Here’s What You Should Know About How Your Financial Advisor Gets Paid

On this episode of The Dentist Money Show, Matt breaks down what dentists need to know about the financial advising industry, from how advisors are compensated to the different service models, and the real value they provide. He explains why transparency matters, how incentive structures can influence advice, and why dentists should evaluate their current advisors based on both the services they receive and the fees they pay. If you’re looking for guidance from a financial advisor, you can schedule a free consultation with us here.

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Podcast Transcript

Matt Mulcock:
Welcome to the Dentist Money Show where we help Dentist make smart financial decisions. I’m your host today, a guy named Matt. And that’s it. It’s just me today. So we’re going to try something new. We’re going out on a limb here. I’m going to test this out. And this has to do with four of my favorite movies of all time for easily top 20. Couple of these are easily top 10. Maybe they’re all top 10. I don’t know. But the four movies are Ferris Bueller’s Day Off, Fight Club, The Big Short and Deadpool. Easily. I’m looking at it. I’m like Ferris Bueller’s for sure top 10 Fight Club. Yes. The Big Short, maybe not top 10 Deadpool. I think it is top 10. Either way, favorite movies. They they all have something in common and that is that

They break the fourth wall. And that’s what we’re trying today. You guys are very accustomed to, you know, me, either me or Ryan or Ryan and the guest or me and a guest or the other advisors kind of, you know, Christine, whatever it may be us having a conversation and you guys listening in on that conversation today, we’re going to change it up and I’m going to talk to you directly. The listener, you know, the dentist or maybe you’re not a dentist. I know we’ve got a lot of spouses you know, the non dental spouse that listens, whoever you are, we appreciate you. And I’m going to just speak directly to you. And if you hate it, we want to know. We’re happy to to never do this again. This might be a one and done situation. That’s OK. We will we’ll kill the idea if we need to. But we’re we’re giving it a shot. So today we’re going to be talking about how advisors are paid, a little bit about the industry and why it matters to you as a dentist. Before we do that, I want to hit some housekeeping. If you may already know by now, but if you don’t, we’re having the third annual Dentist Money Summit, not in Park City this year, it’s in Midway, Utah. If you don’t know Midway, it’s a little bit past Park City. If you’re out of the state, you can basically just think of it as Park City, still up in the beautiful mountains of Utah. Actually a better setup, to be honest, for what we’re trying to accomplish, which is make the main kind of attraction be the, ⁓ the summer in the mountains in Utah. ⁓ you know, get out, bring your family, bring your friends, bring your team, ⁓ come golf. We’re going to be facilitating some golfing, ⁓ get up in the mountains on a side-by-side or an ATV. We’re going to have a ton of different activities out there. So that’s really the main focus honestly, is make this very different event for dentists where you feel like it’s almost a vacation. Well, you know, but also you can get some C.E. and listen to some amazing speakers you probably already know by now, hopefully, but cash GPT. We know and we love them. Rabih Dimachki is going to be speaking this year. I am so excited for that. Dr. Daniel Crosby is back this year along with some other amazing speakers. So we’d love to have you there. I think one of the underrated parts of these types of events as well is justgetting to be there with like-minded dentists. We saw last year, it was actually really cool. We saw a lot of friendships start, truly. Dentists who didn’t know each other, who met, hung out the whole weekend. We saw them at the after party and it was just so cool to see ⁓ things like that. think a lot of the value of these types of events that we’re trying to help kind of put on and facilitate is the people you meet there.

In the audience the other dentist so we’d love to have you there if you have if you have questions or want more information Go to dentistmoneysummit.com and come out hang out this in June Okay, want to jump in start with a quote weird. I’ve become the quote guy. Don’t know if I have an original thought in my head. I just accept it. I own it I like to share the brilliance that has come before me via quotes. And this quote from Charlie Munger is one of my favorites. That is, show me the incentive. I’ll show you the outcome. And I think this kind of sets up this podcast really well. We talk about the industry financial advising, just the power of incentives and the outcomes and the behavior that it creates. And that’s really what we’re talking about here when we talk about my industry, our industry being the financial advising space. The tricky part, you may have heard this in the past as we talk about this, but the tricky part with the financial advising space, and we’ll just compare that to dentistry, because that’s who we work with. ⁓ There’s a lot of huge differences here. And the biggest one being the barrier to entry. And that’s one of the biggest issues that I have in the for the financial advising space is it doesn’t take a lot to call yourself an advisor. And that’s a problem when there’s such a massive information gap. A lot of this by design, by the way, but a massive information gap as far as like who what an advisor does, you know, how are they paid and why does that matter? Like a lot of this is by design. But there’s the barrier to entry here for just talk about that for a moment. If I go to a dentist all you dentists listening, as you know, there’s a pretty standard barrier to entry to earn that DDS or DMD. And patients know that they don’t know the details, but they know there’s a barrier to entry. can’t just, you know, you don’t get that over a weekend and the patient base kind of knows that. So there is a, I think a layer of trust there. Although of course, like any profession, there’s, good and bad and everything in between. But the barrier to entry creates a level of trust overall, I think. That’s not the case with the financial advising space where the barrier to entry, to call yourself an advisor at its core, the base foundational level, for someone to call themselves a financial advisor, it’s a high school diploma. know, nothing wrong with that. Loved high school. But high school diploma and a pretty straightforward test, you know. not not difficult to get yourself licensed at a base level to go ahead and start giving people advice on one of the most important areas of their life, is money and wealth and investing. So that’s a problem in and of itself. We at Dentist Advisors have taken ⁓ strides and we put a lot of effort into raising that barrier to entry at least for people who work with or advisors who work with us for us.

