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Dentist Money™ What Should You Look For in a Financial Advisor? (Part 1) – Episode 11


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Choosing a financial advisor is one of the most important decisions you will ever make. The person you hire to manage your wealth will be largely responsible for how well you retire. And unless you know what to look for, you may never know the difference between good and bad advice. This episode is the first in a two-part series which explains the questions you should ask – and the answers you should expect – when hiring a potential financial advisor.

Podcast Transcription:

This is Dentist Money, now here is 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, and this is my co-host, Ryan Isaac. I’m excited to do another show today.

Ryan Isaac: I’m really excited today!

Reese Harper: I wanted to announce this show with a pretty big introduction because I’m excited about it. It is a two part series.

Ryan Isaac: Ya, two.

Reese Harper: A two part series on how to choose the right financial advisor. We have thought through this a lot and I think anyone regardless of whether they use Dentist Advisors or somebody else will find this helpful. They are going to find someone that they can trust by listening to these tips. We are going to hit four of them on this episode and six on episode two. We want to keep these a little bit shorter. I know you commuters don’t want to listen to these hour long runners.

Ryan Isaac: But there are a few marathon runners out there…

Reese Harper: True. There are some people out there running for a really long time. For the rest of us, who don’t move off the couch to exercise, just going from recliner to the love seat, this is for you.

Ryan Isaac: This is for us.

Reese Harper: I’m going to let you get started with the story behind the podcast today.

Ryan Isaac: Ya, we are going to start by talking about the term which is two very big words, I’ll speak slowly here: cognitive dissonance. I did pronounce that correctly, didn’t I?

Reese Harper: I’ll just be quiet. I remember this from the CFP test, there was some behavioral finance terms. You know a lot more about this than I do.

Ryan Isaac: Ya, behavior is fascinating, what does it mean?

Reese Harper: It has something to do with second guessing yourself, or confusion, you think one thing but really the right answer is something else? I don’t want to say, you are just being dumb, but that might be how I explain it.

Ryan Isaac: That would be the blunt way to say it.

Reese Harper: If you have cognitive dissonance, something about your brain is fuzzy. One of the ways is through things that people purchase. I am a financial advisor but I am not perfect, so I can relate to buyers remorse.

Ryan Isaac: Have you purchased any root beer, pizza, or farm equipment?

Reese Harper: I recently had someone install a shed door on my shed, so I can pull my four wheeler in, and I kind of have remorse about that because it wasn’t installed correctly.

Ryan Isaac: Do you wish you would have done it yourself? Did you just not find the right guy?

Reese Harper: I would call it user error on the install. I think I would have liked to pay a little bit more for a better install job.

Ryan Isaac: I think we have all bought things big and small that we regret.

Reese Harper: Do I have to be the only one who says something here??

Ryan Isaac: No, How about my first house? I really regret jumping into that. In 2006…

Reese Harper: I think we all have a housing story, where we say, I regret that…
At least if you have “that rental”, you know what I’m talking about.

Ryan Isaac: So what do we learn from this, what do we learn from cognitive dissonance, or buyers remorse.

Reese Harper: The point of this is that you need to spend time researching your major decision. You do your research and you will get it right, You don’t do your research and you do it quickly you won’t. Now if we are deciding between a Snickers and a Twix at the checkout, go with the gut.

Ryan Isaac: Although, I was in Denver last week with you after you spoke at the dental meeting and we were hungry and we were getting a snack at a gas station and we spent a significant amount of time in that treat isle. In fact, you almost convinced me to put my stuff down and walk away to another place up the street that might have been better.

Reese Harper: You do your research and think about it. I think I’m a little overkill on my research and that’s what you want to find. But I guess I did spend thirty minutes trying to figure out what I wanted for dinner at a 711. Thats a little absurd, ok it wasn’t that long, but it was intense.

Ryan Isaac: Ok, so our point today or for the next two episodes. We want to get the point across that choosing a financial advisor is one of the biggest decisions you will ever make. They will help you with things like your investments, investment accounts over decades, over strategic retirement planning.

Reese Harper: Ya, planning for retirement making the right financial decision for your kids.

Ryan Isaac: avoiding big mistakes

Reese Harper: determining your debt strategy, looking at your practice and determining whether you should incur different consulting expenses. These are massive decisions.

Ryan Isaac: Ya, big time. And there is a big gap between a good advisor that can lead you in a good direction and a bad one that will just sell you stuff and not really lead you anywhere.

Reese Harper: Bottom line is we are talking primarily about financial advisors. We aren’t talking about CPA’s today even though those are good financial advisors. Which financial advisor are you going to work with because that person will have a big influence on the strategy that you implement.

Ryan Isaac: We are going to spend the next two shows then covering ten questions. We should get through 3-4 of them today and then the rest of them next time. The first one is, and these are questions you would want to pose to a financial advisor. You wrote these in an article last year right?

