah, reinvesting-

Reese Harper: …they reinvest it, they want to grow, they want to take a little more risk.

Ryan Isaac:: Yeah.

Reese Harper: But if you’re at a point where you don’t have a conscious plan for why your profitability is low, all you’re doing is you’re taking too much risk in your practice-

Ryan Isaac:: Yeah

Reese Harper: … because you’re probably overcompensating, you’re probably over-investing in marketing, you’re-

Ryan Isaac:: There’s waste

Reese Harper: …you’ve got waste, or you’re not growing properly. And so the percentage of profit that you keep after you receive your fair compensation as doctor, that’s 5% to 6%. Most of you think of overhead, you probably think about your overhead in terms of how much of your total collections goes to overhead and then whatever’s left over is what you keep. When we say profitability, we’re talking about, regardless of whether you were the producer, or you had an associate producing it, and you’re paying them 30 to 35%, what’s left over after that?

Ryan Isaac:: Yeah

Reese Harper: And that’s what we’re talking about with true profitability, because most people, sometimes you’ll see practices that will say I’m profitable, but they’re getting 35% and they’re overhead’s 65%-

Ryan Isaac:: Yeah, so you’re getting paid for the production

Reese Harper: …you’re getting paid for your production but your not getting paid anything for running the business.

Ryan Isaac:: Yeah

Reese Harper: And so that’s what we’re talking about profitability and risk there, so-

Justin Copier: Okay. Hit those one more time, the four questions.

Reese Harper: Four questions: When is work optional? How did you put it, Justin?

Justin Copier: Am I building the right mix of assets?

Reese Harper: Am I building the right mix of assets? I like that one. Number three is where does my income go? And number four is am I taking he right amount of risks.

Justin Copier: Yeah.

Reese Harper: Those are my financial planning questions.

Justin Copier: I think what I’m hearing you guys saying is that these are the questions that the consumers they want to have answered, but a lot of times they get sidestepped because the focus for the advisor is on performance.

Reese Harper: Yeah.

Justin Copier: And so, this is a really good way to gauge if they’re addressing the right things, if they’re organized-

Ryan Isaac:: Yep

Justin Copier: …and if they understand where you’re going aside from just getting good rates on your insurance or good performance on your investments.

Ryan Isaac:: Yeah. Well, those things will really matter. Then if your advisor comes to your and says, “Our rate of return on your investments is X,” if you know those four questions, then there’s context there, and that’s a meaningful number, to know what your performance is.

Justin Copier: Yeah.

Ryan Isaac:: You know, how my accounts have grown. That means something.

Justin Copier: Yeah, you care about it, for sure.

Ryan Isaac:: But without those things, it’s kind of an arbitrary number-

Justin Copier: It’s a gap.

Ryan Isaac:: It’s a gap…There’s just gaps in your confidence, right. And I think, just like Justin said, if you’ve got those four questions, you’re kind of using those to gauge whether your financial advisory relationship is healthy-

Justin Copier: Yeah

Reese Harper: Mm-hmm (affirmative)-

Ryan Isaac:: …then-

Justin Copier: And if I’m okay. Am I okay?

Ryan Isaac:: Yep.

Justin Copier: And those really get to the heart of whether you’re going to be okay.

Reese Harper: Yeah, and within those questions, to make that all happen, there’s a lot of analysis that needs to be done. And don’t take someone at face value. If you say, “Was my income going in the right places? Am I putting my income in the right places?” and your advisor says, “Yeah. You’re doing great.” Say, “Well, what percentage of my income am I saving? For my income level, is that a good percentage?”

Ryan Isaac:: Yeah. What am I spending per year?

Reese Harper: What am I spending per year? Is that good or not? Is that too much or too little. It has to get past the surface level.

Ryan Isaac:: The invitation being that if you feel you’re not having those conversations and would like to, reach out. We’d love to talk to you. You can call us on our new fancy phone number. Justin?

Justin Copier: 833-DDSPlans.

Ryan Isaac:: Yes, makes me so happy. Our fancy phone number. You could go to our website, DentistAdvisors.com. There’s a link at the top where you can schedule an appointment to talk with us at your convenience. If you want to make a comment or question on episodes, what can they do, Reese?

Reese Harper: They can do that on our website.

Justin Copier: Yeah. DentistAdvisors.com/listen.

Reese Harper: I don’t do any of that stuff.

Ryan Isaac:: Yeah, so I’ll say it. DentistAdvisors.com/listen. Find the episode, comment, leave a question. We’d love to hear from you. Thanks for listening.

Reese Harper: Carry on.

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