And that is that every advisor who works for us is a certified financial planner. And that is far more extensive college degree requirement, ⁓ thousands of hours of experience, ⁓ years of study and then a pretty extensive test in order to call you to get those credentials of being a certified financial planner professional. So we’ve done our best to increase that barrier to entry. But it may. But if you’re out there listening. and you’re either working with an advisor or thinking about it at some point in the future. We highly recommend and we think there’s a lot of value there. But we also understand that it’s it’s it’s hard because you talk to 10, 20, 30, 100 different advisors. You’re going to get a lot of different answers as far as what they do, how they do it, how they’re paid. It’s tough compared to the dental space. So Part of this discussion or part of I shouldn’t say discussion part of this podcast is to hopefully dispel at least part of this being the incentive piece. And it’s really critical to understand how advisors are paid as you’re out there exploring your options or thinking about hiring somebody. You really want to know how advisors are paid. So ⁓ this part is actually not super complicated. I think this is really helpful, hopefully, to demystify this. There’s really only three ways that advisors are paid. So the first and ⁓ probably the biggest portion of the advisor space is a commission based advisor. ⁓ So this is, you know, think of the insurance guy who calls themselves an advisor, but really what they do is sell you insurance products. And it’s really insurance at this point. Back in the day, it used to be, you know, more maybe investment type stuff like stockbrokers used to be a thing. That’s a kind of all gone away. There’s no more stockbrokers. Gordon Gecko, 1980s type stuff. most commission based advisors are almost always selling insurance. So I think it’s important to understand that we, myself and Dentist advisors, we are not against this structure at its core. It’s inherently not a bad thing.

If I go to buy a car, if I go to the dealership, which that’s a whole other discussion, absolutely hate going to a car dealership, but I’ve done it many times to buy a car. So if you go to a car dealership or in the dental space, right, if you go to a bank, you go to Bank of America, whoever to get a loan for a practice purchase or an expansion project, you buy a house. There are certain areas of our life that we know there’s going to be, like we know what that transaction looks like. And we know what it results in, which is this person helping with this transaction is gonna get paid a commission. And they should, that’s okay, that’s how they’re paid. Even insurance, I have no problem. We at Dentist Advisors ⁓ advise on insurance, we don’t sell it, but we advise and we use different partners, different professionals in the space to help transact that business and they are paid a commission. That is totally fine. If you’re listening, you have insurance of some kind. I have an insurance broker. You get it. Like we all understand that there are situations where there’s nothing wrong with someone getting paid a commission. Where I struggle with this in the financial advising space is the non-transparency part of it is that again, using any of those examples I just said, if I go to a car dealership or if I’m going to if you’re a dentist going to get a loan, both parties and the whole thing is pretty transparent. Like we know what’s happening in this case of someone calling themselves an advisor, claiming that they’re doing planning, you know, using a lot of buzzwords. But in reality, at end of the day, they’re selling you a commission based product. And I can’t even tell you how many times how many dentists I’ve talked to who’ve had this experience who have then come to us to who’ve had the experience of like, I thought I was getting this, but really what I got was that, which that being they sold me a whole life policy and I never saw him again, never talked to him again. And I thought I was getting planning, but that’s not really what I got. We get that, that type of story comes to us. I can’t even tell you how many times every single year. And so that’s where I struggle with this. And it’s not, by the way, it’s not the people either. I’ve got no problem with.