Reese Harper: Ya, its on our blog. Nice plug, cheap skate.

Ryan Isaac: Ok, so question number one is, you want to ask the guy, “what type of clients do you actually work with?”.

Reese Harper: Yes, this is crucial. It might sound like the dumbest question ever, but if your financial advisor works with multiple types of people it changes things. He can work with a few types of people, but if he says, “ya, I work with dentists” and we are talking like two or one?

Ryan Isaac: It is a popular response. Ya, I work with dentists… and doctors and vets and chiropractors. Like those things are the same?

Reese Harper: One has a W2 and he works for a hospital and he has no decisions to make about a business.

Ryan Isaac: The other guy puts dogs down.

Reese Harper: The other guy is an independent animal specialist, another guy… You see? These are very different occupations. So the financial strategy they are going to recommend is not the same. Mutual funds here are not a financial plan. Don’t get confused, products are not planning. Make sure your guy has experience with people actually like you and each specialist is different. Pedo, and Endo are not the same. Working as a general dentist, if your guy has an orthodontist as a client or if you are an orthodontist, he has no other orthodontist as clients then you are not going to get the same level of insight. That doesn’t mean he cant do a good job, but there is going to be a gap as to how deep he can go.

Ryan Isaac: There will be a limit to his own experience dealing with questions. Like, Should I hire a consultant?? I just talked to this guy who had a consultant for 8 months who helped build his practice and then told him to hire an associate and here’s how you are going to do it. Then a lot of confusion came in. If you are not working with anyone who has ever seen an associate come into a practice and then they don’t know how long that actually takes.

Reese Harper: Primarily, the thing we are trying to get at here is if your advisor has worked with a lot of people like you he can anticipate problems that you have never seen. Because when you are 33 you don’t know what its going to feel like when you are 42 and when you are 40 you don’t know how it will feel when your 50. You think you do, because I know I sure did.

Ryan Isaac: Wise old sage now.

Reese Harper: Now I’m wise, of course, very, and I don’t know what life is going to be like ten years out. Even though I can guess. It helps to work with someone who’s seen those phases of life and can help determine when and what challenges you are going to have to anticipate. Anticipating future challenges is the primary reason I think that you work with a financial advisor. As well as determining the right strategy for your specific problems you face as a dentist. I mean, you got the debt issues that dentist’s face.

Ryan Isaac: Very different from other people.

Reese Harper: Dentist’s manage a business and that is very different form someone else who just receives a paycheck from the hospital.

Ryan Isaac: If you don’t have any context about how the practice runs, its just going to be very different. It’s super important, probably enough on that one.

Reese Harper: Well, another show. Last thing, this is important. A lot of financial advisors have these general principles that they assume apply to everyone. So they literally just plain vanilla a hundred different occupations. I respect a financial advisor who develops an expertise an a given area. They don’t have to pick one client like we did, but it should be a focus. If we weren’t working with people in one occupation, I know we wouldn’t be doing the same quality of job. So I’m glad we did, but in some markets I think there are good financial advisors who haven’t exclusively picked one customer type. However, they need some specialty.

Ryan Isaac: Question number two, you want to ask somebody, “How are you paid?” or “How do you make money?”.

Reese Harper: How are you paid? Hmm, why would that matter?

Ryan Isaac: How about, “tell me exactly how you are paid.”

Reese Harper: Let’s let you hit on that a little bit man.

Ryan Isaac: Well, our industry is an old industry. It is a pretty traditional industry that has worked the same way for a long period of time. For a lot of that time people were paid on commissions from selling products. You said a line in the last question that I think if we had enough fans we could make bumper stickers out of, “products are not planning”. I wonder who would use that bumper sticker?

Reese Harper: No one, its not cool enough.

Ryan Isaac: Tee Shirts?

Reese Harper: Tee shirts, good one, and no.

Ryan Isaac: Products are not planning. I think that is where our industry often gets it wrong. Products are pushed because thats where a lot of the margin is and it’s easy and you don’t have to focus on a certain person you can just sell stuff.

Reese Harper: You can develop an expertise on a pitch around a product. Ahem, “my pitch is telling you why this product is going to save your life”. I mean, we were just joking about this yesterday with a client. He had all of these financial problems, but ya know, six months ago there was a financial advisor in his life that was telling him that a particular product would (not to throw whole life insurance under the bus completely, but I will 90% of the time) save his financial life. This guy was convinced at the time that the financial advisor was right, that this whole life insurance was going to solve his complete financial planning problem. We are talking about debt structure, cash flow, hiring. Ya, there was much more issues to the underpinnings of his financial plan. Whether or not this person should sell their practice, or bring on an associate, or expand or leave, or how much cash they actually have left over, do they have adequate liquidity?? And the focus from the “quote, unquote” advisor is just, “here is this product, its going to fix all your problems”. They might also talk about tax benefits and differed taxation and the client starts thinking that this might be the key. “Maybe I’ve found it!” If you ever find yourself thinking that a product is the solution, stop. That’s not financial planning.