For the most part, the people, they’re not bad people who are in this kind of category. It’s the incentive structure. If you’re paid to sell an insurance product, that insurance product is going to be the thing they sell you. And so that’s where we struggle. And it’s more so just trying to open people’s eyes to understand what it is. And again, you need insurance in a lot of areas of your life, but that person selling you insurance for the most part should not be claiming they’re going to help you through kind of if your comprehensive holistic plan. So that’s commission based. Good chunk of this base is still commission based. I want to jump to the third. Actually, I’m going to leave the middle group and you’ll know why here in a second. But the third group. So commission based number one. The third group is where Dentist Advisors falls, which is a fee only fiduciary advisor. So about 15 % of the space can call themselves fee only. And fee only is very specific language that you, this can get confused. This is why I skipped group number two, because ⁓ you’ll know why here in a second of this gets confusing, but fee only, way, the only way. an RAA or company like ours, an advisor can call themselves fee only is if they take, they accept no commissions, they they sell no products and they take no kickbacks. That legally is the governing body who governs our space. That is the actual legal language to call yourself, to actually call yourself legally a fiduciary, fee only fiduciary. You cannot sell products and you cannot take kickbacks. You might hear that and say, well, duh, like that seems obvious. Are advisors taking kickbacks? The answer to that is absolutely they are. And you never really know because again, it’s non-transparent a lot of times again by design. But a good example of this is in the dental space, an advisor helps you with a loan. Lending is really big because banks will do this. Banks.

This is a huge way they get business is they go to advisors and they’ll say, hey, we’ll pay a percentage of the loan if you, ⁓ if you, you know, originate that with us. So they build relationships with advisors, advisors, you think trying to be neutral or they are being neutral, but they’re really just funneling business to one bank and then getting pretty significant kickbacks. ⁓ Same thing with insurance. Even if they don’t sell insurance, sometimes they have those relationships with these groups. ⁓ But a fee only advisor. A fiduciary fee only advisor can only be paid directly from their client. And there’s a couple of ways that they can do that. The most common is asset tender management. Dentist advisors has a fee structure like this. The other is planning fees. Some do the mix and match. Some do just one or the other. Either way, are getting you are paying directly for those services. And you are not that advisor who’s in the fee only camp is not being ⁓ paid in any other way. So it’s the most, in our opinion, the most transparent way to do it. Even though, like again, like us and a lot of advisors out there are gonna give you comprehensive advice on things like ⁓ insurance or lending or whatever it may be, they’re not getting, we and advisors in this camp are not getting paid for that. So although it’s not perfect, it’s not saying there are zero conflicts of interest. think in any business relationship, there’s always going to be some inherent level of conflict of interest, depending on how you define that. But we believe the reason we do this and we’re in this camp is we believe it’s the best way to minimize conflict of interest to its lowest form. So we’ve got commission based, we’ve got fee only fiduciary kind of two ends of the spectrum. The middle group is the most confusing.

And the most I’m not going to say dangerous. I mean, I just did. ⁓ It’s the most concerning and the one you’ve got to be the most aware of. This is the world I lived in. I worked for Fidelity Investments for five years before joining Dentist Advisors. This was what this was the camp I fell in. And a lot of these big, big companies, a Fidelity or Schwab or groups like that, their advisors are going to fit into this camp. And it’s called dually Registered. And what This means is you, these advisors can have their foot both in the commission based camp and in the fee only camp. So, and there was specific language that we used at Fidelity and all these groups do it where, you you have to, you know, before you as they call it at Fidelity, switch your hat. So I’m putting on my fee only hat now and I’m taking that hat off. Now I’m putting on my commission hat so I can sell you an annuity. They had to say certain things. So I could check the box of compliance to say, I’m now I am now in the commission camp. I’m now in the field. can’t. So in this group, this is where it gets confusing compared to what I said earlier about the fee only. They’ll call themselves fee based. And I can’t tell you how many times I’ve had a dentist confuse these two like, yeah, you’re fee based. And I’m like, no, no, no, that’s very specific. It’s tough. Again, by design, this gets really confusing and opaque.

But if they’re saying they’re fee based, they’re using that language to try to confuse you with third camp of fee only. But fee based is not the same thing. It means they can charge you fees and they can also sell you products. So that that can get confusing. So those are the three ways commission based selling your products, ⁓ a fee only fiduciary advisor only getting paid directly from you. No kickbacks, no commissions. And then there’s a dually registered that can kind of do both. They can sell commission based products and they can charge you, let’s say assets and remand fees. So that’s really it. That’s the three ways that they’re paid. So hopefully that helps kind of demystify some of this. So the question now is like, why does this matter? I think it comes back to this quote, Charlie Munger quote of show me the incentive. I’ll show you the outcome. And I think it matters because at the very least you just, want to know what your paying for, why? think it’s always, if you’re going to hire an advisor, and we have this on the website of 10 questions to ask you before hiring an advisor, but a big, big one is how are you paid? And you just want to understand where their incentives lie. And it doesn’t mean that, the biggest thing is just transparency, just understanding where are you incentivized? Am I okay with that or am I not? And then make an informed decision.