Ryan Isaac: Cognitive dissonance.

Reese Harper: You can do all the financial planning you need to retire on time, literally, by making good decisions and putting all of your money in a bank account. You don’t have to invest your money, and in most cases, I would argue…

Ryan Isaac: This is an investing podcast, that is blasphemy!

Reese Harper: But in a lot of cases, people would be better off to never have bought anything or invest in anything, but just to stockpile it.

Ryan Isaac: We had lunch with a CPA a few years ago, here locally, who told us that was his plan. Do you remember that?

Reese Harper: Ya, totally.

Ryan Isaac: He had it in like three different bank accounts, and he saved enough!

Reese Harper: So the question you ask is, “how are you compensated?”.
Bottom line is, don’t work with someone who is getting paid to sell you something. That is a product. If they get compensated when you buy something from them, you are just not going to get the best advice you can get. On one hand, you are going to get absolutely horrible advice if you worked with the wrong person in that model. Best case scenario? You are still working with someone who is struggling to not sell you something because they are just your friend and they are trying to be nice, but they need to sell you something, but they don’t want to push too hard because they are your buddy. That’s your best case scenario. You have got to pay someone for their time. They should be paid to tell you don’t invest just as much as they get paid to tell you to invest. There has got to be a good incentive.

Ryan Isaac: Weekly, I find good planning and a conversation with a client is telling them something they don’t want to hear. You’re not even being agreeable.

Reese Harper: Ya, and it sucks to tell people something they don’t want to hear!

Ryan Isaac: I mean, how often do you have an awkward conversation where there is a little tension because you are saying something that someone doesn’t want to hear and they are paying you to tell them that!

Reese Harper: The bottom line on this, there are three types of advisors out there. One is going to get paid on commission, one gets paid on fees and commission, and one gets paid on only fees. I, at this point in my career, don’t really have a problem with someone getting paid on commission or fees/commission or only fees. I mean, I have met good people in every model. We have chosen not to collect commission, but I don’t want to throw anyone else under the bus. Just Do your research and know that if someone is getting paid on commission, make sure that you understand if your whole relationship with them revolves around the products they are talking to you about. And if they are not getting paid to give you advice at all, they are not going to be able to build intellectual capital or competency around the quality of advice. They are only building skills around a product. Important to remember.

Ryan Isaac: That feels like it could be its own show.

Reese Harper: Good people out there listening stay tuned for #3!

Ryan Isaac: Ok, third question, “what do you do? What are your services?”.

Reese Harper: Let’s let you hit this one.

Ryan Isaac: Why would you ask, “what are your services?”. I always think about the consulting model with dentists that you hear a lot about. We have some really talented and very helpful consulting friends, this isn’t specific to dental services. This is consulting in general. Where you hear, “we are just going to fix everything”. Something really broad and general like, “you pay this much money, I am going to fix all of the stuff that’s wrong”. I just know how much time we have spent, you know, you have been at this for 10 plus years and I’ve been going for 7-8 of those. I think of how much time we have spent on really specific processes, we can’t do it all. Financial planning investments. I guess this is how it applies in our industry, we do financial planning investments. What that typically means is that we set up investment accounts for you and we set up reports on the performing of that and we call that planning. I think the egg in general is what I’m saying.

Reese Harper: Ya, when someone says they are doing financial planning it doesn’t really mean a lot because financial planning doesn’t seem to have a true definition. It is applied very differently from firm to firm. I mean someone thinks financial planning could be reactively meeting with you when you call them. Or you might hear the advisor say, “I have an annual review or a quarterly review with all of my clients”. Does he make sure that review happens? Is that review up to you to call him to do it? What does he do at that review? Is this just getting together over lunch to chat and catch up? Or does that meeting have a function to it that is more than just catching up?

Ryan Isaac: Well, and when you show up to that review is the person prepared before hand. Does he already have the data and the insight to give you answers in real time? Or are you bringing paperwork and stacks of stuff?

Reese Harper: Ya, are you telling him whats happened for the last three months? Or does he know whats happened. How is he keeping track of you, and knowing whats going on in your life. I think that our advice would be that financial advisors who do work with multiple types of clients are going to have a harder time being proactive at a meeting and showing up prepared and doing something specific. They won’t be able to do something specific. I really feel like it is important for financial advisors to have a clear service model. If they can’t provide that to you in great detail and tell you exactly what you are going to get that thats trouble. I mean that is why people are mad about the investment advisor industry. People listening to this probably have a financial advisor guy and they are paying 1% or 2% to him. You are paying against your money for “quote/unquote” financial planning, but what you get for that is so different from firm to firm. You have to start asking that question, “what am I getting for what I’m paying?” because no one likes paying for service that they don’t like to pay for. If you are paying 1% for something or you are paying some fee, what is the deliverable? If you are paying hourly or a flat fee, what is the deliverable? Just make sure you know what they are delivering. A lot of people say “it’s for financial planning, so pay us and we will move on”. Ultimately, I think these are really good, core issues to discuss.

Ryan Isaac: Ok, so, fourth question, and I’m sure we will do a follow up show on this all by itself or maybe multiple, what is your investment philosophy and methodology? In this industry you can turn on CNBC and you will get four different opinions in one hour.

Reese Harper: I mean, big picture, because we just can’t dive too deep into this. I think if they knew two things about the investment world, these would be two things to know. I would bet around half of the investment world thinks that the way to invest money is through anticipating future events, future prices of markets, and future expectations about whats going to happen..

Ryan Isaac: Well back into CNBC they have the after lunch tray, the closing bell…

Reese Harper: Yes, and savvy dentists know that this is one methodology. They know that this is one way people think about the world, it doesn’t mean these people are dumb or that they don’t know what they are talking about. It means that they have a strong conviction in their own ability to anticipate future events and they try to take advantage of different investments because of the way they see the future. The other investment camp believes that that’s a waste of money and time, generally. Thats the simple way to put it. They feel like it’s a waste of money and time to try and anticipate the future. Doesn’t mean that there are not things that you can’t approximate or have a pretty good guess at, but the amount of money and time you spend trying to anticipate the future is expensive. So ultimately, as an investor, you have to make a decision you have got to decide if you want to spend extra money or time in your life trying to figure out what the future will hold and take advantage of that to try to get better returns or do you want to accept the fact that by investing your money in a way that is called, indexing, you might get some high and lows. This is where you kind of own a basket of securities that you are just going to accept the ride that this gives you and kind of say you know I’m not going to try to change the outcome of whether I get better or worse than what that basket of securities gives me. I am just going to own that, and I am going to experience that ride. It has been our experience and our research that too many dentists spend time obsessing over their investments trying to anticipate the future. Believe it or not, you will find a lot of people that do trading in their offices and pick stocks and spend productive time of their day trying to make their money grow faster. That’s not how most people should invest their money at a retail level. There are differences in how large institutions might invest and big giant pools of money, but when it comes to someone saving a small sum of money over the course of two years? Your real goal should be minimizing costs, fees, and taxes not trying to anticipate the future. We would define this probably as what we call active management or forecasting or indexing or passive investing. Those two are broad spectrums. You know the investment advisory world will get a little carried away that it is more complicated than that, but it really boils down to that. It’s not that much more complicated then that. We will have a whole series of podcasts on this, but your investments are super important. Don’t get overly caught up in that because that is the messaging of marketing and advertising and sales people trying to convince you to focus on one thing when really the root of the problem is your savings rate, your tax rate, your burn rate, your current net worth or your behavior. That’s the thing to focus on, not this.

Ryan Isaac: Ok, anything else you want to say about that?

Reese Harper: That is a long one, I mean, do you want to add something?? That took like four minutes..

Ryan Isaac: I don’t know, the way I like to think about this is, it is helpful and it is healthy if you just understand what you are going into before you go into it. I think there is less pressure to try to manipulate or outperform something. I mean, there is a very healthy body of research in academia out there, very intelligent people, that for years have said “look, at these reasonable costs, at these reasonable levels of risk you can expect to get these types of returns” ya know?

Reese Harper: It is more predictable then you feel like it is.

Ryan Isaac: And I think if a dentist understands all of the moving parts and how his savings rate plays a part in that, his spending rate, his tax and debts, and all of those things in conjunction with what a market will give him over 30 years at a very reasonable cost and very reasonable liquidity and risk, it is more than enough to end up just fine.

Reese Harper: Ya, totally.

Ryan Isaac: You don’t have to try to outsmart anything.

Reese Harper: Thats awesome. We are off to a great start on this topic. I love it. I mean choosing the right financial advisor is definitely one of the most important decision you will make in your career because that person will affect the way you see the world. If you hire the CNBC guy you are going to go around thinking..well, it’s gonna change the view of the world. Every three months you are going to be doing something new with your money.

Ryan Isaac: In the mean time go to our website dentistadvisors.com. On the blog there we have this article listed. It has got the ten questions, we will hit the rest of these in the next show. You can sign up for the newsletter, its free. We have ya know video, audio, and articles coming out all of the time. Or if you ever want to talk to someone, Reese…Can they call us?

Reese Harper: Yes, go to the website, schedule an appointment, and you will see our schedule. Leave reviews for us from articles and podcasts we would love to know what subjects you would like to hear more about.

Ryan Isaac: Ok!

Reese Harper: Carry on, See ya later!

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