Our goal always with our content, everything we do with this type of topic or any others that we do is just to close that information gap as much as possible for you. So you’re empowered to make good decisions. And this is a big part of that. So the other last part of this that I want to hit. ⁓ So the whole first part of this is talking about like how advisors are paid. Why does that matter? The other part of this is what are you actually getting? So there’s one thing to understand how people are paid, but even within, let’s say, the fee only space. So 15 % of the industry roughly is in the fee only space where Dentist Advisors is in, also there, so the pay structure is very similar. But it’s like, again, what are you getting for that? So I talked to a dentist recently, not a client. She was calling us to she was out. She had a consultation. ⁓ Later in career, dentist, her and her husband actually were both dentists and she again, we had a consultation and she was telling me her situation and she was asking me a lot of questions around her business. She had some big decisions coming up around her building, what to do with it, exiting just a lot of these sort of big questions. And so we’re going through her situation and I’m kind of just asking her questions, understanding more what she was what was going on in her life. And then she says, oh, I’m working with and I won’t name the company, but she says, I’ve been working with very, very big R.A. very well known. Their field need their field, the firm much bigger than Dentist Advisors, huge. And she says, I’ve been working with them for years. I said, oh, And we’ve been talking for up to this point, 25 minutes. And that confused me. was like, so I responded with, okay, ⁓ what does your advisor think of these things that you’ve brought up to me? And she said, I don’t think he can really help me with this. He I’ve tried and it’s just, what he does. That shocked me because I know this firm really well. And you know, they’re fee only firm. They’re not exactly cheap. And I was just very confused at again, you take let’s say this group and us, know, Dentist advisors or group a company a company B, you may be paying the same or slightly more. that’s whatever. And I think a lot of dentists and people in general, but dentists specifically focus a lot on just the price. Like what what are you charging versus this company?

Without necessarily thinking, even though they understand it theoretically, like, yeah, of course, get what you pay for, whatever. But I don’t know if they actually, their actions often line up with the fact that they’re paying the same, but they’re not getting what they actually need and want out of this relationship. ⁓ So that shot, this was just recently, and that shocked me. I was like, this is what your advisor should be doing. If you’re working with an advisor and they’re not helping you with decisions around buying a building or not buying a building, how to exit your practice, ⁓ should you add an extra op, should you expand to another location? These are the things that dentists, should you add an associate, should you sell to an associate, how do you structure a seller and associate? All the other stuff, of course, goes without saying, table stakes, 401Ks, IRAs, back to a Roth conversions, investing. All those things are table stakes, of course, but if your advisor is not helping you with those things, that’s a problem. That would be an issue that you should be considering and reevaluating. If you’ve got some big existential career type decisions to make and you can’t go to your advisor who you’re paying a fee to, to have these discussions, I would be second guessing that relationship a little bit and what they’re actually doing for you and the value that you’re getting. Heard this a long time ago in my career, years, probably a decade ago. It’s always stuck with me. It resonated with me. I don’t know if it resonates with you, but this idea that price only matters in the absence of value. So I think that’s another way of saying is, again, you get what you pay for and there’s two parts of the equation. Fee structure, how people are paid matters. The incentive structure matters, but what you’re getting out of that relationship and for that fee matters almost even, I’d say matters more matters more. hopefully this is helpful, guys. I really appreciate if you’re still listening, you’re one of the cool ones. We, you know, I’m taking a chance here with this kind of solo cast. If this is helpful, and if you are out there, sitting there thinking, either with an advisor or not with an advisor and thinking I need help. I just want to ask some questions in a really low low stress, like low pressure, low risk environment. Like we are here to help. We talked to probably 400 dentists every single year about their situation. you know, that if we answer their questions, we point them in the right direction. We’d love to hear your story. If you were out there and you’ve been thinking, I need help. I’ve been nervous to call them. I don’t know what it’s going to be like. I would say get on dentistadvisors.com click on the free consultation button. We, you’ll get one of our friendly advisors. We’d be happy to talk to you and help answer your questions. So for now, everyone, thanks for listening. We’d love to see you at the summit. We’d love to see you in a consultation. Hopefully this is helpful. Please give us your feedback. If you don’t love this format, totally okay. Let us know. It won’t be every time. We will do this not super frequently, but maybe every once in a while we’ll do a solo cast. Until next time, have a great day. Bye-bye.

Keywords: financial advisors, dentist financial planning, advisor compensation, fee-only advisors, commission-based advisors, fiduciary duty, advisor transparency, financial planning for dentists.